Contract farming enabling access to market: A case of oil palm in Karnataka*

Contract farming is one institutional arrangement that is considered to be useful when transaction costs of direct engagement with the market are high for producers and more so for traders for the products in which case value addition is necessary before its disposal to the final consumers. Contract farming also enhances farmers’ income and facilitate market access of smallholders in high-value supply chains that require specialized inputs for sale of produce in specialized output markets. Contract farming provides opportunity to farmers to grow oil palm crop by not only providing the nursery and buy back arrangements but also providing the technical know-how and other extension services. In that sense it can be easily described that contracting arrangements for oil palm make it possible for farmers to grow for otherwise missing markets altogether as there is no taker of their product in the open market. This paper makes an attempt to understand how the development of contract farming is helping farmers to venture into new products and have better access to market. The paper makes a comparative assessment of oil palm production with other field and plantation crops grown by the selected farmers in Karnataka. The study provides comparison of productivity across various crops grown by oil palm farmers. The study also provides a snapshot of subsidy provisions made by the state government.