Contract Farming – Meaning & Example
Contract farming is an agreement between a farmer and a buyer (company, exporter, or processor) where the farmer agrees to grow a specific crop for the buyer under predetermined conditions, such as price, quality, and quantity.
Key Features of Contract Farming:
✅ Assured Market & Price: Farmers get a pre-fixed price for their produce.
✅ Input Support: The buyer may provide seeds, fertilizers, and technical guidance.
✅ Quality Standards: Farmers must meet the quality requirements of the buyer.
✅ Risk Reduction: Farmers are protected from price fluctuations in open markets.
Example of Contract Farming:
🔹 PepsiCo & Potato Farming in India
- PepsiCo India engages in contract farming with potato farmers in Punjab, Uttar Pradesh, and West Bengal.
- It provides seeds, agronomic advice, and assured prices to farmers.
- The harvested potatoes are used to manufacture Lay’s chips.
Thus, contract farming benefits both farmers (assured income) and companies (steady raw material supply).