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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 buyback option. (Rashme Sehgal is a Delhi-based writer and journalist) InfoChange News & Features, June 2005