Contract farming and its implications for input-supply, linkages between markets and farmers in Karnataka

This study is focused on the economic analysis of contract farming with a comparison of income, access to technology and credit of contract and non-contract farmers. The advantages of contract farming for smallholders have also been evaluated. In contract farming, quality inputs such as seeds, fertilizers and plant protection chemicals are provided to the farmers at their farm gate, coupled with the technical advice on production aspects. This not only reduces the working capital needs of farmers but also substantially reduces their transaction cost per unit of output. Borrowing of crop loans has been found 33 per cent higher by non-contract farmers than contract farmers, as the former have to buy material inputs. The net returns have been found higher for contract than non-contract farmers. Within contract farming, net returns have been recorded higher under domestic than foreign contracts for both baby corn and chilli. In the case of non-contract farmers, the net returns (Rs 3,035) have been found less than one-third of domestic contract farmers (Rs 10,610) and slightly more than one-third of foreign contract farmers (Rs 8,050). In the case of chilli also, the net returns realized per acre have been recorded maximum under domestic contract farmers, followed by foreign contract farmers and non-contract farmers. The returns per rupee invested have been noted higher in farming of baby corn in all the three categories than those of chilli farming. The constraints identified in the study include delay in payment and delivery of inputs, delay in lifting the produce, access to seeds, manupulation of grades by the buyers, and high cost of inputs in contract farming. Factors inducing farmers into contract are: low initial investment, better price for the produce, access to market, technical support on package of practices, access to inputs and easy transportation facilities.