Corporate farming

BS OPINION

The finance minister's new advisory council on agriculture struck the right chord in its first meeting by deciding to prepare a roadmap for attracting corporate investment into agriculture.

This is a good way to transform a sector where the Green Revolution has lost all momentum, and would mean a reversal of past approaches that kept the corporate sector away from agriculture, due mostly to mutual distrust and an inimical policy environment. Now that this is sought to be changed, the question is how.

Interestingly, the answer is provided by Punjab, the state that led the country in the first Green Revolution. Punjab has already begun to encourage contract farming as a way of channeling private investment as well as managerial skills into the rural sector.

The state has roped in several companies, including a foreign one, to set up joint ventures with government agencies like the Punjab Agro-Industries Corporation, to take up contract farming.

Though the immediate objective is to wean farmers away from the mono-culture of wheat and rice, the ultimate goal is to take the state's agriculture out of the current phase of stagnation, by diversifying the product base and encouraging value addition of the harvest through processing.

For that purpose, the state government has set an ambitious target of bringing as much as one-fourth of its farmland under contract farming by 2007.

Though contract farming is not new on India's farms, it has seldom been tried on such a large scale, except in sugarcane cultivation. Past experience of contract farming, be it a tomato project in Punjab or fruit production in some of the southern states, has not been entirely positive, though its potential to transform the rural economy is no longer disputed by most.

Of the several issues that confront contract farming, the most significant ones concern the informal and non-binding nature of contracts, the lack of risk insurance for farmers in case of crop failure due to induction of inferior technology and other inputs by the participating company, and the inability of tenants and share-croppers to join such ventures.

Thus, what is needed is a mechanism for registration of contracts and delineation of penalties in case of any violation of mutually agreed terms.

In fact, a model contract that safeguards both farmers and companies is urgently needed. Also required is the legalisation of land leasing to help small and marginal farmers, who often hire additional land from absentee owners as well as tenants and share-croppers, to participate in these ventures.

This apart, the present agricultural produce marketing laws of many states need to be amended to facilitate direct marketing transactions between growers and buyers, including processors and exporters. Unless a conducive legal and policy environment is created, contract farming will not flourish to its full potential.