| Contract
farming is increasingly being presented as a solution
for the problems of Indian agriculture, by major international
donor agencies, multinational companies and even the
government. It is argued that private sector participation
will be promoted through contract farming and land leasing
arrangements will allow accelerated technology transfer,
capital inflow and assured markets for crop production,
especially of oilseeds, cotton and horticultural crops.
The UPA government’s Approach Paper to the Eleventh
Plan gave priority to the development of contract farming.
Now, a Working Group set up by the National Development
Council, under the leadership of then Punjab Chief Minister
Amarinder Singh, has also made a set of proposals to
promote contract farming. In addition to suggesting
greater liberalisation of laws and rules for crop contracts,
it has proposed tax rebates for food processing, duty-free
imports of machinery and equipment, exemption of market
fees, etc., and liberalised imports of seed varieties
for contract farming programmes.
Contract farming is defined as a system for the production
and supply of agricultural or horticultural products
under forward contracts between producers/suppliers
and buyers. The essence of such an arrangement is the
commitment of the cultivator to provide an agricultural
commodity of a certain type, at a time and a price,
and in the quantity required by a known and committed
buyer, typically a large company.
According to the contract, the farmer is required to
plant the contractor’s crop on his land, and to harvest
and deliver to the contractor a certain amount of produce,
based upon anticipated yield and contracted acreage.
This could be at a pre-agreed price, but need not always
be so. The typical contract is one in which the contractor
supplies all the material inputs and technical advice
required for cultivation, while the farmer supplies
land and labour.
This system has old historical resonances, such as the
infamous contracts enforced by indigo planters in eastern
India during the early colonial period. But the more
recent pattern of contract farming has been developed
especially in the United States, where corporate penetration
of agriculture is probably the most advanced. Agricultural
trade globally is dominated by transnational corporations,
like Cargill, Archer Daniels Midland and Monsanto, which
are increasingly involved at each stage of the agriculture
system. These corporations achieve domination over the
market through a combination of horizontal and vertical
integration.
This has increased the margins for the procuring and
processing firms while at the same time reducing farm
incomes and increasing the prices for the consumers.
This explains the rising spread between retail prices
and the prices received by farmers and livestock breeders,
which has been so marked in the US over the past two
decades. It is not generally known that US farmers have
not really gained from the continuing government subsidies
to agriculture - instead large agribusinesses have made
huge and increased profits.
US farmers are financially and politically much stronger
than Indian cultivators, many of whom are already operating
at the margin of subsistence. So it is important to
be fully aware of the implications and the need for
adequate regulation of contracts.
The recent spate of contract farming in India effectively
began with the entry of Pepsi Foods Ltd (PepsiCo) in
1989 by installing a tomato processing plant in Hoshiarpur,
Punjab. PepsiCo followed a method whereby the cultivator
plants the company’s crops on his land, and the company
provides selected inputs like seeds/saplings, agricultural
practices, and regular inspection of the crop and advisory
services on crop management.
Subsequently PepsiCo and other companies have used similar
methods for the cultivation of food grains (Basmati
rice), spices (chillies) and oilseeds (groundnut) as
well, apart from other vegetable crops such as potato.
Until recently, this model of contract farming was considered
a success in terms of diversifying cultivation in Punjab
and improving the incomes of farmers.
The Punjab government has argued that contract farming
is the best means of crop diversification, in a region
where there is a real question of ecological survival
and sustaining natural resources like water and soil
in a reasonably healthy state. However, since contract
farming is based on private corporate interests that
are inherently profit-driven, there is no reason why
these should coincide with the ecological requirements
of the region.
Indeed, much of the recent corporate interest in Punjab
agriculture has been in basmati farming, which is one
of the great water-guzzlers. Crop diversification can
be more effectively encouraged through a system of changing
the relative prices of crops accompanied by a supportive
system of public agricultural extension services.
Farmers in Punjab have become increasingly resentful
of a system that has put them under the total control
of corporations, which will decide not only the crops
grown but also the procurement price. The growing incidents
of the pre-determined prices being reduced on the pretext
of inferior quality of the grain or crop, have added
to such resentment. The issue has became so critical,
that several times in recent years, the state government
agency that had designed the contract farming programme
in the first place (Punjab Agro Foodgrains Corporation)
has been forced to step in and buy basmati rice that
was being rejected by the contracting companies.
Contract farming in Punjab has certainly led to more
employment opportunities for some labour, since the
labour intensity of most vegetable crops, except potato,
is much higher than for traditional crops like wheat
or paddy. However, wage levels have been pushed to subsistence
levels by increased competition for work through migration.
Also, male labour is being displaced by mechanisation
while lower-paid women and children are increasingly
employed for the more labour-intensive activities. The
problem of finding alternative employment for displaced
cultivators has become a serious concern.
The Punjab experience is generally considered to be
among the more successful in India thus far, but even
this shows that contract farming holds numerous problems
for agriculture in developing countries like India.
It tends to displace labour quite substantially; marginalises
the direct cultivators who lose control over the production
process and often even over their land; encourages more
capital-intensive and often less sustainable patterns
of cultivation; can result in greater insecurity and
lower incomes for farmers because of use of quality
measures to lower the effective output price being paid
by contractors; can even deny farmers the benefits of
higher prices which could be instead absorbed by corporate
contractors with local monopsonistic power; propagates
monoculture which reduces food security and the possibility
of livelihood diversification through livestock; relies
excessively on the use of lower paid women workers and
child labour; and increases and accelerates the process
of casualisation of labour.
Given these evident problems, why is contract farming
still being promoted so assiduously? This is really
because public institutions have failed to provide farmers
with the essential protection and support required for
viability on a sustained basis. What cultivators in
rural India need most of all today is the following
combination: a basic price support mechanism that ensures
that costs are covered; efficient extension services
that provide information about possible crops, new inputs
and their implications and new agricultural practices
relevant for the particular area; and the availability
of reliable and assured credit at reasonable rates of
interest.
There is no reason why this combination cannot be delivered
by the public sector and by healthy and efficiently
functioning marketing co-operatives. But the last decade
has seen a collapse of agricultural extension services
and the provision of agricultural credit, across rural
India. The Minimum Support Price system is also being
run down. And co-operatives have been shackled by over-regulation,
bureaucratic control and political interference, so
that they have also mostly not shown the desired results.
However, private corporate firms will not necessarily
deliver these requirements either, since their interest
would be to maximise profits in the short-term rather
than ensure the long-term sustainability of cultivation.
Of course, not all contract farming need be bad for
farmers – in the best case scenario it can add to and
diversify farmers’ incomes while creating sustainable
cultivation practices. However, to promote this more
desirable type requires active state involvement. If
contract framing is to improve the condition of cultivators
rather than intensify the ongoing agrarian crisis, it
is important to have a system of state regulation, intermediation
and monitoring of contract farming practices to ensure
the interests of farmers.
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