The internationalisation of agri-business is a push factor towards better efficiency in both input and output markets. Many agri-activists such as politician Sharad Joshi, while being against corporate farming — where corporations buy, lease and aggregate vast tracts of land to effectively industrialise agriculture — have argued for allowing farmers with small and unviable farms to exit. Agriculture, for a variety of reasons, including limits on size of land holdings — most states in India limit individual land holdings to 12 acres under various land ceiling laws — does not lend itself to large economies of scale, or corporate farming. Although many states have amended their land ceiling acts to allow corporations to lease and aggregate farms, it continues to be a hotly debated topic.

Several firms have attempted to create variants of corporate farming business models that involve several types of farm aggregation — from contact farming through contract farming to corporate farming.

Steve Daniel, senior vice-president for India, Thailand and China at logistics and supply firm DHL, believes that public health will be one of the drivers of farm aggregation. “The basic premise of change begins when the customer begins to ask for quality,” he says. This demand for quality should naturally bring farmers together and aggregate to deliver on quality, he adds.

Opportunity Knocking
Many firms have tested agricultural businesses and aggregation, even to a limited extent. There are retailers, such as Reliance Fresh and Spencer’s Retail. Other firms include the Reliance Industries subsidiary Jamnagar Farms in Gujarat, Mahindra & Mahindra’s Shubhlabh Services in Punjab, the Anil Dhirubhai Ambani Group (ADAG), also in Punjab, and Ion Exchange India in Maharashtra, Goa and Tamil Nadu.

But barriers to agriculture as a business venture have tested even the most resolute. Although the Agricultural Produce Marketing Commission (APMC) Act, which regulates various mandis, was amended in many states in 2008, companies still cannot buy fertile farm land in India. They can, however, either lease land from the farmer or work directly with a set of farmers. They can also buy waste land or lease it at very nominal rates. Only companies working with a business-to-business connection are aggregating farms on a large scale.

Modern retailers, who should be farmers’ natural allies, have found it difficult to work directly with them. Given the political sensitivities, changing the whole farm-distribution mechanism (run by mandis) has proved difficult. Besides, the mandis remain more price-competitive. So retailers source from mandis instead of developing their own supply chains.

Being Politically Correct
Contact farming is the term adopted by West Bengal to describe its agricultural development policy that includes food-processing industries dominated by companies such as Dabur, Spencer’s Retail and Keventer Agro. It involves enabling contacts between farmers associations, cooperatives and food-processing companies looking for assured suppliers of produce by entering into buy-back arrangements. To most, it is just another version of contract farming.

One of the largest aggregators in the country is A.M. Todd India, a global mint oil company. It aggregates mint leaves from about 3,500 farmers, who own 14,000 acres in Punjab and Uttar Pradesh (UP). The company works under specific buy-back agreements with farmers. “We encourage the farmer to grow it as an alternative crop and the programme has met our mint needs from South Asia,” says Rajendra Ghogale, managing director (MD) of A.M. Todd in Mumbai.

Farmers apportion a part of their land to grow mint, the inputs are provided by A.M. Todd. After the leaves are harvested and the oil is extracted by a processing plant owned and operated by A.M. Todd, farmers are paid according to the amount and quality of the oil extracted. Since mint is not sold in the mandis, there is no conflict with them, or with APMC. For the farmers, there is little or no additional investment. For A.M. Todd, there is very little capital investment, except for the cost of the processing plant.

Farmers Contract Out
Companies working with a business-to-business connection are aggregating farms on a large scale by contracting production, which is another model that has seen some success. For instance, McCain, an $8-billion global company that specialises in potato products, works with a group of farmers that collectively owns over 1,000 acres in India. “We grow potatoes for quick-service restaurants in the country,” says Devendra Kumar, general manager, agriculture, at McCain India in Gujarat. McCain gives farmers seeds that improve yield per hectare. The farmers have benefited since McCain buys the entire produce at higher prices. McCain processes the potatoes in a factory close to the fields, cutting out intermediaries and transport costs.

With an annual consumption of 3,500 tonne, more players are getting into seed potato farming. McCain has invested Rs 125 crore in building a processing facility with an annual capacity of 40,000 tonne and plans to increase it to 300,000 tonne in five years. Even ITC has cashed in. Its research subsidiary Technico Agri Services works in over 5,000 acres of farm land and specialises in growing seed potato.

“Research in potato extension services, where expertise is provided to the farmer from sowing to the aggregation stage, has been around for 30 years and it has helped increase potato production in the country,” says Sachid Madan, MD of Technico Agri Services in Delhi. But the same level of expertise is yet to be developed in other vegetables and fruits.

Looking West...
The association between farmers and foreign retail buyers is a tried-and-tested route. Take Jain Irrigation, which derives Rs 300 crore of its revenues from agri business by aggregating 7,000 acres of farmland to grow white onions and mangoes for Cargill, the global seed company.