Contract farming is a institutional arrangements in which both producer and the exporter enters into a contract to supply and purchase, respectively, a specified quantum of a raw material at a pre-determined price and for specified period of time. Typically, the farmer agrees to provide established quantities of a specific agriculture product, meeting the quality standards and delivery schedule set by the purchaser. In turn the, buyer commits to purchase the product, often at a pre-determined price. These approach is widely used, not only for tree and cash crop but also, increasingly for fruits and vegetables, poultry, pigs, dairy products and even prawn and fish.
Contract farming is very useful to farmer in these farming inputs and production services are often supplied by the sponsor. These contract farming often introduces new technology and also enables farmers to learn new skills. Farmer's price risk is often reduced as many contracts specify prices in advance. Contract farming can open new markets which would otherwise be unavailable to small farmers.
In India, contract farming has been there since the 1960s in seed production in both private and public sector. As the land Ceiling Act does not permit non-farmer to own land their is no other way to get specified produce then through contract farming. So, growing market demends in the 1980s and 1990s, contract farming become more common, starting with Pepsi in punjab in tomatoes and potatoes in the mid- 1990s as a first case of perishable-produce contract farming in India.