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Contract farming in the Punjab

By Rashme Sehgal

The Punjab government is all fired up about its new contract farming programme to promote crop
diversification. But has it worked?
 
The Punjab government launched the concept of ‘contract farming' amidst great fanfare in order to free the
state from wheat-paddy rotation. But has it proved a disaster? If the experiences of farmers in the Malwa
region are anything to go by the experiment has not been a particularly happy one.

The Punjab Agro Food Corporation (PAFC) was set up as a nodal agency to provide and coordinate crop
diversification in the Punjab. It arranges for farmers to get high-yielding seed varieties from reputed
companies, helps provide technical supervision and follow-up on agronomic practices and is committed to
buying back the entire produce with returns comparable or better than those the farmers received from
paddy and wheat.

Farmers in the Bhatinda belt allege that the PAFC and several private companies had promised them a
price of Rs 1,350 a quintal at the time they sowed their paddy, in 2003-2004. But when it came to buying
their produce they were offered as little as Rs 700 a quintal.

This led to huge protests and demonstrations, with farmers swearing they would not sell their produce to the
PAFC. The PAFC and other companies finally relented and agreed to buy paddy at Rs 900 a quintal.

The Bharatiya Kisan Union (BKU) took up the farmers' cause and demanded that Escorts Ltd, along with
several other companies, be blacklisted for allegedly paying the farmers lower prices than were earlier
agreed to.

Bhopal Singh Tikait, the BKU's general secretary believes that paddy farmers in Bhatinda-Malwa suffered
losses of Rs 300 per acre -- that's around Rs 36 crore. Tikait says he's surprised at the huge amount the
companies collected in advance from the farmers. Escorts Ltd, according to him, collected Rs 57 lakh from
farmers as an extension fee for providing them with field services. But, he claims: “The experts never visited
the farmers even once.”

Tikait believes the government's thrust on contract farming is going to die a quick death. “Contract farming,
the government claims, was started to free the state from the wheat-paddy rotation and yet the only crop
that continues to attract private investment is basmati. This is because basmati has a huge export market.”

Multinationals working in the Punjab have a different take on the problem. MNC executives believe this is a
new area for them, therefore they face many teething problems. Abhiram Seth, executive director, exports
and agriculture, Pepsi Foods Ltd, believes the key to the success of this venture lies in building up a healthy
trust between grower and buyer.

Pepsi's experiences in the Punjab have not been entirely successful. The company says globalisation and
increased competition in the international market are responsible for this.

Pepsi entered the Punjab with the objective of growing tomatoes on a large scale for the export market.
Unfortunately, the cost of carrying tomatoes from the Punjab to a local port hiked up the product's cost to
such an extent that it became prohibitive.

Seth concedes that the project then had to be pruned. “Our tomato-growing project was entirely export
oriented. The freight from Punjab to a local port was so high that we could not compete with our international
rivals. The local market could not absorb such large quantities and we could not run our plant on an
optimum basis.” The company has handed the project over to Hindustan Lever to run.

Nevertheless, Pepsi insists it has succeeded in establishing a pan-India footprint for growing potatoes, and,
while its seed for this crop continues to be prepared in the Punjab, many farmers in Bengal, Uttar Pradesh,
Maharashtra and other states are growing the product.

Pepsi has emerged as one of the biggest providers of high quality seeds (especially tomatoes, chillies and
potatoes) for which farmers have to pay up front. The company recently imported 15,000 citrus plants from
California, which are being distributed in the Punjab's kinu-growing belt. The idea is to try and develop
Punjab as a major citrus exporter.

But all these are peripheral activities. Punjab has emerged as the largest grower of export basmati in India.
One of the main reasons behind the basmati thrust is that basmati consumes less water than paddy.

Kripa Shankar Saroj, managing director, PAFC, points out that established brands such as Annapoorna and
Indus Valley are using 40% less water than that used to grow other paddy varieties in the Punjab. As a
result, MNCs like Rallis India Ltd, Mahindra, DCM, Amira Foods, Satnam Overseas and LT Overseas are all
competing to woo the average farmer. Already, the total area under basmati cultivation has increased from
4.25 lakh acres to 5.5 lakh acres, with almost 1 lakh acres presently under the contract programme.

KRBL, which is the world's largest exporter of basmati rice, believes Punjab's farmers have shown a
tremendous commitment towards growing basmati. Sanjeev Gupta, director of KRBL's agri business
division, claims farmers are extremely happy with the contract arrangement. “Our company has a major
presence in Saudi Arabia, Kuwait, the UAE and the US. It is also supplying to major retail chains such as
Wal Mart, Kroger and Kmart.”

United Breweries (UB) and PAFC recently entered into an agreement to grow barley, which will then be
bought by UB. Other companies are keen to promote maize, groundnut, cotton, sunflower and durum wheat.
Presently, 11,400 acres are devoted to growing durum wheat, which is used for macaroni, noodles and other
snack foods and is being grown largely for the export market.

Still, farmers continue to view the entire contract farming exercise with scepticism. Puran Singh of village
Harkishenpura near Bhatinda says: “We will believe in PAFC only when we are assured of higher rates than
what we are getting for paddy and wheat. If prices continue to fluctuate, why will we risk our lives for unsafe
alternatives?”

It's this element of uncertainty that's making farmers uneasy. Determined however to push it through, the
Punjab government is toying with the idea of bringing in legislation to facilitate contract farming. Punjab's
Chief Minister Captain Amrinder Singh, who admits to the near-failure of the scheme, says: “Whenever a
new programme is launched it is bound to have some inherent bottlenecks and hiccups.”

But, says Pepsi's Seth: “Legislation can act as a deterrent for both farmers and MNCs, so in that sense it is
a good thing. If the price of a crop falls dramatically, the Punjab government can provide a minimal
guarantee, which the farmers can make sure gets implemented. But that is about all. It is impossible to
enforce such a law. In practice, can MNCs be expected to go to the villages and force farmers to pay up? It
simply is not practical.”

Punjab's farmers are looking for security. With their counterparts in the west receiving subsidies that work
out to a hefty 1 billion dollars a day, Indian farmers insist they will experiment only if assured a safe buy-
back option.

(Rashme Sehgal is a Delhi-based writer and journalist)

InfoChange News & Features, June 2005