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Integrating farmers in high-value crops

Contract farming is one solution to overcome market related transaction costs. When transaction costs are small or absent, market transactions are usually efficient and improve aggregate welfare. However, when transaction costs are high, or markets fail owing to reasons like asymmetric information, a number of voluntary but non-spot transactions are often carried out between economic agents. There are many ways that markets fail in Indian agriculture. Imperfect credit markets, lump sum transportation costs for small amounts of produce, imperfect information about market prices, lack of technological knowledge, inability of small and marginal farmers to absorb the risks of loss, etc. are only a few of them. In this paper we look at specific cases to see how some of these problems have been solved through agreements among farmers and between farmers and integrators.



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