Are Returns from Commercial Farming Heterogeneous? Case of Wheat Growers in North India

Contract farming (CF), generally a commercial farming system, is widely perceived as a welfare enhancement strategy in rural areas where agriculture is the major source of livelihood. However, those welfare implications have not been adequately explored in Indian agriculture. So, this study examines the returns to CF and the heterogeneity in their returns across various groups of wheat growers in Haryana, a leading agrarian state in India. Using an endogenous switching regression model on cross-sectional data of 754 farm households, the study found that CF adopters would lose 27% of their gross margins and 11% of their crop output if they didn’t participate in CF. On the contrary, CF nonadopters would have gained 23% and 8% of their gross margin and yield, respectively, if they were CF adopters. However, there is heterogeneity in returns, especially a positive scale bias in reaping the benefits of CF. Thus, CF should be encouraged among smallholders by eliminating the institutional and structural hurdles to them and heterogeneity in its returns.