A mixed bag

Published : Jul 10, 2013 12:30 IST

WHEN potato farmers in Manchar village in Maharashtra’s Pune district first heard about contract farming in the early 2000s, they thought it just might be the path to a better life. Never before had they got an assured market for their produce, an assured off-take of the harvest, or an assured price. But reality hit them when they had to bear the brunt of a bad harvest.

Contract farming began in earnest in Maharashtra around 2001. Initially, about 30 farmers responded to this new idea of selling by prearranged contract to a private buyer. By 2007 the number grew to 3,000. Now there are about 7,000 farmers. Essentially three main companies are engaged in contract farming in the State—Hindustan Unilever, PepsiCo and Jain Irrigation Systems Limited.

Of the 7,000 farmers, about 5,000 are with Jain Irrigation. The company started contract farming way back in 1978 when it distributed seeds and gave technical assistance and agricultural advice to farmers who grew papaya. Its interest was in the latex from which papain was extracted and exported. Farmers from Karnataka, Gujarat and Madhya Pradesh were also involved.

The seemingly ideal situation of contract farming, one in which there is a ready buyer for the produce, is actually tilted in favour of the buyer. It is structured to benefit big companies and it neglects small farmers.

Giving his opinion on contract farming, a commodities analyst said, “Contract farming is not an altruistic activity. It is a deal between a farmer and a company. What is important is how they work out that deal. Yes, many deals are structured so that they work more in favour of the companies, especially if these are multinationals. But to say contract farming is a bad idea is foolishness. There are good companies too, like Jain Irrigation. It’s a business for them, but they see to the grower’s welfare because that also makes good business sense. What should be ensured is that companies do not exploit farmers. There are so many farming cooperatives, NGOs, activist lawyers, activist journalists, kisan sabhas—all these people can step in and see that farmers don’t get a raw deal.”

Kishor Bhagwat Mahajan is a small farmer from Ainpur taluk in north Maharashtra’s Jalgaon district. He plants white onions biannually and after each harvest, sows cotton. For the past eight years, he has been a contract farmer with Jain Irrigation. When asked whether he had ever suffered losses in these years, he replied in the negative. But he added, “If it ever happens, the company has said it will give me seeds on credit for the next season.” This is the maximum a company will do if there are losses due to natural calamities.

Despite this, Mahajan says being with Jain Irrigation has changed his life. The biggest advantage, he says, is not having to worry about the price being beaten down. “I used to load a lorry full of onions and sell in the open market. There have been times when I sold at Rs.2 a kilo. For the past eight years I have been selling at Rs.10 a kilo. You be the judge—is that or isn’t that an improvement?” Six other farmers in his village who are with Jain echo his words.

Proponents and critics Provision of seeds and technical and agronomical assistance and, of course, assured buy-back are all practices that have strong proponents and critics. The company and the farmers who back it do so for obvious reasons. Those who oppose the practice say it is just one step towards privatisation of agriculture with all its concomitant dangers. Mahajan says he cannot have such jordaar vichaar (heavy thoughts) because his “life now has some guarantees”.

In an attempt to dispel fears about contract farming, Dr K.B. Patil, vice-president, marketing, of Jain Irrigation, explains that good R&D is vital to responsible contract farming. For instance, he says, situations where farmers lose all their crops to pests are not as frequent as they used to be because of the new varieties being developed.

The company is working with onion farmers all over Maharashtra and some parts of Madhya Pradesh and Gujarat. He says the company has been working on increasing the Total Soluble Content (TSS) of onions and has got it up to 18 per cent. “The higher the TSS, the more the recovery at the factory level,” he said, referring to the dehydrated onions which is Jain Irrigation’s business. Two varieties of onion have also been developed so that there is more than one crop per year. And the company has also developed a direct sowing machine to reduce the damage to seedlings during transplantation. The company makes it available free to those who want to borrow it for planting. Patil says that with such support, yields have gone up more than double and farmers are “assured of 100 per cent buy-back with no commission, and no need to wait for a trader”.

Jain Irrigation has projected that it will have 7,000 hectares under contract farming by the end of this year. “Every year, more farmers come to us but we can only take them on gradually as the business increases,” he said . As far as pricing is concerned, Patil says the farmers are contracted at Rs.4.50 per kilo but are actually paid Rs.9 or Rs.10 because that is the market rate. “So the lower price is protected and the higher price is open to the grower. Therefore at sale point it is to the grower’s advantage,” he explains.

A different model In the southern Maharashtra districts of Sangli and Kolhapur, contract farming has evolved in an interesting way thanks to Member of Parliament Raju Shetti’s intervention. A farmer and activist, he introduced cash-strapped small farmers to something he had seen in Vadodara in neighbouring Gujarat. Small farmers in the area grow bananas, grapes, tomatoes and cauliflower on their individual farms, and they come together to find the best market for their produce. “Usually 15 to 20 farmers get together, find an agent and then ship a container full of the produce to a domestic or international market. These farmers could easily sell to Reliance, but there is absolutely no guarantee that they will pick it up.”

This method has been operational for over three years in the region. “It is actually contract farming but with a slight twist. The buyer doesn’t come to the fields. Instead the farmer uses an agent to find a buyer who pledges to take a regular supply,” Shetti said.

Meanwhile, the Maharashtra government is forging ahead with its public-private partnership (PPP) for Integrated Agriculture Development. This is part of the World Economic Forum’s (WEF) New Agriculture Initiative project in which eight commodity-wise groups were created to form agriculture value chains. Other countries involved are Tanzania, Vietnam, Mexico, Indonesia and some African nations. In Maharashtra, the government and big companies such as Jain Irrigation, PepsiCo and Unilever have come together to form value chains for cash crops such as onion, potato and tomato.

When the PPP concept was introduced, S.K. Goel, Principal Secretary, Agriculture, Maharashtra, said there would be “effective end-to-end integration of the agricultural chain” once corporations were involved. But the bottom line is that the taxpayer’s money that is meant to go towards subsidies for farmers will instead be given to big companies.

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