Bank on it

In conversation with Shuchi Srivastava Brahmanand Hegde, Head Rural and Microbanking Group, ICICI Bank, proclaims that contract farming in India will be the farming for the future.

When did ICICI first seriously foray into contract farming?

We thought of entering into agriculture in 1999- 2000, we considered the strengths that we possessed as a bank as traditionally we have been a corporate led running institution. We thus started the Corporate Linked Farming Assistance programme. Our first experiment was in tandem with Hindustan Lever Limited in Pipariya (Madhya Pradesh), where we cultivated wheat.

What was the nature of the contract forged between you and the other parties involved in this venture?

Tata Rallis took care of the supply of inputs and other related service, we provided the credit in consonance with our Prime Lending Rate and Levers bought back the produce. We coordinated the entire exercise, which was spread over an area of 250 acres.

It proved to be a highly successful model as the farmers incurred a 15-20 per cent profit, Rallis was able to deliver services in the manner in which it envisioned and we recovered the entire credit that we disbursed in a period of six months and Levers was able to source wheat directly from the farmers.

Simultaneously the farmers were benefited due to increase in productivity and quality due of their produce for which they were able to command a premium in other markets too.

Was the buy back price pre-agreed to?

It was benchmarked against the market price. There was saving in the cost of purchase as compared to other produce, which is transported to the nearby mandis and undergoes handling (2-3 per cent of wear and tear), and incurs the charge that agents levy, all these costs were saved for HLL .In terms of gross realisation there is no extra price rate that the farmer earns but in terms of net realisation they did see a rise in their incomes.

What were the learning’s that you internalised after the successful implementation of the aforementioned project?

After our first pilot project we have been in a constant state of evolution where we have partnered with a numerous business houses like Mahindra & Mahindra and Tata Rallis, our pilot project at Pipariya took of very well and also taught us lessons for the future which would prove to be crucial when we plan to scale up our project.

In fact when we scaled up this project in the next season with other partners and a larger numbers of farmers, we realised that there were many areas where we were not able to deliver in the similar fashion.

As it was clear to us that when one is dealing with 25 farmers individual supervision is viable, but the same is not possible when say a 1000 farmers are involved, there is a definite dilution of effort there. This always happens unless your products and systems are so absolutely perfect that they can be replicated effortlessly.

What were the other areas that you eventually diversified into?

We went to Tamil Nadu with Mahindra & Mahindra to farm paddy, Kota for Soybean, we also farmed for organic cotton and sesame in Kutch. We also worked with Apache in Tamil Nadu.

What were the actual problems that you faced from the operations end?

We had to account for the fact that each partner had their own mindsets. It was difficult for them to break away from a particular system of thought. If a third party tries to influence them there is a lot of resistance, so we had to first establish a productive interface with the decision makers in these organisations and as always it took some time for it to percolate to all critical levels.

It has taken us some time to build a reputation as a commercial bank, which has displayed a consistent growth, which as a result has helped us negotiate with partners. Our experience with all kinds of organisations also puts us in a stronger position because we bring with us a set of learnings which partners value. Most of the partners took our advice seriously and reacted quite positively.

What about the various practicalities that skew the effective functioning of farmers?

A valid query, as corporates are naturally equipped to internalise changes and processes and given that farmers in India are largely conservative, we had to do lot of work with them. We also had to take into account that each location had its specific dynamics, where a farmer in Tamil Nadu would require convincing of a different nature as opposed to one from Uttar Pradesh. Basically we strongly believe that an approach whose foundation is firmly laid in reaching out to the culture and local practices of a particular area leads to quicker and greater acceptance.

In order to accomplish the above did you work with local intermediaries?

Yes, we did, like in Tamil Nadu we worked with Apache Cotton, which is a ginning company and was thus interested in buying the cotton and they facilitated a lot of local participation for us, in fact we have planned to extend our contract with Apache and also bring in the State Government of Tamil Nadu. Grassroot level intervention is critical for the success of this nature of farming and this is a goal that cannot be achieved by only planning within the confines of an urban offices.

 

contd...

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