Contract farming, often touted as a solution to increase productivity and efficiency of smallholder farmers, was found to be unfair and less profitable for them, according to a new study.
The research done on small broiler contact farmers and private companies in Punjab revealed that contracting agencies took away the larger chunk of the market price of the broilers, making the trade less profitable than independent (non-contract) farming.
The paper, released on March 1, 2025, was based on a primary field survey of 50 broiler contract farmers of Venky’s India (a subsidiary of Venkateshwara Hatcheries Pvt Ltd) and 50 non-contract farmers in Bathinda and Mansa districts of Punjab in 2019-20.
The average annual net income of non-contract farmers from broiler rearing was 40-88 per cent higher than that of contract farmers.
In fact, income from all sources was also found to be much higher among non-contract farmers (Rs 13.24 lakh) compared to that among contract farmers (Rs 9.77 lakh).
While the primary occupation of both contractors and non-contractors was poultry farming, as they derived more than 50 per cent of their household income from broiler rearing, both augmented their income from non-farm sources. This income accounted for 6.7 per cent of the total income for contract farmers and 4 per cent for non-contract farmers, the research paper found.
In contract farming, agribusiness firms enter into an agreement with farmers to receive goods at a pre-decided price, with the certainty of delivery of a specified quality and quantity at a specified time.
Similarly, the broiler farming contract is an arrangement between the buyers and farmers for raising chicks. The buyers provide the inputs and procure the output from the farmers under production contracts.
Per bird gross average return for independent farmers was found to be around Rs 128.67, compared to about Rs 19 for contract farmers, showed the paper co-authored by Naresh Singla at Department of Economic Studies, Central University of Punjab, Ghudda (Bathinda), Punjab and Sukhpal Singh at the Centre for Management in Agriculture, Indian Institute of Management Ahmedabad, Gujarat.
The contracting agency sold each bird for Rs 191.17 and paid Rs 17.17 per chicken to the broiler farmer who raised it.
The average price received by non-contract farmers and contract farmers for 1 kg broiler was Rs 102 and Rs 9.15, respectively, but the price realised by non-contract farmers did not cover their expense on day-old chicks (DOC) and feed. However, the net return of non-contract farmers was still higher, making them more profitable than their contract counterparts.
In the case of contract farmers, the agency deducted costs of DOCs, feed and veterinary service charges from the sale proceeds.
The commercial broiler production contract guidelines by the Union Ministry of Fisheries, Animal Husbandry and Dairying called for fair trade practices and a level playing field between growers and contracting agencies. This was to protect farmer interests and to ensure that the production risk was not just borne by the growers.
The guidelines, for instance, recommended that contracting companies pay a feed conversion ratio-based bonus to growers as an efficiency incentive and mandate that the contracting agency provides training to at least two workers of the contract grower for a 5,000-bird farm.
The study highlighted a worrying trend. Broiler contract farming was being conducted in a manner similar to “putting out work” or “wage work”. This means, the rearing work was being outsourced to small contract farmers and they were being compensated for their labour and supervision. But all the risks of production was also passed on to them.
The contracting agency provided all the inputs such as DOCs, feed and vaccinations, and the contract grower only provided labour for feeding the birds and supervision in situations where land requirement was not a major concern.
“Thus, the welfare of broiler farmers under contract farming did not improve,” the paper found. This is even more a cause for concern as 40 per cent farmers under contract farming were small and marginal, whereas this proportion was only 20 per cent in non-contract farming.
In Punjab, the average number of birds being reared on broiler farms was 9,618 under contract and 7,000 under non-contract production.
Mortality rate of broilers was also lower for contract farmers (2.5 per cent) compared to non-contract farmers (3.5 per cent). The contract farmers received an an incentive for low mortality rates and incurred deductions when the mortality rate was higher than 5 per cent, as per the prescribed mortality charts of the agency.
Source – downtoearth
