India takes to contract farming in a big way

Asit Tripathy, Chairman of Agricultural and Processed Food Products Export Development Authority (APEDA) has pointed out that Indian states need to promote contract farming to ensure that farmers get remunerative prices and assured market for their produce apart from getting freed from the clutches of middlemen.

India's national agricultural policy also envisages private participation through contract farming and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured market for crop production, especially oilseeds, cotton and horticultural crops.

According to Asit Tripathy, contract farming is taking place in different forms in various states in the country. Addressing a conference on ‘Agro exports from Andhra Pradesh – present emerging scenario' in Hyderabad organised by APEDA and Confederation of Indian Industry, he pointed out that because of small holdings, farmers are not able to invest and see surplus produce.

According to official estimates, there are 25 big and small private companies engaged in contract farming for various commodities - it includes AVT Natural Products Ltd in Marigold caprica chilly in Karnataka, Escorts Ltd in basmati rice in Punjab, Nestle for milk in Punjab, Cargill India Pvt Ltd for wheat, maize, soybean in Madhya Pradesh, Hindustan Lever Ltd for wheat in Madhya Pradesh. The complete list is available in http://agmarknet.nic.in/ConFarm.htm

Contract farming involves a pre-agreed price between the company and the farmer. The agreement is defined by the commitment of the farmer to provide an agricultural commodity of a certain type at a time and a price and in the quantity required by a committed buyer, mostly a large company

PepsiCo was the first company in India to start contract farming of tomatoes in Hoshiarpur district of Punjab . Reliance Life Sciences, ITC (agri-business division) and McDonalds are some of the prominent business giants, which have either started contract farming projects already or are in the process of actively discussing them with various state governments. PepsiCo and other companies have used the contract system for the cultivation of Basmati rice, chilli and groundnut, as well as for vegetable crops such as potato. The amendment of amendment of the Agriculture Produce Marketing Committee Act in 14 states, which allows farmers to sell their produce in open markets has enabled the growth of contract farming by allowing big investment by corporates in the segment.

Benefits of Contract Farming

1) Farmer gets rid of middlemen and gets assured price

2) Farmer gets the inputs and only needs to put in land and labour as his contribution

3) National Policy assures that land will be permanently owned and cultivated only by farmers.

4)Farmer gets freed from the clutches of money lenders

Last year, Business Standard reported on 6500 potato farmers in Bamunpara in West Bengal who got a market price of Rs 6-8 per kg when market prices crashed to as low as Rs 3-3.50 per kg on bumber potato crop in the region. Thanks to the contract farming tie-up with Pepsi Co, several farmers escaped the market crash.

What PepsiCo started as a pre-condition to its entry in India is today its most welcomed programme. When it entered India in 1989, the Indian government had made it mandatory for the company to do contract farming in the country, to help farmers improve crop yield through adoption of latest agricultural technologies.

The company identified tomato processing as a potential activity, as tomato paste was used by Pizza Hut/KFC/Taco Bell restaurants, part of PepsiCo at that time. The company tested this for about four years. The efforts resulted in manifold yield improvement of tomatoes from 16 tonnes/ha to 52 tonnes/ha. The improved yields helped increase farmer incomes despite lower prices to the consumers. PepsiCo entered into pre-agreed price contracts with the farmers. This was the beginning of contract farming in India, The Business Standard report added.