After the recent spat between the PepsiCo and a handful of potato farmers from Gujarat, the debate surrounding contract farming has resurfaced. Just because these small farmers were growing and selling potato varieties that are reserved for and patented by the PepsiCo for the production of their popular chips ‘Lays’, heavy fines of more than a crore of rupees each were going to be imposed on them by the company. Following the activists’ fury and their invoking of India’s laws on farmers’ rights, Protection of Plant Variety and Farmers’ Right (PPVFR), the PepsiCo retracted its belligerent step and has
offered to take the farmers into its fold of contract farming and letting them produce and sell potatoes of the special variety FC5 to PepsiCo itself.
After the recent spat between the PepsiCo and a handful of potato farmers from Gujarat, the debate surrounding contract farming has resurfaced.
The contract farming has been prevalent for long years in potato growing regions, especially in West Bengal, one of the most productive potato growing regions of India. The PepsiCo works with 24,000 farmers and provides them with seeds, chemical fertilisers and insurance facility to farmers and in return they buy back the harvest at predetermined prices. It is a vertical coordination between farmers and buyers. This success story and many others alike has led the Niti Ayog to advocate contract farming for all types of produce in India. A year ago, the Niti Ayog announced the
Model Contract Farming Code.
The PepsiCo works with 24,000 farmers and provides them with seeds, chemical fertilisers and insurance facility to farmers and in return they buy back the harvest at predetermined prices. It is a vertical coordination between farmers and buyers.
There are clear advantages for farmers in contract farming as it offers them with hassle free production process for potatoes or any other produce. They do not have to bother about the sale of the crop through mandis and make provisions for insurance against crop failures. It gives them a secure and steady source of income. Many case studies of farmers under contract farming have pointed to the
farmers being satisfied with such contracts with big corporation as it leads to relatively risk-free farming.
May be in the future, there will be more corporate contract farming in India and it is often viewed as a panacea for farmers in some government quarters. They can have easy access to good quality inputs, extension services, grading and sorting of produce as a result of which their productivity and incomes can go up. With contract farming in practice, the farmers have not only become prosperous but they also feel secure about their future.
There are clear advantages for farmers in contract farming as it offers them with hassle free production process for potatoes or any other produce...May be in the future, there will be more corporate contract farming in India and it is often viewed as a panacea for farmers in some government quarters.
The opponents of contract farming point to the ecological damage this type of mono-culture has been causing around the world as only one type of crop is grown over and over again. It can be vulnerable to pest attacks and plant diseases that can devastate the entire crop production. Contract farming across the world has also reduced biodiversity and has led to the destruction of forests and the support for wildlife. Being profit driven, the big companies are not motivated to opt for organic farming, using natural fertilizers and pesticides.
In India, contract farming is unlikely to touch the small and marginal farmers, including many women farmers who need more help in accessing better inputs, technology and credit. Only mid-sized farms of a certain acreage are roped in for contract farming. It will also not benefit millions of tenant farmers who work on daily wages. Their plight of being landless labour with paltry wages continues and the security of their tenancy depends on the implementation of legislative reforms like Model Agricultural Land Leasing Act 2016 introduced by the central government. However, this legislation has to be adopted by State governments to make them effective.
The opponents of contract farming point to the ecological damage this type of mono-culture has been causing around the world as only one type of crop is grown over and over again. In India, contract farming is unlikely to touch the small and marginal farmers, including many women farmers who need more help in accessing better inputs, technology and credit. In India, contract farming is unlikely to touch the small and marginal farmers, including many women farmers who need more help in accessing better inputs, technology and credit.
Big corporations make mega profits through the sales of their products but the actual farmers who produce the agricultural core base of the product are paid just their labour costs. For example, the PepsiCo’s Lays has a veritable monopoly in the potato chips market. Likewise, big corporations have been reaping profits in farming operations all over the world. Even in India,
the share of corporate profits in organised manufacturing has been rising in the net value added as compared to the share of workers’ wage, because of the big gains the corporates have been making in recent years through various tax exemptions and lax implementation of regulations.
The big corporations also have money power which translates to bargaining power vis-à-vis the farmers. In the beginning, they may agree to pay farmers according to their labour and other input costs, but gradually they can start paying them less because the farmers have no other alternative. It often turns out to be a monopsony situation in which one buyer deals with many sellers — an arrangement which favours the buyer.
The big corporations also have money power which translates to bargaining power vis-à-vis the farmers. In the beginning, they may agree to pay farmers according to their labour and other input costs, but gradually they can start paying them less because the farmers have no other alternative.
In case when there is rejection of the crop of contract farmers on the basis of quality of the produce or because it does not match the specific requirements, the farmers face a difficult situation as they do not have other outlets to sell the produce. Often the State government has to rescue them. On the whole, it is an unequal relationship — the small farmer verses the giant corporation. Yet the security and smoothness of contract farming operations are attractive for farmers against the idea of individual farming based on much toil and sweat.
Contract farming is also restricted to few products which are in demand for the agri processing industry and is well suited for perishable products. Farmers of such products are in much greater need of help in the quick marketing of crops. Contract farming can help India save its fresh fruits and vegetables through cold chain solutions that include refrigerated trucks for transportation.
Contract farming can help India save its fresh fruits and vegetables through cold chain solutions that include refrigerated trucks for transportation.
Contract farming can also help in reducing the number of people dependent on agriculture. Many of the problems in agriculture are due to the dependence of around half the population on it, but since productivity is low, agriculture contributes only 15 percent of the GDP. Reducing dependence on agriculture is a goal of the Government. In future, will India have only 2 to 4 percent population dependent on agriculture with giant corporations owning the vast agricultural operations and trade? It is possible if small farmers pool their land en masse in a cooperative for contract farming. In any case, there is need for more effective regulation so that farmers’ rights are protected and land is not transferred to corporations. If Farm Producers’ Organization (FPOs) could be involved in dealing with big corporations, the farmers could operate from a position of strength and leverage.
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