Corporate control

Exploitative models

Print edition : July 26, 2013

A farmer working in an "under-contract" gherkin field in a village near Kuppam in Chittoor district. Photo: The Hindu Archives

A farmer plucking gherkin grown in his farm in Metikurke in Arasikere taluk in Hassan district of Karnataka. Photo: Shamasunder

The three models tried in Andhra Pradesh to bring small farms into the corporate fold, ignoring the success of the cooperative model, have had bitter results.

Bringing small farms operating less than five acres (one acre = 0.4 hectare) into the corporate fold is not that easy as the tillers of these holdings (comprising about 83 per cent of the total landholdings in the country) have a history of waging struggles, often violent, to hold on to their land. With only traditional farming skills and little or no education, bereft of any capital and nowhere to go and seek employment, they are continuing with farming. Bringing all their small holdings under the fold of capital- and technology-intensive corporate farming would require huge capital, technology and market support from outside. No drastic measures could be adopted for this purpose. Hence, virtualisation of their land rights becomes necessary and unavoidable lest the social unrest unleashed should derail the very agenda of globalising the Indian economy.

Against this backdrop, four models have been proposed (vide paragraphs 5.7 and 5.8 of Part 1 of “Rationalisation of Functions, Activities, and Structure of the Department of Agriculture and Cooperation”) by the Expenditure Reforms Commission of the Government of India. This was prepared some time in 2000. All these proposals are based on the Joint Stock Company (JSC) model.

In these models, farmers are made to believe, technically, that rights to the land that is so dear to them still rest with them either in the form of direct possession or in the form of shares even after the actual transfer of the land, in virtual form, to the company management. They are also made to believe that they will continue to be involved in farming operations and will be assured of income by way of a share in profits (when declared), depending upon the extent of land contributed by them and through their work on the farm, which will be at the discretion of the company. However, the nature of work assigned to farmers in company-managed farms will be vastly different from what they had been doing before their land was taken.

In practice, when small farmers enter corporate farming, control and management of their landholdings gets transferred to the company. Even under a producers company (the fourth type of company recognised in 2003 under the Companies Act, 1955), though farmers operate their lands, all the management details will be decided by its board of directors. At this level corporate control is overwhelming. Irrespective of whether the farmers are under the JSC or following the contract farming or producers company model, their income will be decided by the managements of these bodies from time to time, often disguised in the form of evergreen new technologies. It is a different matter that all such technologies are not always really new. They might be simply carrying new labels not discernible by the common man.

The Kuppam experience

Three JSC models (all of them involving M/s BHC Agro (India) Private Ltd) were tried at Kuppam in Chittoor district of Andhra Pradesh between the late 1990s and the early 2000s.

In the first model, the company, with the assistance of the State government, took on lease about 200 acres of land belonging to farmers and conducted all farming and marketing operations with Israeli technology using costly and heavy machinery, including the drip irrigation system, with an investment of Rs.5.30 lakh an acre. Of this investment, an assistance of Rs.4.46 lakh an acre was provided by the State government. The balance was to be provided by the company and the farmers, which did not happen. The entire expenditure was borne by the State government. The company took land on lease with the active support of government officials, promising a rent of between Rs.20,000 and Rs.50,000 an acre, depending on the social standing of the farmer being displaced. Field boundaries of these lands were removed and all the holdings were consolidated into one big operational unit to facilitate the use of heavy machinery. Irrigation was provided by digging deep borewells. No provision was made for groundwater recharge. Double and triple cropping patterns were adopted. Only high-paying vegetables were cultivated with excessive use of fertilizers, pesticides and herbicides. No organic manure was used. None of the integrated management practices was adopted. All technologies adopted were unsustainable and environmentally destabilising. Only a few native workers were engaged in farming activities. The rest were forced to seek employment elsewhere. The company could not pay even the land rent, as promised by it.

The State government had to intervene to pay the rent. Soon, groundwater depleted not only on the farm but also in the neighbourhood. Returns from such farming, by way of net profits, were not sufficient even to meet the assessed interest charges. Farmers could not resume cultivation in their land when they wanted. It took considerable time and money for the government to resettle the displaced farmers. Because the area was limited, the government could cope and solve the problems. But the farmers suffered much in the process and were agitated. Thus, this model is technically not sound, not sustainable, economically unviable and leads to high social destabilisation.

The second JSC model was implemented in the same area with the assistance of the Japanese International Cooperative Agency, or JICA, over an area of about 1,500 acres with an investment of Rs.24.45 crore, that is, an average of Rs.1.61 lakh an acre excluding well and electric motor components but including the technology fee charged by the company. Farmers having wells or borewells alone were chosen to participate in the project. Alternatively, only farmers who borrowed from banks and dug wells and installed pumps were included in it. All critical components, such as drip systems and technical support were given free of charge. Only export-oriented crops, mostly vegetables, including gherkins (a type of salad cucumber), were grown. The farmers themselves cultivated their lands using the seed and technology provided by the company. Contrary to the first model, organic manure was used in this model after an expert team, which included this author, pointed out the lapse. Farmers welcomed the free components. It was a type of contract farming. The company purchased the produce that met its rigorous standards and on the basis of the demand in the market. The company did not take any responsibility for the technology provided by it in ensuring the quality of its output. This was another major lacuna in the model.

A considerable quantity of output remained unsold and the farmers faced heavy losses and distress in selling the rejected produce, which had practically no shelf life. Apart from this, the cultivators received less than 5 per cent of the export value. Similar was the fate of other contract farmers dealing with vegetables.

In the third model, tried in the same area, the plan was to cover 10,000 acres with an investment of Rs.46.50 crore (Rs.46,500 an acre). The company charged the farmers for everything. The government provided a subsidy of Rs.15.70 crore to the company. The progress of coverage was less than 5 per cent even after a lapse of three years. Banks did not provide fresh loans to the farmers for investment as they were already indebted to them. The company could not provide bank guarantees for grant of loans against the produce to be supplied by the contracting farmers. Finally, the company that implemented the three models itself became financially unsound and disappeared from the scene in spite of the heavy support it had received from the State government.

Cooperative farming

The Andhra Pradesh government tried to introduce JSC farming (the first model of Expenditure Reforms Commission) in the name of cooperative farming in 2009. A society/company was formed at the village(s) level with about 1,500-2,000 acres as one unit. Land was consolidated by removing field boundaries and cultivation was done with heavy machinery. Farmers were offered shares in the company and employment on the farm. The government offered to arrange a loan of Rs.100 crore through banks for such village(s). The proposal was given wide publicity. Initially, local (ruling class) leaders induced the village menfolk by dubious means to pass a resolution at the gram sabha meeting agreeing to the formation of a society (JSC). These farmers were told that the lands that were to be taken over by the company would be developed with irrigation facilities, that cultivation would be done for five years, and that the land would be returned to them after this period. But the women rejected the idea when they came to know that they would not be able to identify their fields as the boundaries would be removed; that they would not be able to enter the farm without the company management’s permission; that they would not be allowed to take even a blade of grass from the bunds to feed their cattle; and that the landholdings would never be returned to them. These women also came to know about the difficulties faced by the Kuppam farmers (first model) in resuming cultivation in their lands as there were no field boundaries. Realising the changes that were bound to take place when the company took possession of their land for farming, they prevailed upon the menfolk to reverse their stand. Finally, resistance from the farmers forced the State government to withdraw the scheme.

Contract (company) farming has been extensively tried in the country. The experience of Andhra Pradesh farmers in cultivating gherkins and in hybrid rice seed production has been reviewed by Braja Bandhu Swain ( Economic and Political Weekly, October 15, 2011). This study exposed the exploitative nature of the system. Its success or failure depends upon the nature of the contract management. The model of cooperative sugarcane factories, functioning with cane cultivated and supplied by shareholders is successful to a large extent though the problems of payment and accumulation of dues for the cane supplied persist. This despite these companies operating under State/Central legislation and regulation. The Anand Cooperative dairy model (Gujarat) is another success story.

The ruling class is not interested in these. This is evident from the closure of many cooperative sugar factories in Andhra Pradesh. Where farmers resisted closure, these factories continue to run, despite several hurdles, mainly owing to the inherent strengths of the system. There is no specific legislation to oversee the operation of contract company farming. Though this is verbally recognised, no action has been taken to fill the legislative gap. Contract cultivation of produce with a short shelf-life is risky for farmers. At present, the contract is mostly in the form of an oral agreement and the farmers are at the receiving end. The present legal arrangements are not satisfactory and are one–sided, except in rare cases where they are implemented through a written contract.

Reliance BIJ

The Reliance Foundation is supporting “Reliance bij (Bharat-India jodo)” programme. Under this, everything —from land tilling expenses to input supply and technology—is given free for the first three years with the stated objective of promoting sustainable farming. In addition, beneficiary farmers are allowed to sell their produce in the manner they like.

All the papers are in English and the farmers are made to sign them and bind themselves to the conditions laid therein without knowing what they are. There is a clause in the agreement stipulating that the agreement details should not be revealed to anyone before the expiry of the three-year agreement period. There is a clause enabling a member in the village Farmers’ Association to become a member in the farm producers’ company (to be formed in the area). In case of any dispute, the issue needs to be settled at the headquarters of Reliance Foundation (Mumbai), which effectively bars the farmers from seeking legal remedy in case of a problem.

Stable models

The Economic Reforms Commission recognises the importance of farm producers’ organisations, that is, companies, cooperatives or associations in the corporatisation of agriculture. Through the recently (April 2013) amended policy of Small Farmers Agribusiness Consortium (SFAC), benefits of the cooperative sector have been extended to farm producers’ companies through the consortium. A provision has been made in the Producers’ Company Act for optional conversion of producers’ cooperatives to producers’ companies.

Compared with the JSC model, producers’ organisations are better placed with least social destabilisation. From the point of farm producers, producers’ companies are poor substitutes to producers’ cooperatives as the farmers’ involvement, and the benefits from it, are relatively better than those obtained in the company model. Farmers should be allowed to choose between the producers company and cooperative models. The consortium should extend its support to whatever the farmers prefer without discrimination.

The SFAC encouraged the formation of producers’ vegetable cooperatives around big cities. About 70 have been formed in Andhra Pradesh itself. The cooperatives are helping growers to reduce their cost of cultivation and market expenses and improve the net profit. Produce from these societies is being procured by city-based big retailers who make huge profits. If the SFAC can help organise the wholesale markets, it will improve the net profits of the growers without casting a burden on the consumers. Similarly, it can help fruit growers, as it has in Himachal Pradesh.

Finally, it can be said that better experiences are available from the cooperative sector to bring small farms into the corporate model, modernise them and extend the benefits of large-scale farming to farmers. The JSC model is inferior to the cooperative models in this regard, provided the growers are involved more democratically in the functioning of the cooperative set-up. It also requires political will on the part of the ruling class. Will the policymakers, committed as they are to globalising the Indian economy, allow this? The answer is not difficult to predict.

A. Prasad Rao, an agricultural scientist, is a former professor of Acharya N.G. Ranga Agricultural University and technical member of Justice P.A. Chowdary Commission of Farmers Crisis in Andhra Pradesh (2000-02).

This article is closed for comments.
Please Email the Editor