Challenges with Contract Farming

♤ State reluctance: States have been reluctant to carry forward reform for the fear of loss of revenue.

♤ Stockholdings limits on contracted produce under Essential Commodities Act, 1955 are restrictive and discourage buyers to enter into contracts.

♤ Lack of uniformity or homogeneity among states law regarding kinds of produce, conditions etc. which is needed for allowing contract farming.

♤ Promote Regional Inequality: Currently it is practiced in agriculturally developed states (Punjab, TN etc.) while States with highest concentration of small and marginal farmers are not able to reap its benefit.

♤ Supply side issue: Buyers have no incentive for contract farming with a large number of small and marginal farmers (average size of landholdings in India was 1.1hectare (census 2011)) due to high transactions and marketing costs, creating socio-economic distortions and preference for large farmers.

♤ It’s a capital-intensive and less sustainable pattern of cultivation as it promotes increasing use of fertilizers and pesticides which have detrimental impact on natural resources, environment, humans and animals.

♤ Encourages Monoculture Farming: This will not only impact soil health but also possesses risk of food security and import of food grains

♤ It increases dependency of farmers on corporate for inputs, making them vulnerable.

♤ Predetermined prices can deny farmers the benefits of higher prices prevailing in market for the produce.