A leap of faith

The current status of agricultural development in India has shown that the existing system of delivery of agricultural inputs and use of agricultural output has not translated into better linkages between the farmers and the agro-industry. A timely and cost-effective delivery of adequate inputs still remains a distant dream, despite the attempts made by the corporate sector and the developmental programmes of the state.

There are frequent gluts in the markets, resulting in low prices and losses to the farmers. On the other hand, processors and the marketers face problems in obtaining timely, cost-effective and adequate supply of quality raw materials. In the emerging environment of liberalisation and globalisation it becomes imperative to explore the role of the corporate agribusiness sector in building linkages with farmers.

There have been a few experiments by the state and the corporate agribusinesses in the recent past to build linkages in agribusiness commodity chains.

STATE-LED CONTRACT FARMING IN PUNJAB

Contract farming refers to the production and supply of agricultural produce under contracts made in prior to the harvest. The essence of such contracts is a commitment made by the producer to provide an agricultural commodity of a particular type, at a time and a price, and in the quantity required to a known buyer who commits to buy the same. It basically involves four things – pre-agreed price, quality, quantity or acreage (minimum or maximum) and time. The contracts could be of three types:

• Procurement contracts under which only sale and purchase conditions are specified
• Partial contracts wherein only some of the inputs are supplied by the contracting firm and the produce is bought at pre-agreed prices
• Total contracts under which the contracting firm supplies and manages all the inputs and the farmer becomes just a supplier of land and labour requirements.

The contract-farming programme launched by the Government of Punjab in October 2002 was aimed at taking away 10 lakh hectares from the wheat-paddy rotation over the next 5 years as part of the crop diversification programme as recommended by the second (2002) Johl Committee. The programme was implemented as a joint venture between the Department of Agriculture, Punjab Agro Industries Corporation (PAIC) and the private companies. The PAIC not only provided seeds purchased from reputed seed companies but also promised to buy back the entire produce at pre-agreed prices.

The government had a role in the determination of the contract price. The state also involved some private companies in this project.

The area under the contract production programme for Rabi 2002 had already been achieved by December 2002. But, towards the end of the harvesting season for the contracted crops, there were reports that the programme had run into rough weather. The contracted winter maize and mustard crops failed almost completely due to inclement weather and poor quality seeds. In case of green peas, the contract growers were forced to dump their produce in the open market, after being rejected by the PAIC on quality grounds as per the contract specification, as there had been fungus infection due to the rough weather, which was marked by heavy rains in the winter season and then a sudden rise in temperature.

Some farmers found fault with the fungicide supplied by the contracted company in this regard. The dumping of the crop in the open market led to a fall in the prices and the produce was sold at Rs 3 per kg as against Rs 5 per kg, as promised by the PAIC.

Though contract farming has existed in the state for more than a decade now, after being initiated by Pepsi Foods in tomato and chillies in the early 1990s, it was for the first time that the state government had taken up this project with its direct involvement. It was a part of a larger project on crop diversification to be implemented over the next 5 years.

It was rather surprising that the state had undertaken contract farming as a party to the contract with the growers. Though this could help bring about some results in the short run, its longterm viability was doubtful, as it is not easy for the farmers to switch over to high value and high tech crops. Farmers adopt or do not adopt a technology depending on the economic sense it makes and other risks and environmental factors associated with it.

But, farmers do not easily switch from field crops to horticultural or other high value crops as these are much more labour intensive, input intensive and require more post-harvest handling. Further, profitability is more dependent on meeting market requirements of freshness and quality.

Thus, while farmers can expect to earn more from these crops, they are required to work harder, learn new skills and risk more capital. Therefore, to adopt a new crop or technology, farmers need more than just the technology. The Punjab state has since moved to corporate agribusiness led systems instead of the state-led system of building linkages.

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