Contract farming as a means of ushering in corporatisation in agriculture

The purpose of initiatives such as contract farming seems to be to create conditions that make it difficult for the small and marginal peasantry to sustain themselves and eventually force them to leave their land or sell it to rich farmers, thus consolidating and centralising the agrarian capital.

At a farm in Hiranki village in New Delhi on October 13. In the event of the APMCs withering away or the state-sponsored mandis just collapsing, all classes of farmers shall be impacted by the corporates and their middlemen.

T he most challenging and pertinent questions confronting any state ought to be around the situation of the marginalised and deprived sections of society. Prima facie, the Indian ruling elite since the early 1990s have mouthed their concern for fair price for the labour and produce of farmers, promised doubling of their income and even raised issues of their survival—specially of the small and marginal peasantry that constitutes almost 80 per cent of the farmers. Behind this facade, however, the agrarian policies and resultant structures in the past three decades have consistently served the cause of the big corporates. The three ordinances approved by the Cabinet on June 3, 2020, ostensibly claimed to provide greater freedom to farmers to bargain for better remunerative prices for their produce by removing the restrictions on the movement of foodgrains and other commodities. The conversion of the ordinances into Acts in September 2020 through somewhat questionable means, have, in effect, further intensified the corporatisation of Indian agriculture. The manifestation of this trend is illustrated here with the concrete case of contract farming in India.

1. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020

According to the Economic Survey 2014-2015 ¹ , there are approximately 2,477 regulated market spaces—Agriculture Produce Marketing Committees (APMCs)—in India. These markets allow farmers ‘first’ sale of their commodities such as cereals, pulses, edible oilseeds, fruits and vegetables and even chicken, goat, sheep, sugar, and so on, under their aegis, but through the commission agents ( aadatiyas / arhatiyas ) licensed by the APMCs set up under the APMC Act, 1954. A typical APMC has auction halls, weigh bridges, godowns, shops for retailers, police station, post office, bore wells, warehouse, farmers’ amenity centres, and so on.

The table ² shows that the Central government decides the minimum support price (MSP) ³ for the commodities mentioned therein. Individual State governments acquire these commodities to fill up the State godowns through their mandis. Thus, in effect, when farmers in Punjab or Haryana go to an APMC mandi to sell their harvest of rice and wheat, they know that they will have a “fixed income”. There is an assurance that on an average if a farmer has been able to produce one quintal (100 kg) of rice, he/she will get at least Rs.1,868 as remuneration.

Now, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, has been projected as one that will “free” farmers from the alleged state monopoly. The most important provision in the Act is that there will be no market fee, cess or levy on transactions in the trade area concerned. Currently various taxes/fee/commission in the APMCs range from 3 per cent in West Bengal, 14.5 per cent in Punjab to 19.5 per cent in Andhra Pradesh ⁴ . The APMCs are stunned at the prospect of all trade moving out of their jurisdiction because of this advantage of zero tax in the trade area. There is a growing realisation that the APMCs may wither away and farmers will be left at the mercy of the corporates.

In the event of the APMCs withering away or, as it seems more likely, these state-sponsored mandis just collapsing, all classes of farmers ⁵ shall be impacted by the corporates and their middlemen. The immediate and the most severe axe will fall on small and marginal farmers. Where will they get the MSP if the mandi does not exist? In fact, since the new Act would bypass the model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017, which had provisions for a ‘level’ playing field for both public sector and private sector players to enter agriculture marketing, the scope of buying by non-state monopolies has grown exponentially, making the peasantry more vulnerable to international price fluctuations. In fact, the Federation of Indian Chambers of Commerce & Industry (FICCI), the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and the Confederation of Indian Industry (CII) have worked tirelessly to create “equal” opportunities and lobby for changes in ‘mandi’ laws ⁶ . With the APMCs becoming non-functional, the State godowns will start depleting and that will create yet another concern for the food security of the most marginalised sections of society. In this case, the marginal farmers will have a double whammy. Even big farmers who managed with the MSP on their dual crop rotations have also been put in a spot.

2. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020

Let us visualise the case of a rich capitalist farmer whose name is, say, Maninder Singh, owning 60 to 70 acres of land. As a beneficiary of the Green Revolution Technology ⁷ of the 1960s, this class of farmer had surplus capital to invest and reinvest in agri-inputs and made huge profits. Since the early 2000s, they have also been experimenting cautiously with corporate-style farming called contract farming. Such big farmers used up to 10 acres of their land to try out the new production process. The remaining land is used to grow rice and wheat.

Contract farming is a process by which farmers sell a certain quantity of farm products to an industrial company at a predetermined agreement. In principle, the industrial company has secure access to the raw material (for example, potatoes for chips) it needs and the farmers have a secure market. It is important to view contract farming as a set of economic relations that are brought together into a production process. Agri-processing companies (PepsiCo, McCain Foods, Satnam Agritech), agri-input companies (Syngenta, Cargill, Monsanto, BASF, John Deere), finance capital (ICICI Bank, Yes Bank) and contract farmers all come together and become part of different contracting agreements. All these forms of capital “profit collectively”.

In the popular understanding contract farming is an unequal partnership between the ‘mighty’ company and the farmer. It is partly true. Even in the case of farmers such as Maninder Singh, it rests on several imponderables that are manipulated by the company. I illustrate below, on the basis of my field work, the actual working of the predetermined, prefixed, contracted and agreed “buy back rate”:

“…Before we enter into any contracting arrangement with a farmer, we decide in our boardrooms about our target profit, estimated sales and how will it be achieved. By partnering with the best in the field—such as Syngenta for seeds, DuPont and Bayer for plant protection chemicals etc., we are able to fix the cost of production of (for example) chip grade potatoes per acre. Our precision technology and accurate package of practices also enables us to fix an average yield per acre. This is made possible by farmer-pools.… For instance, we calculate how much profit should a contract farmer make:

Yield/acre = 15,000 kg = 150 quintal

Buy back rate = Rs.2.5/kg

Earning per acre = 15,000x2.5= Rs.37,500

Cost of production Rs /acre

Seeds = 3,000

Labour = 7,000 (flexible)

Chemical = 3,000

Machinery = 2,000

Assured profit = Rs.37,500-15,000 = Rs.22000…” (Interviewee, Agri-Marketing Head, PepsiCo. Ltd., 2008)

However, once it is time to buy back the produce, the company may resort to unethical ruses such as the product not meeting the quality standards or even a ‘glut’ of the produce in the mandi. Faced with the threat of complete ‘rejection’ of the produce (say, potatoes), Maninder Singh is left with hardly any alternative but to compromise on the heavily reduced ‘buy back’ rate, say Rs.1.5 a kg. The second new law provides for a three-level dispute settlement mechanism: the conciliation board, Sub-Divisional Magistrate and Appellate Authority. Maninder Singh could make use of the provisions of the second Act, but, strikingly, this mechanism makes it difficult for the farmer to appeal in court. Anyway, we all are too familiar with the dilatory Indian legal system. With the first new law already making the MSP redundant, one wonders what options Maninder Singh will have in future to sell his produce.

Who is losing out?

In a country as poor as India where 66 per cent of the population still lives in rural areas and where 85 per cent of people working on farms have less than two acres of land, it is important to create policies that will work in favour of the majority. Let us see how the first new law will impact a small farmer. Picture a frail, old looking (but not more than 40 years old), low caste farmer in Punjab. Following are the rough estimates from my fieldwork:

“…One acre of land in a good year yields about 20 quintals of wheat. In a bad year, the yield can go down by half or three-fourths, i.e. 7-10 quintals. At a minimum support price (MSP) of Rs 1,310 (approximate figure given by farmer) per quintal a farmer can get about Rs.26,200 per acre….” (Interviewee, non-contract farmer/marginal farmer Joginder Singh, Sangrur 2010.)

Now this cost also has to take into account cost of inputs:

1 quintal of fertilizer = Rs.2,000* ⁸

One and a half quintal of urea = Rs.1,000*

Zinc = Rs.200*

Three sprays of pesticide = Rs.1,500*

Seed = Rs.800*

Four rounds of watering = Rs.800*

Labour = Rs.3,000*

Sundry expenses like tractor and diesel = Rs.2,000.

Electricity = free

Typically, small farmers will spend about Rs.11,300 an acre. They earn about Rs.14,900 an acre for six months of hard work that translates into Rs.2,483 a month. This does not take into account the wages of an entire family of four or five persons who would be toiling ceaselessly to make these numbers a reality. For a small and marginal who has up to two acres of land, it is almost impossible to earn anything more than the MSP guaranteed by the state. Where will they go? What option do they have to sell their commodity? Will they have the entrepreneurial commitment that is required of these ‘farmers’ now? Perhaps they are already born in debt, trying to make ends meet. They might sell their land and move to the city in search for work (and we well know how work in cities look like for the poor and the dispossessed). Peasants quitting farming as a profession is becoming quite a phenomenon.

The “development” initiatives in agriculture have created vast and glaring inequalities. This process of “peasant differentiation” (that creates the gap between the agrarian classes) was observed starkly in Punjab with the adoption of Green Revolution Technology. The widening socio-economic gap amidst peasantry has been increasing, more so since the entry of corporate capital in agriculture. P. Sainath has been documenting the suicide of farmers tirelessly for years ⁹ .The suicides are a result of agriculture becoming increasingly an unviable economic venture for the small and marginal peasantry. With the increase in cost of production, removal of subsidies, destruction of state-led markets and other services, the small and marginal peasantry finds it increasingly hard to survive. In a study ¹⁰ published in 2014, it was found out that since the year 2000 almost 45 per cent of the marginal peasantry had quit agriculture.

In other words, the purpose of initiatives such as contract farming is to create such conditions that it becomes difficult for the small and marginal peasantry to sustain themselves and eventually leave their land or sell it to rich farmers, thus consolidating and centralising the agrarian capital—a few farmers owning maximum land.

Conclusion

The new laws of September 2020 are potent weapons for accelerating the trend towards corporatisation of Indian agriculture. The removal of restrictions on the movement of foodgrains will only consolidate it. All governments since the 1990s, irrespective of political parties, have consciously worked for a “free market economy”, encouraged agrarian neoliberalism via contract farming and passed such laws that sought to eliminate the state from the governance of the agricultural sector.

Contract farming needs to be opposed in its entirety. The twin promises of agrarian neoliberalism, viz., ‘great prices’ and ‘freedom’, which have been most discredited in the last 30 years, have now found haven in Indian agriculture. Even at the risk of being somewhat rhetorical, we need to ask, what are global corporations coming to India for? India continues to offer a cheap wage platform for global corporations. We offer the lowest per unit of production cost because we treat our labour as expendable. They are migrant men and women and children, often Dalit, ready to work and earn their daily bread at any cost. And they are paid abysmally low wages. What we need is a proactive state that takes care of its poor and marginalised peasantry, that works for the poorest labourer. Those at the bottom are struggling for survival and not for ‘growth’. What we need are policies and laws that can create the right conditions for small and marginal farmers to live a life of dignity. If they consciously decide, nonetheless, to quit agriculture and move to other professions, they must have options and their children must have access to school and university education, ensuring that they are not born in debt, are out of the poverty trap, so that there is some hope.

(The fieldwork references in this work are part of my field research done in the years 2007-2011 in Punjab, Delhi, Mumbai and Bengaluru. Names of interviewees have been changed for anonymity, but the names of places have been retained.)

Ritika Shrimali is Assistant Professor at Huron University College, Western University, Canada. She received her PhD from York University, Canada. She is the author of the soon to be published book,Corporatisation of Indian Agriculture: The case of Contract Farming in India,Palgrave (2021).

 

^Footnotes

^{1. https://www.indiabudget.gov.in/budget2015-2016/es2014-15/echapvol1-08.pdf - as accessed on September 29, 2020}

^{2. https://farmer.gov.in/mspstatements.aspx - as accessed on September 29, 2020} 

^{3. Minimum support prices (MSP) are calculated by experts who decide on an average how much should a farmer earn on his/her produce to sustain their lives. In 2004, the National Commission on Farmers headed by the agricultural scientist M.S. Swaminathan was set up. A key recommendation of the commission, which submitted its final report in October 2006, was that the MSP for all crops be fixed at a premium of 50 per cent over the cost of production. More than a decade later, Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi approved the increase in MSPs for all kharif crops for 2019-20 season by accepting the recommendation of Swaminathan Commission. (https://www.business-standard.com/article/news-cm/cabinet-approves-hike-in-msp-for-all-kharif-crops-of-2019-20-season-119070300947_1.html). In sum calculations of the MSP, the cost of ‘family labour’ was also factored in as an indispensable “input”, but the above decision of the Modi government perhaps preferred to ignore it.}

^{4. https://www.indiabudget.gov.in/budget2015-2016/es2014-15/echapvol1-08.pdf - as accessed on September 29, 2020}

^{5. The term ‘farmer’ is not a homogeneous category. Listed below are the agrarian classes one can find in Punjab. These classifications have been derived from Utsa Patnaik (1976). “Class Differentiation within the Peasantry: An Approach to Analysis of Indian Agriculture”,  Economic & Political Weekly , 11(39), A82–A101, and my own field work done in the region. Each class of farmer gets impacted by these policies differently.} 

       ^{(1) Landlords of the feudal type and capitalist farmers (enough land to avoid direct labour altogether: own more than 70 acres of land)} 

       ^{(2) Rich peasants (who may do some work on their farms but mostly dependent on hired workers): have ownership or have access to 30-70 acres of land}

       ^{(3) Middle peasants (who work on their own farms and may hire seasonal workers) – 10-30 acres of land}

       ^{(4) Small farmers (5-10 acres of land – either by ownership or have access through rent): they might just be able to break even and supplement their income by working for others.}

       ^{(5) Poor and marginal peasant – less than 5 acres of land. Work on their own farms and also work on others’ farms for more income}

       ^{(6) Landless labourers (who own no land at all, can only (barely) survive by selling their labour power.)}

^{6. Shrimali, R. (Forthcoming 2021) Corporatisation of Indian Agriculture: The case of Contract Farming in India , Palgrave.}

^{7. The introduction of the Green Revolution Technology (hybrid seeds, intensive irrigation, heavy agriculture inputs usage) in the 1960s was a step towards maintaining domestic food self-sufficiency. However, the inequalities (environmental, socio-economic, etc.) created by the introduction of GRTs have been well documented. In fact, the resultant increase in the cost of production led to high indebtedness and farmer suicides in Punjab.}

^{8. *Approximate cost based on figures derived from an online portal that sells chemicals and fertlizers https://dir.indiamart.com/impcat/fertilizer.html}

^{9. Nagaraj, Sainath, Rukmani and Gopinath (2014). Review of Agrarian Studies. Available at https://ruralindiaonline.org/library/resource/farmers-suicides-in-india-magnitudes-trends-and-spatial-patterns-1997-2012/}

^{10. Singh, S., and S. Bhogal. 2014. “Depeasantization in Punjab: Status of Farmers Who Left Farming.” Current Science  106 (10).}