CONTRACT FARMING
Let firms, farmers deal directly
Sukhpal Singh
CONTRACT farming refers to an arrangement between primary producers and agribusiness firms in order for the firms to procure certain pre-agreed quantity and quality of produce at a particular price and time from the primary producers. It can be a pure procurement transaction or can extend into supply of inputs by the firm or even beyond.

Purifying Neeli Ravi buffalo breed
Jangveer Singh
CROSS-breeding may have helped in getting better yields from cattle in Punjab, but for the Neeli Ravi water buffalo, which is an inhabitant of the area along the Ravi, cross-breeding with the Murah buffalo breed has resulted in weakening of its characteristic features, forcing the Animal Husbandry Department to start a special programme to maintain the purity of its breed.

Abolish wheat, paddy MSP
V.S. Mahajan

AFTER partition, India had lost its food bowl to Pakistan and soon found itself in high deficit, necessitating large import of grains from the USA under the PL 480 arrangement when the payment was to be made in rupees, thus saving the country scarce foreign exchange. With frequent droughts the situation worsened, particularly from mid 1950s to mid 1960s, when a very large quantity of food had to be imported. This arrangement also helped the USA to dispose of surplus food and also it was able to push into service a large number of its cargo ships to transport food to India.

But then this arrangement also had its adverse impact on our agriculture when, meanwhile, Punjab had shown good progress in grain production and faced difficulty in competing with the cheap imported grains. This also acted as a barrier to the growth of our agriculture.

A way out of this situation was found through adopting a price support policy (PSP) of domestic output to make it competitive with imported food and thus had began this PSP system.

Soon there was declining dependence on imported food and this received a fillip when after the 1971 Indo-Pakistan war, in which the USA played a pro-Pakistan role, India decided to stop import of foodgrains from the USA and become self-sufficient. This was the major step for boosting farm revolution in Punjab in particular when the 1970s proved to be best period for this.

Farm prosperity was at its peak, yielding high revenue to farmers who invested a good part in purchasing the latest farm machinery, installation of tubewells and other related activities. Besides enjoying prosperity in wheat production they also entered in a big way in the field of paddy revolution.

Much of this revolution was due to continuous high support prices they enjoyed in both the crops, which in return helped the empty food bowls. In fact, a large quantity of the FCI godowns were filled with surplus food from Punjab.

But such a situation of plenty in Punjab also had its adverse impact. An average Punjabi farmer, used as he was to life of extravagance and plenty, spent lavishly on liquor and social functions. He failed to invest his savings for the future. Often he overspent, thus running into borrowing from arhtiyas.

As a result, when misfortune visited, as in recent times, he found it difficult to meet the claims of his creditors. When he could no longer support his family, he was even driven to commit suicide.

His woes have multiplied when lately he found it difficult to realise good prices for his produce.

Thus, having not been taught farm economics and accountancy, he has found himself in an adverse situation when neither the government nor the arhtiyas are able to fully compensate him. This, despite the fact that MSP has been rising steadily even during the period when the market was invaded with food surplus.

With such accumulated surplus it is becoming difficult for the government to get rid of it. Now with over 60 million tonnes of surplus—three times the normal surplus needed—we are faced with a gloomy situation when we have to spend nearly Rs10000 crore annually just to care for these stocks, much of which if not cleared in time would become unfit for human consumption.

Under these circumstances, a moot question arises: why did we encourage the MSP system beyond the period it was needed for? It was okay so long as the country was faced with scarcity, but it should not have been encouraged beyond this period. It should have been discontinued at least since 1991, when the country adopted the policy of structural reforms and open market.

It is also found that the maximum surplus emerged during the 1990s, when the country was blessed with good monsoon year after year. Interestingly, it is during this period again that there was continuous rise in the MSP, which in the case of paddy works out to an average of Rs20. So roughly Rs200 was added to each quintal of paddy sold during the last fiscal.

One of the reasons for the Centre sticking to the same price for paddy this year (Rs530 per quintal) as last year has been to discourage farmers from producing more paddy and take to alternative crops for which they have announced a higher MSP. This is rather an unbecoming step, particularly at a time when farmers have undergone one of the worst droughts in recent years and were looking forward to a higher price.

It was also during this decade that a thoughtless policy of free power and free irrigation was pushed through. This has been another factor which, besides causing heavy loss to the exchequer, also encouraged farmers to produce more paddy.

It is thus time to have a rational approach. Support price in agriculture, at least in the case of wheat and paddy, should be discouraged as early as possible. This alone would force farmers to divert their attention to alternative farm activities.

Besides, it is essential that subsidy that is provided at present to the units producing fertilisers should be rationalised and gradually done away with.

If the need arises, only small and marginal farmers, who have unfortunately failed to benefit from the existing output structure of wheat and paddy, could be supported by other suitable means for a limited period.

Ultimately it is the prevalence of market forces that would help the emergence of an appropriate farm scenario. The government shou1d take steps to encourage such a situation.

Also there is an urgent need for properly educating farmers both in undertaking more value-adding farm products as well as in making productive use of their savings.

The harassment that they faced recently, including suicides, could have been avoided if they had learnt to control wasteful expenditure and put their earnings in banks, especially during the period when they were enjoying a boom.

CONTRACT FARMING
Let firms, farmers deal directly
Sukhpal Singh

CONTRACT farming refers to an arrangement between primary producers and agribusiness firms in order for the firms to procure certain pre-agreed quantity and quality of produce at a particular price and time from the primary producers. It can be a pure procurement transaction or can extend into supply of inputs by the firm or even beyond.

CONTRACT FARMING

The contract-farming programme launched by the Punjab Government in October 2002 (for the rabi season) is aimed at taking away 10 lakh hectares from the wheat-paddy rotation over the next five years. This year a total of 29,000 acres will be covered under the programme, of which 20,000 acres will be brought under hybrid rapeseed mustard (hyola), 7,000 acres under maize, 1,000 under barley and another 1,000 under various vegetables.

The programme will be implemented jointly by the Department of Agriculture, Punjab Agro Industries Corporation (PAIC) and private companies. The PAIC will not only provide seeds purchased from reputed seed companies like Adventa India Limited and Pro-Agro Limited to the contract growers, but also will buy back the entire produce at pre-agreed prices. For example, mustard procurement price has been fixed at Rs 1,400 per quintal. It will also provide technical supervision and follow up on agronomic practices.

The government will have a say in the control of price structure. Under this arrangement, Tropicana will buy back citrus fruits, UB will purchase barley, and maize will go to another American company. Oilseeds will be bought by local oil mills and solvent extraction units. Vegetable contracting has been contracted out to a local flower and vegetable seed exporting company in Patiala which has the experience of contract farming. These vegetables will be marketed by the Punjab Agri Export Corporation (PAGREXCO).

It is promised in the advertisements issued by the state government that the returns from these crops (mustard, maize and barley) will be comparable to those from wheat, or even higher in the case of vegetable crops. The vegetables being promoted are: green peas, cauliflower, baby corn, sweet corn, green chillies, leak, tomato, knolkhol, lettuce, oregan sugar pads, Chinese cabbage, brocolli, Brussels sprouts, and carrot.

Further, Pepsi Foods has signed an agreement with the PAGREXCO for the procurement of citrus fruit produced under contracts for its Tropicana brand, which is now dependent on imports. Under the agreement, the corporation will coordinate the project on behalf of the state government and import planting material. In case the results are positive, the company would sign long-term contracts with farmers to procure citrus fruits, including oranges and grapes. It also plans to promote mandarin production to replace kinnows. The state government has agreed to invest substantial funds in the project from the crop diversification fund. But it is not known whether the state will share in future benefits from the project. It is also feared that the project may not succeed unless contract farming is legalised.

Even the edible oil industry in the state has taken initiative to increase the oilseed production by taking up contract farming of oilseeds in 1,000 acres in the Fazilka area. The Solvent Extractors Association of Punjab is finalising a project with the PAIC, under which various oilseeds like sunflower, mustard and castor would be produced under contract farming. Similarly, the Cotton Corporation of India will encourage contract farming of cotton in the cotton belt of the state.

It is reported that the area under contract production programme for rabi 2002 has already been achieved. The corporation has already obtained farmer registrations for this programme for the season and, in fact, has online farmer registration forms for contract farming on its Website.

Though contract farming has existed in the state for more than a decade now and was initiated by Pepsi Foods in tomato and chillies in the early 1990s, it is for the first time that the state government has taken up this project with its direct involvement where it will act as intermediary between companies and farmers. It is now part of a larger project on crop adjustment (diversification), which will be implemented over the next five years.

The Punjab Government’s programme is very similar to what has been attempted in Thailand for the past 15 years. Therefore, it is imperative to look at the Thai experience to learn about the implications of this approach.

Thailand has been one of the pioneers in contract farming in Asia, where it has been practised very widely and intensively.

It has been so largely due to the active promotion of this mechanism of co-ordination of agricultural production and marketing by the state since the mid 1980s. Thailand also has the highest degree of private sector involvement in contract farming and the highest concentration of foreign direct investment in agriculture and agro-industry. Contract farming has been a key element of the Thai government’s development plan, reflecting a strategy of private sector-led integrated agricultural development.

Thailand wanted the state to make it fair for both the parties. This meant that the state provided incentives to companies which procured through contract farming. State agencies like the Ministry of Agriculture and Cooperatives and the Ministry of Finance invested in contract farming projects through their agencies, i.e., the Department of Agricultural Extension and the Bank of Agriculture and Agricultural Co-operatives (BAAC) with training and extension, and loans to growers, respectively.

The state agencies even designed a model contract farming agreement for companies and farmers in 1999 which, to date, has been used only by a couple of companies. But the contract system on the ground works more by way of mutual bargaining between companies and farmers and is more like an open market system as there is fair amount of competition for procurement in each commodity sector. There is hardly any crop in which contracting is not practised. But, the state has not been able to impact the system despite all plans and programmes.

Though state policy has helped contracting to take roots in the country, now it works between farmers and companies more by way of a market mechanism, and there are all kinds of arrangements in place in the name of contracting. The contracts are biased against the farmer and companies rely on brokers (middlemen) to work with farmers. State intervention has helped the farm sector and its farmers only to the extent that it has promoted competition, which has been beneficial for growers, and has also led to pumping of capital into the farm sector through the BAAC loans for contract growers.

However, on most other counts, like making the system fair for farmers in terms of nature of contracts, or helping farmer organisations in processing or marketing or even in collective selling to companies, it has not really been effective. Contracting is also leading to certain adverse local level impacts like environmental degradation.

This should act as a lesson for the Punjab Government as it is trying to mediate between companies and growers by agreeing to purchase farm produce. The state may burn its fingers by doing this, as it is not the best agency to do this. It is better if the companies work with growers directly to meet their raw material requirements. Otherwise, the entire burden of risk and costs will have to be borne by the state, as was the case in Thailand. It is also important to realise that contracting need not be promoted for all crops, farmers and regions, and the state should play more a regulatory role rather than a promotional role. Farmers’ organisations should be promoted by governmental and non-governmental developmental agencies to deal effectively with contracting companies.

Purifying Neeli Ravi buffalo breed
Jangveer Singh

CROSS-breeding may have helped in getting better yields from cattle in Punjab, but for the Neeli Ravi water buffalo, which is an inhabitant of the area along the Ravi, cross-breeding with the Murah buffalo breed has resulted in weakening of its characteristic features, forcing the Animal Husbandry Department to start a special programme to maintain the purity of its breed.

The department has decided to start a special progeny testing programme in Amritsar, Gurdaspur and Ferozepur districts with the aim of maintaining and even bettering the quality of the Neeli Ravi buffalo in the area.

Under the scheme, elite animals will be selected and tagged, following which they will be impregnated with quality bull semen from Karnal. Upon the birth of a female progeny, its milk yield as well as temperament will be tested so that a benchmark may be arrived at. The semen of bulls showing the best result in the form of their female progeny will then be used to impregnate Neeli Ravi buffalos in the entire area.

To ensure farmers take to the scheme, they will be offered incentive in the form of Rs 500 at the time of tagging of their animals and Rs 2,500 in case the progeny is male, so that they do not feel disheartened and continue with the scheme. The department will also provide veterinary services free of cost.

Besides improving and maintaining the breed, the department expects that farmers will get a 25 to 30 per cent increase in milk yield. Department sources say that at present only 5 per cent artificial insemination is being done in the case of buffalos. Most farmers have a bull in their possession, which is used for insemination. The problems arose due to the large-scale inter-mixing of animals during fairs and private selling, resulting in mixing of the Neeli Ravi and the Murah breed, which is spread over most of the state. The department has also drawn up a blueprint to increase the prevalence of artificial insemination in buffalos from the present 5 per cent to 70 per cent over the next five years.

Meanwhile, department Joint Director Har Surat Singh has disclosed that steps would also be taken to conserve other local breeds like the Sahiwal cow and the beetle goat, which are found in the Gurdaspur and Batala areas.

Even as this is going on, efforts are on to evolve sheep and goat varieties which could be more profitable to farmers. At present sheep are losing their importance as producers of wool as the staple length of the wool of Punjab sheep is not up to the mark. On the other hand, Rajasthan is feeding the meat needs of Punjab, Himachal and Jammu and Kashmir. There is a need to develop dual-purpose sheep, which could be used both for its meat as well as wool, points out Mr Har Surat Singh.

The department may also go in for developing a goat with the same purpose in mind.