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Farm Corporatisation And Indian Private Sector

Contract farming is getting unpopular due to a gulf in the understanding between private companies and farmers. Let us look at the case of Punjab, one of the main beneficiaries of the Green Revolution of the 1970s.

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As per a news release by government owned Press Trust of India (PTI), more than 1,500 telecom towers in Punjab have been damaged by farmers protesting against the three farm laws. This has led to a disruption in services, especially for industries and households dependent on electricity. Farmers vented their anger on the infrastructure owned by Mukesh Ambani's firm Jio, as well as that owned by Gautam Adani, whom the farmers perceive as the major beneficiaries of the three laws. This state of distrust towards large companies will have a profound impact on contract farming in India.

Contract farming is an agreement between a corporate body, government, and farmers. The terms usually include pre-decided set of crops the farmer will produce, as well as the price at which the company will procure the produce. Today, contract farming is emerging as a preferred mechanism through which companies can directly engage with farmers. PepsiCo was the earliest promoter of the contract-farming model in India. They started tying up with local farmers to grow tomato varieties needed for ketchup, as early as 1997. Subsequently it set up a tomato processing plant in Punjab. PepsiCo now works with 12,000 farmers on contract basis who produce potatoes for their daughter company called Lays.

However, contract farming is getting unpopular due to a gulf in the understanding between private companies and farmers. Let us look at the case of Punjab, one of the main beneficiaries of the Green Revolution of the 1970s. This was the first state to introduce contract farming at a government level back in 2002. The main idea was to break free from Paddy-Wheat cycle, and diversify crop production. The task of implementation was given to Punjab Agro Foodgrains Corporation (PAFC), which would then supply it country wide. The farmers were awarded a better price than usual. This scheme was however scrapped in 2012. When such a successful initiative is called off, it may lead to trust deficit between the farmers and the government. There is a good chance the distrust amplifies when we speak about an unknown entity such as private sector.

Similarly, there is a simmering general distrust between the farmers and private players due to the 3 farm bills. For their part, Ambani and Adani have clarified they do not intend to acquire farmer’s property in the disguise of non-payment of Minimum Support Price (MSP) through contract farming. In fact, they have clarified that there is no contract farming happening between them and farmers. However, the farmer is yet to be reassured and convinced of their intentions.

There is a need to bring the two parties on a consensus if we are to achieve any of the farming or economic goals, be it doubling farmers income by 2022, Atmanirbhar Bharat, net export of agriculture produce, or a $7 trillion Indian economy. With 50% of the population dependent on agriculture, this sector cannot be ignored.

Contract farming has a multitude of benefits to the Indian farmer, namely, easier access to get credit from banks, upskilling of farmers through access to new cultivation technology, along with access to new markets which would otherwise not be accessible to them. Further, farmers get the opportunity of crop diversification, while learning about new crops which are presently in demand. Since the price is fixed beforehand by the company offering the contract, the farmers are also immune to price fluctuation in the market.

The immunity of price fluctuation is of advantage to the company sponsor as well. They will not have to pay higher costs and can gain more profit than usual. In addition, the companies will have access to regular and assured flow of raw material, that too of a high quality. The private sector is known for its niche expertise, organisation, and year-ahead planning. A contract signed beforehand with the farmers will enable long term planning by these companies, with a fixed timeline, commensurate to their strong work ethic. The regular engagement of the farmer with the corporates build long term human relations, faith and commitment to deliver. It also generates goodwill of the organisation in the eyes of the consumer, thus increasing their acceptability.

While we do have The Model Contract Farming Act of 2018, which protects the farmers, with pre and post harvest issues, the trust deficit is the primary bottleneck right now, which must be addressed as soon as possible.