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Why Contract Farming Failed in Punjab

In April this year, the Punjab Assembly passed the Punjab Contract Farming Act. The new law provides a legal framework to govern the contract between the buyer and the farmer through a legally enforceable agreement. In addition, the state government will now control the purchase, sale, storage and processing of agricultural products. Unlike other states that have amended the Agricultural Market Committee (AMCPA) Act to support contract farming, Punjab preferred to introduce a new law. Jyotika Sood talks to Sukhpal Singh about the law and its implications. Singh is Chairman of the Centre for Management in Agriculture at the Indian Institute of Management, Ahmedabad, and has been conducting research in the field of contract farming in the country for over 16 years. He has also worked for international organizations such as FAO, ILO and World Bank. In reality, the contract between farmers and private companies in Punjab is usually oral. PepsiCo, for example, needs sugar-free potatoes and provides this seed variety to farmers at a price. It also proposes to teach farmers better agricultural practices. But if the yield does not pass quality control, PepsiCo refuses to buy it, causing a loss to the farmer.

After selling its tomato factory to Hindustan Lever (HLL), Pepsi entered potato contraction in the late 1990s. After working with hundreds of tomato and chili growers until 1997, Pepsi was now working with only a few dozen farmers in chilies and potatoes each. The supply of potatoes to contract farmers was limited to only 10% of the total supply. It was argued that the soft drink component of the project consisted of building a total of seven bottling plants in Punjab. In the end, only one such plant was built in the state. Farmers who worked with Pepsi also found that the seeds provided by the company were insufficient in quantity. They also reported that the pesticides recommended by the company were both expensive and of poor quality. Andhra Pradesh is another state that offers lessons on the impact of contract farming on contract farmers.

Studies show that given the demand for higher investments in contract crops, the richest farmers are generally chosen from among small, marginal farmers. In Andhra Pradesh, it has been observed that companies largely enter into contracts with farmers with a larger land ownership size and better irrigation systems. Singh also says that most companies that venture into contract farming with farmers prefer to work with large and medium-sized farmers. This distortion in favour of large and medium-sized farmers had led to the practice of reverse leases in areas of Punjab where contract farmers (large/medium) leased land to small and medium-sized farmers. It was only in the case of labour-intensive crops such as cucumber (cucumber) that this dynamic changed and small farmers were occupied by contracts. “If tomorrow the company does not take the harvest that the farmer it contracted has grown, how will the farmer reach the company? If the harvest is lost, who will be blamed? In this way, according to the law, the farmer has at least one piece of paper. The law is also necessary from the point of view of the company, because if there is a dispute in the future, they will want it to be dealt with by law. We have a constitution. Even if he is not followed all the time, his presence is a source of strength.

Similarly, the existence of this law will empower farmers. MBS Sandhu, a former government official who grows potatoes in Ropar, was full of praise for contract farming. “The arrival of PepsiCo led to a potato revolution,” he said. “Most farmers here now grow potatoes. There are two advantages to growing potatoes. The first is that farmers easily find a buyer and do not face financial difficulties until they are sold. The second is that after harvesting the potato, the farmer can sow his field a third time and grow a bonus crop. Traditional agriculture allows only two crops per year. I have been selling potatoes to PepsiCo for many years and it has helped me a lot. Yogendra Yadav, the head of Swaraj India, who regularly raises issues with farmers, disagrees. “A contract exists between equal parties. The law is necessary so that it can save a weaker party from a powerful party,” he told Gaon Connection.

“But the law that has been passed does not save the weaker party and rather puts the peasant in slavery. Sajjan Singh, 68, said: “Direct contracts with companies will not work for small farmers like me. He added: “For a year or two, companies can offer good prices. Then they will control the market and prices. Singh travelled to Delhi from his village in the Tarn Taran district of Punjab, 430 kilometres from the state capital. Studies from Punjab and Haryana show that farmers who engage in contract farming face countless problems – unreasonable quality reductions, delays in delivery to the factory, late payments, increased production costs due to natural causes, etc. Professor Sukhpal Singh of the Indian Institute of Management, Ahmadabad, points out that while the contracts protect the company`s interests at all costs, the interests and production risks of the farmers, however, are not covered. For example, farmers ultimately suffer extreme losses in the event of unforeseen events such as crop failures or a sharp drop in market prices. Beverage manufacturer PepsiCo has been involved in contract farming in Punjab for three decades.

PepsiCo established its first unit in Punjab at the end of the period after signing a memorandum of understanding with the state government. We also spoke to officials who were instrumental in introducing contract farming in Punjab to understand the different aspects, pros and cons. Arvind Shukla, deputy editor-in-chief of Gaon Connection, agreed with this analysis. “The fact that the contractual system has only benefited large farmers is an undeniable fact. Every company wants to buy products in large quantities and of consistent quality. Most farmers in India own two acres or less of land, so they can`t offer a massive quantity or consistent quality,” he explained. Large farmers benefited from contract cultivation and still can. Smallholder farmers fell through the cracks sooner and will do so again. It was under the previous tenure of CM Amarinder Singh that Punjab became the first state in the country to introduce contract farming at the government level in 2002. The main idea behind the CF push was to motivate farmers out of the wheat-rice cycle.

As farmers` protests once again shine a spotlight on contract farming, The Indian Express explains what policies Punjab introduced were and why it was abolished a decade later in 2012. Farmers had to sign a contract for the production of certain crops, including hyola (hybrid rapeseed mustard), sunflower, durum wheat, malted barley, moong, basmati (pure, hybrid, developed, etc.), maize, etc. In 2002, the crops of hyola, sunflower, malted barley and maize were taken under the FIBRO and 9,296 hectares of land were devoted to these crops, while the following year, in 2003, an area of about 78,000 hectares (1,92,260 hectares) of land was placed among the identified Rabi and Kharif crops of Moong, Basmati, maize, guar and castor. In Indian government terminology, contract farming means that a private company gets a farmer to cultivate his own land, according to a report on Gaon Connection. The company tells the farmer what to grow and at what price he will buy the crop after it is harvested. It provides seeds, fertilizers and any technology needed for cultivation. If the crop is lost, the company bears the burden. If there is a dispute between the seller and the buyer, it must be decided by the local subdivision judge. In 1986, the Punjab State Government, under the leadership of Prime Minister Amarinder Singh, formed an Expert Committee on Agricultural Diversification under the chairmanship of SS Johl.

The Committee recommended that 20 per cent of the area under wheat and rice be replaced by other cash crops such as fruit and vegetables. In 2002, the Committee again recommended that a total of one million hectares of wheat and rice be replaced for cash crops. As a result, the Government of Punjab launched the Contract Farming Programme in 2002. Punjab Agro Foodgrains Corporation (PAFC) has been designated as a hub to promote and coordinate contract farming in the state – providing farmers with inputs, technical supervision and sourcing farmers` products for the market. Speaking to India Today TV, he said: “I have been engaged in contract farming for six years, I have had many problems, from seed problems to poor shelf life, there is no liability on the part of the company, under the new law, if wheat and rice are subject to contract cultivation, then small farmers will have more problems because they do not have the resources, to resist the pressure of the companies that would exploit them. In 2002, Captain Amarinder Singh introduced contract farming during his first term as Prime Minister of Punjab to wean farmers off the wheat-rice cycle. His Government had set up a contractual agricultural commission which had instructed Punjab Agro to procure products from producers for markets at the national level. For five years, everything went well, but after Captain Amarinder was rejected, the new Akali BJP regime paid little interest and without the help of the center. Farmers gradually returned to THE MSP to obtain wheat and rice when the program was abolished in 2012. “In the beginning, the Punjab government and PepsiCo gave farmers advice for rich and consistent yields. They received tomato seedlings and taught techniques for better agriculture. They also got fertilizers.