Corporate Farming -- How New Laws Can Change Face Of Indian Agriculture

This year, Sunshine Vegetables, which leases 1,000 acres of farm land in Sikandrabad (Bulandshahr district, Uttar Pradesh) to grow English carrot, had a boom crop. Sadly, due to the lockdowns, it was unable to distribute the produce and get attractive prices. The company’s co-owner, Col (retd) Subhash Deswal, explained how most of the produce was put in cold storage to wait for the prices to perk up. The business picked up a few weeks ago.

Deswal is among the few businesspersons who are excited about a slew of new central agriculture laws that allow corporate farming, and give flexibility to the growers to sell their crops across the country. “These will give the farmers an alternative platform to discover better prices,” he claims. Other companies, including food retail ones, which source huge quantities of various crops, are also enthusiastic about the implications of the new laws.

A few are still circumspect. Amit Sinha, co-founder of Unnati, an agri-tech platform that helps farmers to improve productivity and market linkages, says that while the changes are interesting, several aspects need to be studied and understood. He admits, however, that the new rules to allow croppers to sell directly to industry (food processing) at multiple locations have begun to show results in Bihar, one of the states where Unnati works.

The main grouse with the new laws is that while they allow for tripartite legal contracts between the croppers, resource suppliers and corporate buyers, they leave out aggregators or match-makers like Unnati. The latter works with hundreds of farmers in UP, Bihar, Maharashtra and Madhya Pradesh, and handles several crops such as sugarcane, corn, paddy, pulses, cotton and soya. But Sinha hopes to convert the informal arrangements that his entity has with the farmers into legally bound ones under the new rules.

Most companies, and several economists and experts, feel the new laws related to corporate farming and agricultural marketing, and changes in the Essential Commodities Act, will revolutionise Indian farming. They think they will herald an era where farm incomes will zoom and become stable, fair prices will become the norm and exploitation of the growers will end. “They will change the face of agriculture within a few years,” says one.

At the other extreme are the naysayers, who contend that the big companies will emerge as the new middlemen and moneylenders, and abuse the farmers. Despite legal contracts, the large buyers will use their financial and political clout to manipulate the farmers and twist their arms. More importantly, corporate farming will change the existing lives of the villagers, who still have the freedom to choose what crops to grow, and in which seasons.

In fact, leased and collectivised farming, which existed in an informal and semi-legal form in a few states, showed mixed results in the past. It did lead to diversification of crops, and a switch away from food grains to cash crops in states like Punjab and Haryana. It also resulted in improvements in the quality of a few crops, such as the varieties of potatoes that can be processed to make chips, tomatoes for sauces and ketchup, and corn for exports.

However, the need for the new laws was still felt because only a few farmers were engaged or benefited under the existing contract farming system. The success stories were limited to a few states, products and markets. Until the new laws, 19 states experimented with their legislative frameworks. But there was little success because of limitations that included the issues of jurisdiction, and involvement of the states’ bureaucracies.

Vivek Aggarwal, joint secretary (agriculture), points out that the new reforms were the outcome of considerable deliberations to plug the gaps on the legislative front. They deal with the lack of a fair system, whereby the farmers can access the state mechanism to settle disputes with the more powerful buyers. In addition, each state followed different contract systems, and there was a compelling need to standardise it across the country.

As a follow up, model agreements are being drafted to help farmers understand the nuances of such tie-ups. Four or five things have changed, explains Aggarwal. One, there are no regulations as far as entering into farming agreements are concerned. A written agreement between two or more parties involved is enough, but registration is not mandatory.

The agreement has to include issues like the price or determination of price, price variation clause according to the quality, and inputs to be provided by the sponsor/ buyer. It has to specify the conciliation process in the event of any dispute to rule out the need for any intervention by state institutions. In the event of a failure in the conciliation process, the local sub-division magistrate has the jurisdiction to intervene and settle it.

Among those not happy with the laws is Prof Sukhpal Singh of IIM-Ahmedabad, who has studied contract farming. He wrote in a published article that the corporate farming agreement law is a badly designed one. It can easily be confused with other arrangements like share-cropping and leasing. This point is relevant because, until now, contract farming was largely restricted to ‘informal agreements’.

According to Yogesh Bellani, CEO, FieldFresh Foods, which manages the global Del Monte brand in India, contract farming was a misnomer before the new changes as “there were no rules regarding who would enforce those contracts”. He adds that his company, however, followed a model of “partner farming” for the production of baby corn, sweet corn, chilli and tomatoes, both for export and local processing. He explains that FieldFresh Foods gives farmers the option to grow whatever they wish among several crops. “We buy whatever they produce. The pick and pay is guaranteed,” says Bellani. With over 10,000 farmers, he feels it is a win-win situation as the company has a strong backward integration, and farmers benefit due to leveraging their expertise.

Clearly, contract or corporate farming is not new. It has existed for decades in various forms. In some cases, it is indirectly imposed by other laws. Salil Singhal, MD, PI Industries, agrees. If you look at sugarcane, it needs to be contracted within a specific area around a sugar mill. While mills are known to exploit farmers, they also help them improve productivity and sugar content as it is in the mill’s interest to ensure higher and better sugar production. This is also true of edible oil companies, cotton ginning mills, pulses processing mills and others, says Singhal. Such companies have had informal relationships, not necessarily legal contracts, with their farmers. The former obviously support the latter for mutual benefits. However, there is minimal data on the extent of corporate involvement in farming.

Large conglomerates like ITC use several platforms like agri-business and e-choupal networks to establish backward linkages with farmers. These include roles in integrating farmers, input vendors and government agencies, besides facilitating the market networks. Over the past decade or more, ITC is considered a shining example of corporate-farmer partnership. However, similar ventures by others have not yielded similar success.

In the past, there was the concept of state agricultural farms with huge land banks, which were aimed to lead to industrial ventures boosting productivity. But it failed because there was no active cooperation from farmers and companies. Singhal says leasing agreements could work to improve incomes and lower risks for farmers, if companies provide inputs like seeds and help in marketing the produce to food processors or export firms. “There was some movement on the leasing agreement as the central government sent a model act to the states. But I don’t think many adopted it. However, now the new contract (corporate) farming law will boost farming as significant changes related to agriculture marketing were made,” adds Singhal.

Mohit Singla, chairman, Trade Promotion Council of India, says corporate farming can lead to “farm consolidation and a controlled ecosystem”. It will cater to “specific markets, which will lead to the opening up of new ones that are unavailable to the small farmers. It will ensure higher production and better quality, as well as lead to financial support, technology and skill transfer, which are important to scale businesses for small and medium farmers.”

Small farmers are vulnerable to the vagaries of markets and weather. Shakti Ranjan Panigrahi, a researcher at Anand Agriculture University, cites the example of the potato growers in Gujarat, where several models exist. There are some farmers who work for larger farmers who, in turn, also serve as traders. There are others who sell to food processing companies like McCain and Balaji, which help the farmers with inputs and marketing. The catch is that the companies have quality specifications, which are not easy for the small farmers to meet. “Contract farming provides an assured market, but not necessarily a profitable one,” says Panigrahi. In fact, the profit angle can work against the companies too. In Gujarat’s Banaskantha district, contract farmers decided to sell directly to earn higher profits. The corporate buyer was forced to shift to Sabarkantha district.

Finally, the new laws have to prove themselves. Stakeholders need to realise that the rules are a win-win for each one of them. “The grower has to be assured that his land is secure, and he will get good prices and timely support from sowing to marketing,” says agro-economist Panjab Singh. “The implementation of a policy is a challenge. If this happens, it will help small and marginal farmers.”