Indian food processing industry is now valued at USD 92 billion and the Government says that more money from the 8-10% growth is reaching the farmers directly because of production innovations such as contract farming. Many mainline companies such as Voltas, Godrej, Blue Star, Hindustan Lever, Tata Group, etc are increasingly adopting the concept of contract farming to manage inputs, boost production, and pass benefits to the farmer.

In the past, many of the food processing industry would procure goods from a middleman who will source and buy goods from the farmer at low prices and sell them to the food processor at prices lower than retail levels. While this was beneficial to the food processor and the middleman, the farmer was left out of this equation. With contract farming, the food processor sets up a contract with the farmer, provides them with seeds, gets them quality input agrochemicals for lower prices, and guarantees a price higher than what the middleman offers. Furthermore, larger companies typically invest in social causes in the community where they source inputs and that increases their stake and value among the rural poor. Such value-added services at higher rates are driving more farmers to sign up for such programs.

For example, Dabur used to buy gooseberries at Rs. 12 a kilogram (kg) from middlemen while the net rate the farmer got was under Rs. 3 a kg. By setting contract farming, Dabur buys gooseberries at Rs. 6 a kg passing on more money to the farmer and increasing its own margins.

Another important aspect of this success story is that by treating farmers as vendors, these companies do not have to hire them and deal with expensive and cumbersome labor laws.