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BW Businessworld

Truths And Half-truths: This Bill Is On The Farmer

Will it not spread the risk if the company buys only acceptable quality and rejects all the rest? The companies will then innovate to utilise quality that does not agree with their expected standards.

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Farm laws are turning out to be more like the story of a blind man inside a dark room looking for a black cat. Only the cat is out at the Delhi border! In the ongoing tussle between the govt and the farmers, the imbroglio lies in the printed Act. The woods have been missed for the trees and the parallax that has emerged needs correction. The correction is possible if we understand the issues on ground unless we fool ourselves into saying, “there is no problem”.  There is scope to correct this not with a battle of words, wits or ego. What is needed is a due process between the farmer and the bureaucrat. Let’s leave politics or the big business houses aside for a moment!

The idea is also not to blame or allege a certain premeditated silo. Businesses must always have the ability to foresee. The corporate does not want to be a shylock here. They have indeed created a good model; however, it is unfortunate that the Act has been written without duly examining the symbiotic possibilities that exist. Neither the business houses nor the politician is to be blamed since both of them do actually represent the ‘half truth’! Wisdom says, “when you shut one eye, you also don’t hear everything”

Contract farming is an agreement between farmers and processing and or marketing firms for the production and supply of agricultural products under forward agreements, at predetermined prices under defined quality parameters. An agreement has generally a service rendered by one and a fee received by the other. A perceived profit or benefit must be normally inbuilt into an agreement. The catch however is that whereas profit is tangible, a benefit is not. That is the issue on ground today. While the profits can be seen, the benefits are lost in the fog.

When Companies, government bodies or individual entrepreneurs stand on one side, and the farmers on the other, will it not be ‘perceived’ as an agreement between unequal parties? However, its true too; that business must protect its profits since it has shareholders. It is not of concern to the business as to how the grass must get trampled when the bulls rage. However, it is certainly upto the babu to esnure that the ground for such a display of rage does not harm the grass. Clearly there has been an oversight on that account.

The buyer will specify the quality of the produce required and the price, with the farmer agreeing to deliver at a future date. How does a farmer guarantee quality of his produce when it is dependent on a host of parameters, not necessarily under his control and many in control of nature? Read: Force Majeure. How many farmers understand the usual quality schedules appended to the main contract and their enforceability? In fact, the Act states that the farmers do not have recourse to the courts. For an agreement that the farmer would sign without completely understanding, the SDM appointed too would only aver in favor of the written contract. A typical tale of the farmer’s LLTT (Looking London, Talking Tokyo).

Is a farmer then trading on asset of abstracts which he can never deliver? While the buyer seeks to maximise his profit component by bringing down the prices, mapping farmer databases and farm lands using data analytics, what recourses do the farmers have? Is quality of the produce not the key parameter on which a farmer usually loses out whereas the buyer as the picker always has an upper hand? How does the farmer prove that the deficit in quality if any, was not his doing? The farmer will certainly be rewarded if he exceeds the required quality standards or the expected level of production. But how does a farmer do this when every cultivation parameter sought in the contract, is controlled by the company? Does he not risk a rejection and loss if he deviates or innovates? Farmer groups may be formed but then how effective will they be? What if flood or locusts or fire or draught affect the crop? The farmers insistence on a legally enforceable MSP must be seen in this context.

Let us assume that the Company advises and even supports the farmer on all technical and logistical aspects of growing crops such as pesticides, fertlisers, seeds etc. If the advice results in benefits to the farmer, the credit goes to the company. What if the farmer faces losses due to force majeure? He cannot sue the company for the company is already indemnified due to several grey areas in the contract. The larger question is how would the contract signed protect the farmer in the event of loss of crop or quality? The SDM arbitrating between the farmer and the contractor will only look at the contract created by the contractor. Further, all contract farming agreements are for one growing season which means a farmer is expected to go through the rigmarole every season. Can a farmer, a small land owner, most of the time uneducated, afford the paper work and the disputes?

This brings us to ask, “Can a model contract drafted and vetted by the Ministry of Law be the starting point for such endeavours?” That would then be the full truth. That is defining the benefit in ink. A concert between the profit and the benefit. If that were not to be done, we are looking at what happened to real estate with companies creating unliteral agreements and then running away with the investor’s money, which in this case will be the farmer’s sweat. The next step then would have to be the twin of a RERA in farming. Why can’t we create a FERA today? FERA (Farm Estimate Resource allocation). There is a way out of this dark room for the bureaucrat who framed the laws to meet the cat on the border, for the complete truth is out there.

The core issue is that of plenty. Managing, storing, trading of plenty and the current inefficiencies, inadequacies and in appropriations of that. The govt has a system where the patwari or the junior most revenue clerk of each village is expected to create at the time of sowing, a database of estimated cropping that should in turn help create a demand and supply estimate. That activity is not at all managed any better than a tick in the checkbox.

If that activity can be tabulated on an electronic tablet identifying the adhaar number of the farmer, the geo location of the farm, the crop sown etc it will lead to a true prediction of the expected produce and therefore the storage required.  True prediction of storage in turn leading to true release of food grains in Indian markets based on geographic demand and in turn leading to the surplus which then can be made available for exports. 

How about a PPP that ensures profits are split between the silo creator, the contract company and the farmer; all in partnership with a combination of Kribhco look-alike and an insurance company to manage it. And why not a PPP model if the farmer must first agree to use the seeds provided by the company, plant them on the advised dates, agree to the farm being surveyed and follow all technical recommendations made by the Company with regard to planting, irrigating, weeding, fertilizing, controlling pests and diseases, picking, sorting and packing? That must mean like inseparable flesh on nails.

Will it not spread the risk if the company buys only acceptable quality and rejects all the rest? The companies will then innovate to utilise quality that does not agree with their expected standards.

This would esnure a healthy symbiosis between the company; for the quality of yield dependant on the quality of seeds and the fertilisers and the farmer who nurtures it with his sweat, the repurposed Kribhco that ties in with the company to supply fertilisers and an insurance company that stands midway between the company and the farmer thereby blunting the edge of a hostile act of God.

Kribhco’s scope can be expanded to include an insurer too. Let the surplus produce be stocked in Silos created under a PPP by the contracting companies and a stock receipt given to the farmer indicating stock bin number and after it gets sold let the profit be split between the stockist and the farmer. If the farmer wants money earlier, he can easily off load some more of the produce. Stock prices such as by MCX will serve as reckoners.

Rice fetches higher prices as it gets older. Why must the farmer not have a share in that? There will be no question of losses that will accrue. Don’t we know that potato that sells at Rs 4/- per kilo at the farm end, gets packeted by companies for whose CEOs we roll out the red carpet at the foot of their aircraft?

That potato by the way sells for Rs 20/- for 50 gms including the weight of captive air in the packet of an Uncle Chips or Rs 400/- for a kilo. That’s an arbitrage of 100 times as compared to Rs 4/- for the farmer. The farmer does not need an ‘Uncle’, the farmer needs an empathic partner in the Govt, the contracting company, the insurer and the stockist. Grass can indeed be converted into cheese if we bring in a cow!

Here lies an opportunity for the state to remove the battle lines and lend sight to the blind man inside the dark room looking for a black cat. However, the cat is on the border.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Tags assigned to this article:
farmers RERA Farm Estimate Resource allocation politics

Dr. S.S. Mantha

Former Chairman of AICTE, Dr. Mantha is an eminent academician. At present, he is Chancellor KL University and Adjunct Professor, NIAS, Bangalore.

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Yogesh Kochhar

The author is Corporate maven and a happiness evangelist

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