If contract farming is an idea whose time has come, it is necessary to ask why did it take off from 2002-03 and then sharply decline by 2011-12 in this vanguard agrarian state, writes N Chandra Mohan for South Asia Monitor
This has been a winter of discontent for India’s farmers, especially from Punjab, Haryana, and western Uttar Pradesh in northern India, who continue to protest in tens of thousands against the three farm reform bills of the ruling BJP-led NDA regime. Braving chilly temperatures, they have laid siege to the borders of the nation’s capital demanding the repeal of these laws. Their implementation is unlikely to stay pending the outcome of negotiations as requested by the Supreme Court. The government is in no mood to oblige but has indicated its willingness to discuss all issues with farmers “with our heads bowed and our hands folded and with all humility,” according to Prime Minister Narendra Modi.
The official narrative is that farmers are being misled by the political opposition. Far from it as the farmers are not persuaded that these farm reforms will unleash enormous opportunities with the freedom to sell to anyone who gives a better price. Their apprehension is that the state is retreating in favour of multinational corporations and big business.
Today the policy regime allows foreign investments in food retailing. E-commerce is booming. Farm-to-fork linkages are being forged with thousands of farmers to procure fresh produce for the outlets in cities. This necessarily entails huge investments in supply chain logistics, cold chains, and warehousing.
India-UAE food corridor
To be sure, some corporates like the agribusiness giant ITC have a decade-long headstart in cutting out intermediaries and directly purchasing agri-produce from over four million farmers growing a range of crops like soybean, coffee, wheat, rice, pulses, and shrimp at e-choupals or village internet kiosks managed by farmers across 10 states.
Exemplifying the sort of opportunities that are opening up is that investors are lining up for an India-UAE USD 7 billion "food corridor project” that will benefit two million Indian farmers and create 200,000 jobs through the establishment of logistics infrastructure and agricultural projects, according to Gulf News.
It is not that farmers are unaware of these possibilities. Those from Punjab, in fact, have experience of contract farming going back to the 1990s, dealing with the likes of PepsiCo, for instance. There were assured buybacks of potatoes at pre-agreed upon price. Farmers were also given seeds, planting materials, and extension support. However, the enthusiasm for dealing with such corporates is relatively more among the substantial farmers than the small and marginal ones. If contract farming is an idea whose time has come, it is necessary to ask why did it take off from 2002-03 and then sharply decline by 2011-12 in this vanguard agrarian state.
The government, for its part, is providing assurances that it is a win-win situation for farmers with contract farming. An e-booklet released by the Ministry of Information and Broadcasting ‘Putting Farmers First’ highlights some success stories like the more than 1,000 seed potato farmers across Punjab, northern Haryana, and western UP are earning a guaranteed 35 percent margin above cost under agreement with Technico Agri Sciences Limited. That more than 2,500 potato farmers across north Gujarat are earning nearly Rs. 40,000 more per acre under agreement with HyFun Foods, a potato processing company.
Farmers not convinced
But farmers are not convinced that these assurances address the fundamental asymmetry that exists between the vast majority of the farming community and big business. Of the 120-odd million farmers, the overwhelming majority are small and marginal farmers who will not have the bargaining power to strike a better deal from the corporates. Initially, the latter may offer a higher price than the minimum support prices (MSP) announced by the government, but after a year or so they would purchase at a lower rate. They are bound to hold greater sway in price negotiations when there is excess supply in farm produce of everything from milk to sugarcane.
This applies also to the state that is in retreat. Although the government says that MSPs will continue, it is wary of providing support guarantees that are legally binding. At a time when bumper harvests are the norm, MSPs for a range of crops entail a downwardly rigid but upwardly flexible structure to prices that would be inflationary. Their impact is also notional if it is not backed by open-ended procurement.
Several rounds of talks with farmers have not resulted in any outcome in this regard, which has only reinforced the basic demand of farmers that the three bills be scrapped. An enormous trust deficit has developed in the process.
The end game for this snowballing protest does not look good as there is a battle of attrition underway. What is the purpose of all these reforms if the ones most affected by them aren’t convinced that it is a win-win outcome for them? Why would farmers protest if 150,000 of them from unions across the country - as claimed by a minister in government – were consulted before these farm reforms were enacted?
(The writer is an economics and business commentator based in New Delhi. The views expressed are personal. He can be contacted at firstname.lastname@example.org)