The contracted Cola

Shuchi Srivastava spoke to Abhiram Seth, Executive Director, Pepsi Foods to get an insight into the various contract farming activities that the company has been engaged in.

What is the exact nature of Pepsi’s relationship with PAIC (Punjab Agro Industries Corporation) now?

Let me give you an example. As the government of Punjab was interested in cultivating crops that consumed less water, they wanted to work on groundnuts, a possibility that we jointly explored. The nature of participation entailed the facilitation of availability of high quality equipment, which we imported and the PAIC chipped in with 50 per cent of the invoice value. Now instead of buying tomatoes, we provide planting material, as there are farmers who are interested in growing developed varieties of tomatoes. So, we have our own nurseries from where we provide planting material to the farmers through the PAIC.

What is the contract farming model that Pepsi practices currently?

The model as envisioned by us has certain key building blocks. We do not see it as a market intervention mechanism, where we arrive at a pre-agreed price. Because we believe that in such an agreement we as a company don’t really bring much to the table except an assured price for the produce.

In our model we first research the entire requirements related to the exact nature and amount of inputs required, the various related agronomic practices, and it’s from here that we reach an economic model and arrive at an average of productivity and the economics that would govern the growers.

Fundamentally, we focus on the fact that our offer should be better than the profit that would accrue to the farmers if they follow traditional cropping patterns. Typically, we provide the planting material and extension services, and we don’t charge for the latter. A mix of permanent and seasonal employees typically provides extension services. We are very clear in our expectations from them; we do not expect them to enlist farmers like marketing agents. We strongly believe that we’ve already built a reputation to reckon with in Punjab and enlisting farmers is not an issue.

Could you shed some light on the new venture that you have forged with Pagreco with regard to groundnuts?

Our original interest in groundnuts was for export purposes but now the dynamics of the international markets have changed. We were interested in exporting Hand Picked and Selected (HPS) groundnut, which basically implies that the produce has been manually graded and sorted, a specification that commands a premium in international markets.

Also, because we were working on irrigated area, we were interested in producing groundnuts which were guaranteed as being aflatoxin free. These activities were also purely driven by the need for crop diversification as envisioned by the Punjab Government.

What transpired thereafter this: the international market position changed and the global prices became softer than those prevalent in the domestic market. But the Punjab government was still very keen on the crop becoming popularised, albeit for the domestic market. Consequently, the current model that we’ve developed in consonance with Punjab Agro Export Corporation Limited (Pagreco) is one where we’re involved in a seed multiplication exercise in order to create a seed bank. Now for groundnuts, in comparison to other crops, the rate at which seed multiplication occurs is 1:10, which necessitates the building of a base in order to expand to larger acreages.

So we supply the seeds to Pagreco, who in turn distribute it to the farmers. The farmers have shown keen interest in this activity and it makes a lot of sense for them as it also rejuvenates the soil, given the fact that the crop is leguminous and fixes nitrogen. This amounts to a big advantage as it reduces the need of nitrogenous fertilisers in the forthcoming cycle, another factor in favour of this cropping pattern.

Given that contract farming is not a subject under the aegis of the centre, do you welcome state government interventions?

In our country it is very clear that as far as agriculture is concerned, the Centre only creates ...

 

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