THE CONTEXT: The Union government has a noble objective of doubling farmer income by 2022 Thus the Indian agriculture sector has been witnessing a slew of reforms especially on corporate and contract farming. Against this backdrop, this article comprehensively discusses the issues of corporate and contract farming by adopting an in-depth approach.
UNDERSTANDING CORPORATE FARMING
- Corporate farming refers to agricultural operations that involve the production of food on an exceptionally large scale.
- It also involves a wide range of additional services that are important to the marketing of the foods produced.
- Thus this concept is not limited to the actual production of food but also includes the entire agriculture production system like marketing, distribution, etc.
- In other words, corporate farming deals with all the operations from “the farm to the fork”.
- These companies also influence agricultural education, research, and public policy through funding initiatives and lobbying efforts which are also needed to be considered while analyzing the concept of corporate farming.
UNDERSTANDING CONTRACT FARMING
- Contract farming means agriculture production carried out as per an agreement between a buyer and farmer.
- The contract sets out the rights and obligations of both parties concerning production, marketing, etc.
- The buyer agrees to buy the product at a mutually decided price from the farmer subject to conditions like timeliness, quality, etc.
- In some cases of contract farming, the buyer also provides seeds and other inputs including technical assistance.
ADVANTAGES AND DISADVANTAGES OF CORPORATE FARMING
ADVANTAGES
- It provides greater scope for investment in agriculture by big businesses and MNCs. This will improve Gross capital Formation in the Agriculture value chain especially in the food processing segment
- As per Economic Survey 19-20, farm mechanization in India is only 40%. Thus the entry of corporates will improve the status of farm mechanization which will improve production and productivity.
- It will promote the Industrialization of agriculture through the rapid production of crops to meet the needs of the economy. It will improve the GVA of agriculture in the overall GDP.
- Nearly 40 percent of the food produced in India is wasted every year due to fragmented food systems and inefficient supply chains as per Food and Agricultural Organisation.
- Timely harvesting of crops helps avoid wastage of food, increases the yield which leads to a decrease in food prices.
- The government subsidy for agriculture including MSP for farmers has huge fiscal implications. Corporate farming will reduce the fiscal burden of the exchequer.
- Many Indian corporates are involved in Agriculture in many African countries due to facilitative laws and local factors.
- For instance, the Tata group and RJ Corp have a significant presence in the Agri sector in Uganda.
- It enables reaping the benefits of economies of scale especially in the context of the high fragmentation of lands in India.
DISADVANTAGES
- It can adversely affect the livelihood opportunities of small and marginal farmers who form around 85% of the farming community in India.
- It can compromise the nutritional value of the food by increased usage of pesticides, insecticides, coloring agents, chemical and hormone injections, etc.
- Corporates farming poses the dangers of monopoly or cartelization in the Agri economy by dominating the whole Agri system value chain. This can impact the needs of food security of millions of poor people in India.
- The production techniques adopted interfere with the natural and biological processes of the environment.
- Moreover, corporate farming can be a threat to the water bodies that will quickly dry up from excess irrigation, polluting of fisheries by disposal of chemical wastes, and also pollutes the soil.
- The methods of corporate farming also pose challenges to human and animal health due to the extensive use of growth-stimulating drugs and chemicals
- The problem of Anti-Microbial Resistance is a case in point.
- Corporate farming heavily depends on Industrial agriculture which contributes to climate change.
- The IPCC report on Climate Change and Land 2019 points out how changing land-use patterns and food systems are driving anthropogenic emissions.
- In economies thriving on this type of farming, farmers face problems of reduced profits or increased costs. They then are forced to enter into a contract on unfavorable terms
ADVANTAGES AND DISADVANTAGES OF CONTRACT FARMING
ADVANTAGES
- The assured market for farmers for their produce. This captive market lowers the marketing and other transaction costs by eliminating middlemen.
- The farmers are saved from the vagaries of price volatility in the market due to assured procurement at the defined price
- Can make small farming competitive as they can access technology, credit, various farming inputs and can also open up new marketing channels
- Contract farming agreements assure the seamless supply of inputs to agri businesses which reduces the costs of their operations.
- It enables direct private investment in agriculture thereby making the Agri sector competitive and remunerative.
- For instance, it can promote investments in post-harvest management segments.
- The consumers will also be benefited as they can have more choices available at reasonable prices with good quality.
- It will have a wholesome influence on the socio-economic life in the rural area due to improved livelihood securities and income from farming.
- Companies/buyers provide farmers good quality products, such as breeds and best advisors to give efficient advice to the farmers.
DISADVANTAGES
- The greatest disadvantage of contract farming from the perspective of farmers is the loss of bargaining power.
- Due to the guaranteed markets, the contractors keep prices very low for farmers to earn maximize profit.
- Farmers get bound and they have to produce a certain amount of the crop at a specific time period. Thus the scope for alternative crop production is lost.
- The farmers cannot take advantage of the increase in prices of the crops in the markets due to a pre-determined price structure.
- Farmers don’t have the opportunity to get feedback from the consumer, and this leads to no improvements in production due to no communication between consumers and farmers.
- Environmental risks will increase due to the practice of monocropping which inter alia impact soil fertility and productivity. This is the long run would increase the cost of farming operations.
- The threat of creating monopolies in agriculture due to the domination of the value chain can have serious repercussions on food availability at affordable prices.
- The Big business has the wherewithal to decide the terms of the contract which put the farmers, especially the small and marginal ones in a highly vulnerable position
INDIAN SCENARIO
CORPORATE FARMING
- Agriculture is a state subject and many states have land ceiling laws that limit the area of land one can own.
- Many state governments in India have attempted liberalization of these land laws, especially land ceiling laws and land leasing laws.
- The states of Gujarat, Madhya Pradesh, Karnataka, and Maharashtra have allowed agribusiness firms to buy and operate large land holdings for R&D, and export-oriented production purposes.
- The states of Maharashtra and Gujarat have also enacted laws to allow corporate farming on government wastelands by providing large tracts of these lands to agribusiness companies on a long-term (20 years) lease.
- But, in general, corporate farming is not well-established practice in India.
CONTRACT FARMING
- Under the Model, APMC Act, 2003, contract farming was permitted and the Agricultural Produce Marketing Committees (APMCs) were given the responsibility to record the contracts.
- So far, 21 States like Andhra Pradesh, Arunachal Pradesh, Assam, and Chhattisgarh, etc have amended their Agricultural Produce Marketing Regulation (APMR) Acts to provide for contract farming. Of them, only 13 States have notified the rules to implement the provision.
- Currently, contract farming requires registration with the APMC in a few states. This means that contractual agreements are recorded with the APMCs, which can also resolve disputes arising out of these contracts.
- But the current law passed by the parliament related to contract farming (The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services act, 2020) has changed this system.
- Recently, In Madhya Pradesh, hundreds of farmers have lodged complaints against a private firm that has cheated and disappeared after entering into a contract in 2018.
SUCCESSFUL EXAMPLES OF CORPORATE AND CONTRACT FARMING
CORPORATE FARMING
DOMESTIC
- The Jamnagar Farms, the 1700 acre agri-forestry, Agri horticulture farm set up in previously arid land near the RIL refinery is a sterling example of a successful corporate farming business model. It is the largest Mango orchard in Asia. Though initially taken up as part of the plan to improve the environment, the company has now become a profitable proposition. Recently, it has been allotted government and community-owned land for its 5000 crores project which is oriented towards export-oriented farming.
INTERNATIONAL
- In some of the oil-rich Middle East countries, corporate farming including large-scale irrigation of desert lands for cropping, are carried out mostly through partially or fully state-owned companies
- Three American corporate companies namely Cargill, Archer Daniels Midland Company (ADM), and Bunge control more than 50% of the agrarian market of the world through vertical integration and corporate farming.
CONTRACT FARMING
DOMESTIC
- In India, contract farming effectively began in 1989 when Pepsi Co has established a tomato processing plant in Hoshiarpur, Punjab.
- A Karnataka case study on contract farming of baby corns and chilies has found positive impacts on income, access to technology, and credit for contract farmers compared to non-contract farmers.
- Landcraft agro a Kolhapur based agree startup established by IITians carryout aquaponics & hydroponics farming. The company grows more than 40 varieties of exotic plants and vegetables which are sent across various cities in India. This success of the company shows that corporate farming can also be conducted on relatively small scale of land.
INTERNATIONAL
- An FAO report documents a success story of contract farming in Kenya about the South Nyanza Sugar Company (SONY) in Kenya.
- The company places a strong emphasis on field extension services to its 1 800 contracted farmers, at a ratio of one field officer to 65 sugar-cane growers. The extension staff’s prime responsibilities are focused on the managerial skills required when new techniques are introduced to SONY’s farmers. These include transplanting, spacing, fertilizer application, cultivation, and harvesting practices. Also, SONY promotes farmer training programmes and organizes field days to demonstrate the latest sugar-cane production methods to farmers.
CHALLENGES IN CORPORATE AND CONTRACT FARMING
CORPORATE FARMING
- The land ceiling laws in states put restrictions on the landholding size. Also, there are problems with the acquisition of agricultural land on a large scale.
- Since the companies would offer prices that may be too tempting for the poor farmers to resist. They may not be able to negotiate fair prices for their land. Landowners, therefore, would run the risk of becoming landless
- Tenant farmers, Agri laborers’ women or children, may run the risk of losing access to land and therefore food security and social status. This has serious gender implications in an already gender-biased rural context.
- When governments transfer wastelands to corporates either on sale or on a lease, often it is found that they include Common Property Resources in it. Thus there is popular resistance against such transfer of land.
- The benefits of efficiency, productivity, and greater capital formation through corporate farming are not supported by conclusive evidence.
- Corporate farming needs large land parcels which require land consolidation. But highly fragmented nature of the Indian Agri landscape makes this process extremely difficult.
- Also, there are challenges of diversion of land into non-agri purposes, environmental degradation, monopolistic behavior, etc.
CONTRACT FARMING
- The manner of the passage of farm bills without adequate discussion in parliament and consultation with states created a hostile atmosphere in the country about contract farming, especially among farmers.
- Only last year, a few Gujarat farmers were sued for more than Rs 1 crore for illegally growing and selling a potato variety registered by PepsiCo. The incidence left a question mark over the future of contract farming in which resource-poor farmers were pitted against a powerful multinational.
- Price settings are not transparent and both producers and consumers are often cheated. Word-of-mouth contracts are observed in the breach. Thus farmers often become apprehensive to enter into contracts.
- Small and marginal farmers may not benefit from the contract farming system as they cannot provide the farm produce in such large quantities. Thus it is often criticized for bias towards large farmers.
- It may lead to a situation of Monopsony in the Agri market having only one buyer and multiple sellers (farmers). This distorts competition and efficient price discovery in the economy.
- The dispute resolution mechanisms provided under the state laws or in the current Union law have numerous complexities which can disincentive the stakeholders to enter into contract farming.
INTERNATIONAL EXPERIENCES: A LEARNING CURVE
- Around 9 states in the USA have enacted laws to prevent or restrict corporate farming. Yet the U.S. agriculture suffers from abnormally high levels of concentration. It means just a handful of corporations control nearly all of the food production, processing, and distribution.
- If the concentration ratio is above 40%, economists believe competition is threatened and market abuses are more likely to occur. Almost every sector in agriculture is well above these levels.
- The razor-thin profit margins on which farmers are forced to operate often push them to “get big or get out”—either expanding into mega-operations or leaving the land altogether
- Studies in the USA indicate that farmers are pressurized by corporations; they are paid low prices for their products such as soya, wheat, and maize, and they pay high prices for seeds, pesticides, energy, fertilizers, and animal feed.
- In the case of the developing world, many Brazilian farmers are indebted to the American corporate giant Bunge; which now has a claim on their harvest and land. Land grabbing has particularly affected Africa and South America where small-scale farming families are brutally evicted from their lands and the area is sold or leased to foreign (private) investors.
WHAT SHOULD BE THE WAY FORWARD?
CRUCIAL ROLE OF GOVERNMENT
- The government and its agencies should play the role of a third party and as a facilitator between the farmers and the companies.
- It should not act as a mouthpiece for the companies but must ensure the landowners/farmers receive a fair deal. This is crucial in the current scenario of farmer’s prolonged agitation against the recently enacted farm laws.
ADDRESSING ISSUES OF DOMINATION
- Competition in the agricultural systems across the value chains should be ensured through proper regulation.
- The role of the Competition Commission of India becomes vital in this regard which needs to develop strategies and rules to prevent abuse of dominant position in the food economy.
ENSURING FOOD SECURITY
- Food security including nutrition security for millions of poor Indians impinges on affordability and accessibility of food.
- Corporate and contract farming poses a threat to these aspects by excessive profiteering by the companies. Government must ensure that PDS and MSP operations must not suffer due to private participation in agriculture.
ADDRESSING ENVIRONMENTAL CONCERNS
- The threats of monoculture, land and water pollution, global warming, and poisoning of food chains through bioaccumulation, etc need to be addressed. This requires effective control of land-use change and a comprehensive environmental management plan.
PROTECTING AGRICULTURAL DIVERSITY
- Different foods and food groups are good sources for various macro and micronutrients. Thus a diverse diet best ensures nutrient adequacy and human health.
- This requires that the corporations must be prevented from destroying the Agri diversity by an extreme emphasis on economies of scale through intensive agriculture.
INTRODUCING POLICY CLARITY
- The National Agriculture Policy 2010 aims at increasing private participation in agriculture for a sustainable Agri growth of 4 % per annum.
- Thus the government needs to come out with specific policies dealing with corporate farming and also address the concerns of all stakeholders concerning the legal aspects of contract farming.
PARTNERSHIP WITH STATES
- Agriculture is a state subject and the legal/policy measures taken at the union level should be built on consensus building with states.
- Also, the states must revisit/modify the land ceiling and tenancy regulations along with enacting/reforming laws related to private sector participation in the agricultural system.
- States must encourage the utilization of NABARD’s special to refinance packages for contract farming arrangements aimed at promoting increased production of commercial crops and creation of marketing avenues for the farmers.
CONCLUSION: The need for greater involvement of private players in the agriculture sector is a foregone conclusion. But the debate is about the manner and the extent of the participation. In the quest for greater capital formation and improved agriculture production and productivity, the dysfunctional aspects of corporate and contract farming must not be neglected. A comprehensive policy regime rooted in the ethos of “the last man on the street” formulated through wide-ranging and effective participation of all relevant stakeholders can take agriculture to new heights in India.
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