ECONOMIC HIGHLIGHTS

New Delhi, 28 June 2007

Farmers’ Suicides

Can Contract Farming Stem the Rot?

By Dr. Vinod Mehta

The inability of some State Governments and the Centre to check the increasing number of suicides by farmers has prompted economists and officials to allow contract farming of commercial crops. They feel it can give better prices to farmers. Is this really so?

Contract farming implies a system for production and supply of agricultural products, especially commercial crops like sugarcane, vegetable, fruit etc, under forward contracts between the farmer and the buyer. Under this arrangement, the farmer commits to provide an agricultural product, at a time, a price and the quantity required by the committed buyer, which is generally a large company. The typical contract is one in which the contractor supplies all the material inputs like seeds and technical advice required for cultivation against some monetary consideration, while the farmer supplies the land and labour.

On the face of it, this arrangement appears to be good. The farmer finds it attractive, since all the inputs along with the know-how is provided by the corporate entity, and there is a purchase guarantee of the produce after harvest. As of today, with soaring prices of fertilizers and quality seeds and an uncertain market, agriculture is increasingly being seen as a risky proposition.

Contract farming is not new to India.  As early as 1920, the ITC started giving contracts in what is now called Andhra Pradesh for the cultivation of Virginia tobacco. More recently the Pepsi Company entered into contract farming for tomatoes’ cultivation primarily for export purposes.

According to Agriculture Ministry sources, the total area currently under contract farming covers nearly seven million acres of the total cultivable land of 400 million acres, i.e. less than 2 per cent. However, if one were to purely count corporate contracts with farmers for their crops, then this figure would barely touch 200,000 acre. As of today, a very small proportion of agricultural land is under contract farming. Though encouragement to contract farming is a part of the UPA’s Common Minimum Programme, it is doubtful if it can play a significant role in changing the face of Indian agriculture.

Some of the studies on this system point to mixed results which are neither in the interest of farmers in general nor the nation. Firstly, unlike in the developed countries where the farmers are educated and stand up to big companies, the Indian farmers are not well educated and may not understand the nuances in the contract and could feel cheated at the end.

For instance, it has been reported that farmers in the Bhatinda belt alleged that the Punjab Agra Food Corporation 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!  The companies argued that the quality of paddy was poor. The farmers suffered losses of Rs 300 per acre and in all about Rs 36 crore. If such a situation occurs it may well lead some farmers to commit suicide.

The other side of the story is that if the market price is more advantageous than the contract price, farmers renege on the contract. The Government knows from recent experience that the farmers did not sell the wheat to the FCI at the minimum support price plus Rs 100 as bonus, instead they sold it to private buyers who were willing to pay more.

The second point is that food security is an integral part of our agriculture.  The contracts entered into by big companies with farmers are for crops which fetch good prices in the international market like basmati rice, fruit and vegetables. If contract farming is allowed on a large scale, there is a danger that the cultivable land will be diverted to such crops and less of it will be available for grain, pulses and edible oil seeds, which may affect our food security.  And, we now know how expensive it is to buy wheat abroad. 

Thirdly, the promise of economic security within the contract farming system may be very attractive as far as the farmer is concerned, but the health of the soil a few years later may get affected. The farmers may ignore this in favour of immediate gains from contracting with companies and not for the country as a whole.

Fourthly, farmers as a class may not be as savvy as the marketing managers of private companies in drafting contracts. There is always a danger that these companies may draft clauses in their own favour. Is legal advice available to farmers to vet the draft contracts? And, can they afford the cost of such legal advice?

Therefore, what we need is not contract farming on a large scale but a comprehensive agriculture policy, which in the long run ensures farming as a remunerative activity like industrial activity. This calls for the creation of infrastructure, which includes road connectivity, availability of quality inputs, timely credit along with technical know-how, chain of cold storages, and help viz marketing of agricultural products.

The big companies, as we see are going into marketing of agricultural products in a big way, whereas earthy farmers are no match for well-trained company managers, who would always wish to pay lower prices. Cold storages etc. can strengthen the bargaining power of farmers. Today, what the agricultural sector needs is “Amul” type cooperatives for supply of inputs, chain of cold storages, and marketing cooperatives.

According to a study sponsored by the Maharashtra Economic Development Council, contract farming may be useful in areas such as seed multiplication, organic foods, vegetables, fruits, and exotic produce/plants, export crops, and aromatics, herbal and medicinal plants practices. Thus, it has its uses and in certain cases is desirable, but it cannot become the main system of farming. It will not be able to check farmers’ suicides.—INFA

(Copyright, India News & Feature Alliance)