Contracts & Contract Farmings & the Farm Laws

Contract Farming has been often touted as the solution to the marketing issues or should we say the government’s escapte strategy from its own responsibility or should we say the governments way to pay back the money received from the electoral bonds now and before through other means.

Let me use Pepsico, which is often, given as an example when it comes to contract farming.
Pepsico has been in the business of contract farming since the late 1980’s. From pulping tomatoes early on to potatoes, basmati rice potato, basmati rice, chili, peanut, oranges – but Potato procurement remains the largest crop under contract farming to support Frito Lay chips.

It is a different matter that the Central Board of Secondary Education has issued guidelines that junk food (And chips identified included in that list) should not be served in the cafeterias or this products be not adverstised within 50 meters of the school campus (Draft Regulations).

Anyways, back to Pepsico, according to a research study ” International Journal of Food and Agricultural Economics (IJFAEC), 2014″ involving 300 contract Farmers across 3 districts in Punjab

Agribusiness normalization has taken hold of the Contract Farming practice and farmers are facing its brunt.
2) Withdrawal of extension services, reneging on prices and procurement are the major issues afflicting Contract Farming.
3)Lack of adjudication is making contract farming exploitative in approach and the study recommends vigilant and strong intervention of the government.

Agribusiness normalization is a process where in after the first few years of business which involves spending on training, extension services, advisories etc.. these processes are cut down in the name of cost optimization.

The result of this is that the Contract Farmers will be under contract to produce the quantity and quality as per the agreement but without the help the company was offering in the initial years.

The potatoes acquired by the Pepsico are no ordinary potatoes, they are sugar free potatoes, for which the seed potatoes are provided by the company. These seed potatoes, require special care and attention. When the seed potato has to be sown, how it has been irrigated, what fertilizers to spray, what kind of mineral nutrients does it require, how does it have to be stored – all of this is different to what the farmers do when it comes to the regular potatoes. Only when all of these pre and post requirements are met with, would the contract be honored. So the contract is not a mere agreement between the company and the farmer, there are terms and conditions and disclaimers and minute details and fine prints .. which the farmers have to fully understand.

The study found that Contract Farming contract was in English
70% of the farmers said they never received a copy of the contract
77% of the farmers said they didn’t receive the extension services

Given this trackrecord, it is highly unlikely, the farmers would benefit from such a contract. But yes if the farmers have access to resources, access to capital, access to large holdings, access to these companies – the rich farmers or the not so small and marginal who are 80% of the farmers, then yes, contract farmings can work wonders.

One may reject the study, one may disagree with this study, but the point is did the government do any such study of understanding the ground realities. Given that contract farming was always around, supported and even promoted by the governments at some level since late 1980s, early 1990’s (economic liberalization), during these 2 or 3 decades, if it was beneficial to the farmers, we wouldn’t be having this debate.

There are other success stories as well, where the contracting companies are working with the farmers are equal stakeholders, keeping their interests and their crop growing traditions intact. These companies are doing fine even before these 3 Farm Laws and will continue to do so.
The concerns regarding Contract Farming are not trivial to be brushed aside and devolve the concerns to the vagaries of the free markets, because even the best of the free markets i.e the US and Europe, agriculture is heavily subsidized by the government.

The concerns regarding Contract Farming are not trivial to be brushed aside and devolve the concerns to the vagaries of the markets

What happens when there is a price rise or drop in the market?
What happens to the contract terms?
What happens to the seed soverignty of the farmers?
What happens to the local cropping patterns? local soil conditions? What about the dangers of aggressive mono cropping?
Who will monitor and regulate these?Where and how will these contracts be registered?
Who will provide protection for the farmers given that in this contract, the farmers are the weaker counterparts and if the companies renege the contract or what if the farmers renege the contract?
While the government can protect the farmers land, what is it to say that, the farmers won’t be forced to sell the land to 3rd parties due to the debt obligations in the context of a failed contract?

If the government is prepared to make these sweeping changes without taking the states into account, given that agriculture is a state subject, which btw, is what the Center has always responded when asked about Agriculture, it is very crucial that the government backs up its proposals with credible studies about the ground realities.