With scores of farmers committing suicide each week, the spotlight has of late been squarely on the government’s policies in agriculture, with considerable debate over the merits and drawbacks of the various interventions to help farmers. To this already raging debate, there is now a new addition – corporate houses are coming forward to argue that their direct engagement of farmers through contracts would offer the rural population a better deal than they now get.

The government too seems inclined to accept this view, judging by recent moves – the amendment of the Agricultural Produce Marketing Committee (APMC) Act in 14 states, which allows farmers to sell their produce in open markets, has given a spurt to contract farming. Reliance Life Sciences, ITC (agri-business division) and Pepsico are some of the prominent companies that either already have started contract farming projects or are discussing them actively with governments. Pepsico was first off the block, with its contract farming of tomatoes in Hoshiarpur district of Punjab. The total area currently under contract farming covers just seven million acres, a very tiny percentage of the nation’s total cultivable land. While this figure is increasing, its current low base is very attractive to companies looking to tap the opening market.

Is contract farming the answer to the current woes confronting the nation’s farmers? Or has the corporate sector played the right trick at just the right time? Contract farming generally involves the following elements: a pre-agreed price between the company and the farmer, along with measures of quality, quantity, acreage to be farmed, or duration of the contract. In this system, the contractor supplies all the inputs required for cultivation, while the farmer supplies land and labour. However, the terms and nature of the contract vary according to the crops grown, the agencies involved, the farmers themselves, and technologies and the context in which contract farming is taken up. Generally, however, the farmers’ participation is limited to production in the fields.

The risks

One of the most critical issues associated with contract farming is that the land which is currently used to produce staple crops such as rice and wheat will instead be used to produce crops required by the food-processing industry, and also have a significant overseas market. The switch to contract farming therefore leads to a rise in exports. In fact, many corporates enter contract farming to fulfil the export obligations of various benefits and subsidies they receive from governments. It is believed that contract farming will double agricultural exports from India to $20 billion by 2010. But this, some farmers believe, will diminish food security in the country, and will increase the risk of becoming dependent on food imports.

Opponents of contract farming also worry that with corporations dictating the crops to be grown, there will be an inevitable loss of natural seeds. “Basically, it will mean the transition from agriculture to agribusiness, which is not welcome,” says Umendra Dutt of Kheti Virasat in Punjab.

 
 •  A burden on the exchequer 
 •  Transplanting failure

“If contract farming becomes the norm, then we lose food security. They (the corporates) will tell us what crops to grow and they will give us the inputs as well. Except for labour and land, farmers don’t have any role to play in contract farming,” says Dr Kishan Bir Chaudhary of Bharat Krishak Samaj, which claims to represent around 5,000 farmers in the country. He continues, “One also has to understand that with about 70 per cent of the population dependent on agriculture, it is not just a trade in our country. It is a way of life. The government should seriously weigh the pros and cons, and involve the farmers in policy making.”

Are these fears justified? Recently, Dr Sukhpal Singh of the Indian Institute of Management, Ahmedabad conducted a study,Contract Farming for Agricultural Development: Experience of the Indian Punjab and Northern Thailand. He observes in his study, “Contract farming, in a political economy, is one mode of capitalist penetration of agriculture for capital accumulation and exploitation of the farming sector by agribusiness companies.” He is not alone in making this strong observation; the former head of Economics department of Punjab Agriculture University, Dr Joginder Singh also conducted a study in 2002-03 to find out whether contract farming is a viable option for the farmers. “It was definitely working for some crops like basmati rice and sunflower, but it was a total failure for other crops like peas. We also found that some of the seeds used were not recommended for the area, and were not suitable according to the climatic condition of the area,” he says. The study was never made public.

Opponents of contract farming also worry that with corporations dictating the crops to be grown, there will be an inevitable loss of natural seeds. “Basically, it will mean the transition from agriculture to agribusiness, which is not welcome,” says Umendra Dutt of Kheti Virasat in Punjab, which is a proponent of natural farming. The organisation is dedicated to the issues of ecology, environment, sustainable-development, organic farming, conservation of natural resource management in Punjab.

Pepsico, however, has a different take on it. “When we started contract farming, we decided to set up a 27-acre research and demonstration farm in Punjab to conduct farm trials of new varieties of tomato, potato and other crops. The programme, which includes seed production, has evaluated several varieties of basmati rice, more than 200 varieties and hybrids of chilli, 25 varieties and hybrids of corn, more than 60 varieties of peanut and more than 100 varieties and hybrids of tomato. Several varieties and hybrids from the research project have been commercialized which has led to increased productivity and lower costs for farmers,” says a company spokesman.

Little choice

In any event, farmers may have little choice in the matter. With debt rampant, and soaring seed and fertilizer costs, contract farming appears a blessing, since all the inputs along with the knowhow will be provided by the corporate entity, and there is also a guarantee of purchase of the produce after harvest. With agriculture increasingly seen as a risky proposition, the promise of economic security within the contract farming system may be very attractive. The health of soil a few years hence is a legitimate concern, but many farmers may ignore this to ensure their more immediate gains from contracting with companies.

“The main advantage of going in for contract farming is that I don’t have to deal with middlemen like the transport agent. Also, the money [I earn] is much more. I was able to buy a bike with my savings last year. They give me the raw material to grow the crop. There are a few problems – like they want potatoes of a particular size, and small ones are rejected, which I then have to sell in the regular market,” says Bhim Rao, owner of a four-acre potato farm near Ranjangaon, about 50 kms from Pune. These have not deterred him; he has signed contract with a prominent MNC for potato growing, and has been under the contract for the last two years. He is not the only one. “Initially I was skeptical but my brother, who is studying in city, read the contract and advised me to go for it. Agriculture was not much beneficial and there was hardly any profit. But in this, I am assured of a price,” says middle-aged Shiwarkar, near Ranjangaon.

These farmers are not all aware, but there have been incidents of pre-determined prices being reduced on the pretext of inferior quality of crop in Punjab. In some cases, Punjab Agro Foodgrains Corportion was forced to step in and buy basmati rice that was being rejected by the contracting companies.

For a corporate, the objective of contract farming is to integrate the supply chain to ensure timely availability of quality and quantity of materials. It also reduces the procurement cost for them by eliminating the middlemen. It is a win-win situation for corporates. Not only do they get produce as per their specifications, the cost is much less.

The known problems notwithstanding, it appears that contract farming is soon set to become much more common in Indian agriculture.

Asked what they look for in a farmer before signing a contract, Pepsico’s spokesman said, “we looks to partner with farmers who possess a reliable record of following best practices to ensure that the quality of their crops is never compromised and have their own irrigation systems. We have our own field technicians who periodically visit the farmers’ fields to guide them on practices to be followed. This also helps in building strong links with the farmers in their local area”. The company declined to talk about the tangible benefits to itself from contract farming. About 50% of the company’s requirement of potato comes from its own contract farming initiatives.

That the farmers are keen to join the contract farming bandwagon is quite obvious. When I stopped to ask directions at one farm, its owner Ramesh Bhosale asked, “Are you from the company? Why don’t you come and see my farm? I have a four-acre farm.” He was visibly disappointed to learn I was not from ‘the company’ (Pepsi’s subsidiary, Fritolay). Again he asked, “Do you know how to get in touch with the company?”.

A report by the National Institute of Agricultural Extension Management, Hyderabad is quite candid about the risks for farmers. The report says, “Contract farming models can sustain in the long run only if the initiative for empowerment comes from the farmers rather than the user (corporate). Another moot point is that in the existing models, farmers are largely ‘price takers’, while the contracting firm ‘makes’ the price.” The report also says that the contract farming is “very promising in its early years. Farmers benefit from improved technology and higher productivity, quality and production. The contract price does not matter much in the early years. Once the farmers are confident of being able to deploy new technology, problems start cropping up.” The enforceability of the contracts too is uncertain. The NIAEM report observed that “if the market price is more advantageous than the contract price, farmers renege on the contract.”

These and other known problems notwithstanding, it appears that contract farming is soon set to become much more common in Indian agriculture.