Lessons from Punjab: Will contract farming benefit or harm Indian farmers?

Three decades before the Narendra Modi regime passed a new law to open up agriculture to corporations, Punjab introduced contract farming. How has it worked out?

ByBasant Kumar
Lessons from Punjab: Will contract farming benefit or harm Indian farmers?

The three farm laws passed recently by India’s parliament have sparked protests in many parts of the country. While the union agriculture minister Narendra Singh Tomar claims that these “reforms” will more than double farmer incomes – echoing prime minister Narendra Modi’s promise of doubling farmer incomes by 2020 – farmers and several experts say they will do anything but.

One of these laws, they point out, will open up India’s agriculture to contract farming. This, farmers fear, will leave them vulnerable to exploitation by corporate interests. Hence the protests.

Though this is the first time that the parliament has legislated for contract farming, it is not India’s first brush with contract farming. The governments of Punjab and Gujarat have already experimented with contract farming, and their experiences can help us gauge the possible impact of the new law elsewhere in the country.

Newslaundry spoke with several farmers who, at the prodding of the Punjab government, started contract farming in the 1990s. How have their arrangements with multinational corporations worked out? What do they make of these new laws passed by the Modi regime?

We also spoke with officials who were instrumental in launching contract farming in Punjab to understand its various aspects, its pros and cons.

Contract farming in Punjab

The beverages manufacturer PepsiCo has been involved in contract farming in Punjab for three decades now. PepsiCo established its first unit in Punjab in the late after signing a memorandum of understanding with the state government.

Amitabh Pandey headed the Punjab Agro Industries Corporation, tasked with promoting and facilitating agro industries, when the memorandum was signed. “PepsiCo set up a fruit and vegetable processing plant in Hoshiarpur in 1989-90 where they would buy green chillies and tomatoes,” Pandey said. “Only then they got permission to sell soft drinks in India. Pizza Hut was a PepsiCo subsidiary then and they used tomatoes and chillies to make ketchup for it. As far as I know, the arrangement worked for eight-nine years. I don’t know why it stopped.”

He continued, “We got the chance to introduce contract farming through PepsiCo. The sole purpose was to raise farmers’ incomes and get local youth jobs at the processing plant. It worked as intended in the beginning, people got employed and farmers’ incomes did increase.”

Pandey was succeeded at Punjab Agro Industries Corporation by Gokul Patnaik. He said, “Contract farming is extremely beneficial to the farmers and the companies,” he said. “The farmers get the assurance that their crop will be bought by the company and the company, especially food processors, have an accurate idea about the quantity of raw material they can source, depending on their requirements. For instance, the PepsiCo plant needed 600 tonnes of tomato daily. The quantity had to be precise because deviation in weight was a problem. Most importantly, there is trust between the farmer and the company because they depend on each other.”

After about a decade procuring only green chillies and tomatoes, PepsiCo began taking potatoes. As a consequence, farmers in several parts of Punjab still cultivate potatoes under contract farming for PepsiCo. While some of them are happy with the arrangement, many aren’t.

In the Indian government’s terminology, according to a report on Gaon Connection, contract farming means a private corporation getting a farmer to cultivate their own land. The company tells the farmer what to grow and at what price it will buy the crop after it is harvested. It provides the seeds, fertilizers and any technology required to grow the crop. If the crop is lost, the company bears the burden. If there is a dispute between the seller and the buyer, it has to be adjudicated by the local sub divisional magistrate.

In reality, the contract between farmers and private companies in Punjab is generally verbal. PepsiCo, for example, needs sugar-free potatoes and provides this variety of seeds to farmers for a price. It also offers to teach farmers better agricultural practices. But if the yield doesn’t pass the quality check PepsiCo refuses to buy it, causing a loss to the farmer.

“In the beginning, the Punjab government and PepsiCo gave tips to farmers for rich and consistent yields. They were given tomato plants and taught techniques for better farming. They were given fertilizers as well. The quality of the crop is imperative in contract farming. If it isn’t up to the mark why would the company buy it? So our efforts were geared towards farmers ensuring quality and a consistent yield,” said Patnaik.

MBS Sandhu, a former government official who farms potatoes in Ropar, was all praise for contract farming. “The arrival of PepsiCo led to a potato revolution,” he claimed. “Most of the farmers here grow potatoes now. There are two benefits of growing potatoes. The first is that farmers easily get a buyer and do not face financial difficulties until the sale. The second is that after harvesting potatoes the farmer can sow their field a third time and grow a bonus crop. Traditional farming only allows for two crops a year. I have been selling potatoes to PepsiCo for many years and it has benefitted me a lot.”

Sunara Singh, who cultivates about 15 acres in Fatehpur and has been selling potatoes to PepsiCo for many years, isn’t as happy.

Told about Sandhu’s claim that PepsiCo’s arrival had unleashed a “potato revolution”, he said, “Nothing like that has happened. The people who are servile to PepsiCo get gate passes easily and they are the ones praising PepsiCo. No ordinary farmer gets a pass. Ask any farmer who wants to sell just a few kilos of produce, they are not even spoken to cordially there.”

Any farmer wanting to take their crop inside the company’s premises is required to obtain a gate pass.

“If their crop isn’t up to the mark the big farmers bribe the officials who check the quality of the crop. Anyone selling potatoes worth crores of rupees can afford a Rs 2-4 lakh bribe, but a small farmer can’t,” Sunara Singh alleged. “Here, potatoes are checked four times. Many a time, the crop is rejected at the fourth stage and returned to the farmer. You must have seen images of farmers dumping their potatoes on the road. Why would they do that if PepsiCo bought their produce?”

Happy Singh, who farms 500 acres in Machhiwara, Ludhiana, echoed Sunanra Singh. “Contract farming benefits those who cultivate big farms. It’s harmful to a small or medium farmer. Farmers who only know farming and crop cultivation will fall behind in this system. Only farmers who know the business side of agriculture can hope to benefit from this system. I work with PepsiCo and Mahindra. We have a facility to stock our produce. When the prices are low we store our crops and sell them once the prices rise. A small farmer cannot do that. He doesn’t have a place to stock his yield so he is forced to sell it. This system only harbours losses for small farmers.”

Arvind Shukla, the deputy editor of Gaon Connection, agreed with this analysis. “That the contract farming system has only benefited big farmers is an indisputable fact. Every company wants to buy produce in bulk and of consistent quality. Most farmers in India own two acres or less of land, so they cannot offer bulk quantity or consistent quality,” he explained. “Big farmers benefited from contract farming earlier and still can. Small farmers fell through the cracks earlier and will again.”

The new law

Farmers and organisations that work for their welfare argue that the law will benefit private companies more than it will farmers. They fear that corporations will hijack the agriculture sector and, as a result, farmers will end up working as manual labourers on their own lands. This contradicts the Modi government’s insistence that the farm laws will greatly benefit farmers.

So, was a new law for contract farming needed at all? Pandey and Patnaik both argue that it wasn’t.

“I don’t think any law is required to practice contract farming because a law scares not only the farmer but the company as well,” said Pandey. “The farmer is wary of paperwork because he’s afraid of facing a complaint if something happens in the future. The company also holds back because it knows that if it complains against farmers, the public would go against it. There has to be trust between farmers and companies. It’s a matter of mutual trust and not of law.”

Yogendra Yadav, the chief of Swaraj India who regularly raises issues of farmers, is of a different view. “A contract is between equal parties. The law is required so it may save a weaker party from a powerful one,” he told Gaon Connection. “But the law that has been passed does not save the weaker party and instead puts the farmer in bondage.”

He listed out three main problems with the law. “First, there’s no minimum price the farmer can ask for his crop, it can be anything. Second, Farmer Producer Organisations have been made equivalent to a company. Third, a civil court can’t interject in it. If the SDM passes a judgement then a farmer cannot approach the court for a reprieve.”

Shukla said it was “wrong to say the law wasn’t needed”. “But it needs improvement as farmers themselves have been pointing out. Farmers don't say the law is bad, they say that a few more things should have been added to it.”

“Tomorrow if the company doesn’t take the crop that the farmer it has contracted has grown, how will the farmer get hold of the company? If the crop is lost, who will be held responsible for it? This way, under the law, the farmer will at least have a piece of paper. The law is required from the company’s perspective too because if there’s a dispute in the future they will want it handled by the law. We have a constitution. Even if it isn’t followed all the time, its presence is a source of strength. Similarly, the existence of this law will empower farmers.”

A version of this report was previously published on Newslaundry Hindi.

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