Contract farming in India refers to a system where a farmer enters into a contract with a buyer, usually a company, to produce a specific crop or livestock on their land. The buyer agrees to purchase the produce at a pre-agreed price after harvest.

The concept of contract farming was first introduced by PepsiCo in 1989 when they signed a contract with farmers in Punjab to grow potatoes for their chips. This marked the beginning of a new phase in Indian agriculture, where companies started to take an interest in farming.

However, the first formal contract farming agreement was signed in 1991 between Hindustan Lever Limited and farmers in Andhra Pradesh to produce sunflower seeds. This agreement was a huge success and led to the rapid expansion of contract farming across India.

Contract farming has become popular in India due to several factors. Firstly, it provides a guaranteed market for farmers, which ensures that they receive a fair price for their produce. Secondly, it reduces the risk involved in farming as the buyer takes on the responsibility for marketing the produce. Thirdly, it encourages the use of modern agricultural techniques and inputs, which ultimately leads to higher crop yields.

Apart from these benefits, contract farming has also been instrumental in improving the socio-economic conditions of farmers. The system has helped to reduce the exploitation of farmers by middlemen, who often offer them low prices for their produce. Contract farming has empowered farmers to negotiate better prices and improve their bargaining power.

However, there are also some challenges associated with contract farming in India. The main issue is the lack of transparency and fairness in the contract negotiation process. Many contracts are skewed in favor of the buyer, which leaves the farmer at a disadvantage. There have also been cases where buyers have defaulted on their payments, leaving farmers in debt.

Despite these challenges, contract farming has become an integral part of Indian agriculture. It has helped to improve the livelihoods of farmers while also providing companies with a steady supply of high-quality produce. With the government`s continued support, contract farming is expected to grow even further, creating more opportunities for both farmers and companies.