Private Sector Initiatives: Contract farmingby Udit Jain on June 18, 2007
Private Sector Initiatives: Contract farming
The Government of India’s National Agriculture Policy envisages that “private sector participation will be promoted through contract farming and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured market for crop production, especially of oilseeds, cotton and horticultural crops”. There are several initiatives under this scheme. We mention two of them below.
Hindustan Lever Ltd (HLL), Rallis and ICICI formed an alliance with the farmers. Under this alliance, Rallis supplies agri-inputs and know-how, and ICICI finances (farm credit) the farmers. HLL, the processing company, which requires the farm produce as raw material for its food processing industry, provides the buyback arrangement for the farm output. In this arrangement, farmers benefit through the assured market for their produce in addition to timely, adequate and quality input supply including free technical know-how; HLL benefits through supply-chain efficiency; while Rallis and ICICI benefit through assured clientele for their products and services.
Launching its agro-business in India with special focus on exports of value-added processed foods, Pepsi Foods Ltd. (‘PepsiCo’ hereafter) entered India in 1989 by installing a Rs 22 crore state of-the-art tomato processing plant at Zahura in Hoshiarpur district of Punjab. The PepsiCo model of contract farming, measured in terms of new options for farmers, productivity increases, and the introduction of modern technology, has been an unparalleled success. The company focused on developing region- and produce-specific research, and extensive extension services. It was thus successful in bringing about a drastic change in Punjab farmers’ production system towards its objective of ensuring supply of right produce at the right time in required quantities to its processing plant.
Another important factor in PepsiCo’s success is the strategic partnership of the company with local bodies like the Punjab Agricultural University (PAU) and Punjab Agro Industries Corporation Ltd. (PAIC). Right from the beginning, PepsiCo knew that changing the mindset and winning the confidence of farmers would not be an easy task for outsiders. The company’s unique partnership with PAU and PAIC fuelled its growth in Punjab. Encouraged by the sweeping success of contract farming in tomato in several districts of Punjab, PepsiCo has been successfully emulating the model in food grains (Basmati rice), spices (chillies) and oilseeds (groundnut) as well, apart from other vegetable crops like potato. The company, which had been involved in the export of Basmati rice since 1990, was the first processor in India to invest and strengthen backward linkages for Basmati rice. Similarly, PepsiCo planned a foray into contract farming in groundnut with the farmers of Punjab with the objective of producing export-quality, value-added groundnut such as roasted and salted peanuts, flavoured and coated peanuts, and peanut butter. Using plastic mulch groundnut (PMG) technology sourced from China has enabled PepsiCo to take up two crops in a year – one in the kharif and the other in the rabi season. The company has demonstrated yields of 3.0 and 4.0 tons per hectare on field trials for kharif and rabi crops respectively, much above the national average of 1.0 ton/ha.25
Several thousands of alliances as above are needed in all the states to reap the benefits of huge natural resources and India’s agri business potential.