Empirical Gains from Growing Potato Under Contract Farming in Punjab, India

Abstract

The persistence of agrarian crises in Punjab state of India has necessitated the policymakers to identify new institutional agri-businesses to make farm growth sustainable and inclusive. Contract farming in high-value crops such as potato is seen as one of the several ways to develop new market linkages with the farmers and improve farming income consistently through the dissemination of new production and post-harvest processing technologies. In this context, a comparative analysis of contract farmers associated with the PepsiCo company and non-contract farmers growing potato for local markets is carried out in Punjab to determine the empirical gains that accrue to contract farmers and the role of contract farming in farm diversification. The findings revealed that the company procures potatoes at farmers' fields through quad-partite and written contractual agreements, extends extension and training facilities at the farmers' doorstep, and provides yield-based incentives to the farmers. Contract farmers earned more profits than their counterpart non-contract farmers mainly due to their better price realization, although contract farmers had lower yields and higher cost of production than non-contract farmers. However, the imposition of the condition of growing at least 4 ha of area under potatoes led to the exclusion of small farmers and did not lead to diversification away from traditional crops to high-value crops such as potato. The study argues that the Punjab government needs to play a proactive role in facilitating the participation of small farmers through group contracts and Farmer Producer Organizations (FPOs) to enhance farmers' income and crop diversification through potato contract farming.