Developmental Impacts of Contract Farming in the PunjabState of India
Veena Goel, Sr Economist (Marketing)
Punjab Agricultural University, Ludhiana, India
Chapter Proposal
Contract farming intended to integrate the supply chain to ensure timely availability of the requisite quality and quantity of raw materials at a lower procurement cost for the processing companies is beneficial for farmers who supply land and labour. Studies have indicated that contract farming has helped farmers to provide superior farming skills, realize higher incomes,do away with the patron-client relationships between large and small producers and generate employment particularly for women (Glover and Kusterer, 1990; Fulton and Clark, 1996). Conversely, its disadvantages to cultivators include poor extension services, low prices due to haphazard produce pricing, inherent higher risks, frequent delays in payments (Glover and Kusterer, 1990; Ghosh,1994); weak bargaining power, sole dependence on companies (Fulton and Clark, 1996); over-exploitation of ground water and environmental threats (Siddique, 1998) and companies’ moves to new pastures to exploit the land and water resources at least costs (Torres, 1997). Contract farming has taken firm roots and is expanding in the agriculture sector in developed countries while it has yet to consolidate in the developing countries (Watts, 1994).
In India, recent spate of contract farming began with the entry of Pepsi Foods Ltd (PepsiCo) during 1989 by installing a tomato processing plant in the Hoshiarpur district of Punjab.Later, liberalization of the economy during 1991 coupled with the existence of Land Ceilings Act which stipulated that agribusiness firms cannot own and cultivate land for raw materials and amendments in the Agricultural Produce Marketing Committee (APMC) Acts in several states has opened up immense opportunities for contract farming. This has drawn major Corporates, MNCs, financial institutions, agri-input agencies and other organization. Besides this, it has alsointroduced new models of contract farming and it has also been extended to several crops from each of the various food groups such as food grains, fruits & vegetables, etc. However, contract farming models have varied over crops, regions and the sponsoring organizations. According to the NIAM report (2003) contract farming models can sustain in the long run only if the initiative comes from farmers. This is because problems emerge once farmers become confident to deploy new technology and they tend to renege on the contract particularly when a market price is higher to the contract price. Singh’s study (2003) indicated that contract farming in Punjabhas worked for the crops of basmati rice and sunflower but has failed for peas. Nielsen’s survey during 2008 carried out for about 30 villages in the Jalandhar and Amritsar districts of Punjab(for 200 farmers - 160 partnered and 40 did not partner with PepsiCo) for basmati paddy showed that it has enhanced farmers’ incomes thereby reduced indebtedness. In the KarnatakaState several companies have entered into contract farming with farmers for gherkin (small cucumber) cultivation that has enhanced farmers’ incomes (Erappa, 2006).
ThePunjabStatehad been since the Post-green Revolution Period crippled with wheat-paddy rotation due to the availability of assured markets for both these two crops. So the Stategovernment launched contract farming for crop diversificationtherebyencourages the cultivation of other crops. Accordingly, Punjab Agro Food grains Corporation (PAFC) had been set up during 2002 as a nodal agency to facilitate its operations. Coupled with this, the State Agriculture Marketing Board (PSMB) has reduced both itsmarket and rural development fees (from 2% to 0.25% each) while to win farmer’s confidence for crop disposal he had been given the option to buy back the new crops at the fixed/market related contract price. Thereafter, area under contract farming has increased from 9033.20hec during 2002-03 to 75781.47hec during2003-04 and further to 94822.27hec during2008.09 that came down to 82614.98hec during 2009-10. Contract farming has been practiced in the state for several crops both during the rabii.e. summer (hyola, sunflower, durum wheat, malting barley) and the kharif i.e. winter seasons(moong, basmati rice, maize, guar, castor, months and potato seeds). And, PAFC has gradually withdrawn itself from the crops that have been able to draw market support. During 2009-10 basmati rice has emerged a leading crop under contract farming, followed by maize and hyola while barley occupied only a minor area. Presently hyola has also been discontinuedbecause of the expiry of its five year contract with the sponsoring company. So maize and basmati rice have remained the only two crops under contract farming. The proposed study shall be carried out for basmati rice. It is cultivated in 20 of the 22 districts; PepsiCo and the Markfed (state level cooperative federation) have a major presence in contract farming as well as the processing and marketing of this crop at the export markets. The study shall assess the developmental impacts upon contract farmers and sponsors,do these vary over regions, factorscontributing to its success (hindrances) and how can the developmental impact be enhanced.