What is Vertical Coordination

To build an agrarian economy that guarantees sustenance and food security to a vast populace, raw material for its growing industrial base, surpluses for exports, and a just, even-handed, and reasonable rewarding system for the farming community, “commitment-driven” contract farming is undoubtedly a feasible unconventional farming model that offers a reliable and consistent input service to farmers and delivers preferred farm produce to the contracting firms. Contract farming is used as a risk management tool. Facilitation of contract farming requires support in terms of flexibility in legislation, offering effective mechanism to resolve conflicts between contracting parties, having an arbitration body for resolving conflicts and providing quality checking facilities. Proper design of the contract is critical in making contract farming more successful. Education and training in connection with contract farming should be provided extensively to companies and other government agencies. Governments should endeavor to encourage contract farming by means of appropriate legislation and facilitation, through a demand-driven approach. The chapter aims to examine contract farming as a risk mitigation tool for farmers in general and small farmers in particular by considering diverse cases of successes/failures in developed and developing countries. While doing so, the authors have also delved into the historical evolution of contract farming, types of contracts, benefits, and apprehensions of the contracting parties, and they offer solutions to make contract farming successful.