A fab paper from Sudha Narayanan of IGIDR.
She says economics of contracts in agriculture do not work in India. It is more relationship based contacting (minus the r) than contracting which works:
This study examines the moral economy of firm-farmer contracts in contract farming schemes in India, bringing together data from field surveys, conducted between 2007 and 2010, of 42 agribusinesses and 484 contract farmers from multiple commodity sectors. The central argument of this paper is that contract farming relationships in India are seen more as relationships and less as contracts, with formal enforcement mechanisms playing only a peripheral role in maintaining and supporting transactions.
This is related only in part to the costs and ineï¬ƒcacy of formal enforcement mechanisms. Both firms and farmers prefer to operate outside the prescribed legal-institutional structure whenever these structures are perceived to undermine the handshake ethic. The findings indicate that state policies that presume legal institutional development to be necessary and sufficient for promoting agribusiness interaction with farmers might be misplaced if not merely ineffective.
How I wish we could have more papers which talk about moral economy of things.
The paper has some superb literature survey from various parts of the country on how this moral approach works.
This paper offers a broad analysis of contract and enforcement in select contract farming schemes in India, observing that firm-farmer contracts are often only notional supported by a moral economy which offers scope for transgressions and breach, within limits. The paper does this by bringing together data from surveys, conducted between 2007 and 2010, of 42 agribusinesses (Agribusiness Survey) across India and 824 farmers (Farmer Survey) from multiple commodity sectors in the south Indian state of Tamil Nadu.
Economics of contracting involves both writing a contract and enforcing it. Both are weak in India. Farmers don’t take contract and its spirit seriously. Enforcement is even more difficult given several issues: