Monday, 24 September 2012

Corporate Farming

To celebrate its 900th issue, Business India published a cover feature titled C2M (A Century to a Millennium). They asked me for my thoughts on the future of corporate farming in India. This is what I said:

Some people maintain that the next breakthrough in Indian agriculture can occur only through 'Corporate Farming', meaning corporates owning or leasing land and directly engaging in agricultural production. They advance two arguments in support; one, that the farm productivity can be raised only through substantial technology investments on large farms; and, two, that corporates are better equipped to service evolving consumer needs by vertically integrating the value chain and controlling the production system.

While there is some merit in these arguments, there is enough and more research to show that the smaller farms are more productive! Also, converting a farmer into a labourer on a corporate farm, diminishes the entrepreneurial energy of a small farmer - the hallmark of Indian agriculture. More importantly, farmers will earn more from efficient farming than leasing land and earning nominal wages. This is important because the current per capita GDP of an Indian farmer is one-fourth of that of the workforce engaged in other sectors, and agriculture is still the primary source of livelihood for over 50 per cent of our workforce.

There are better alternative models to raise farm productivity, serve consumers, and improve farmer incomes.

Contract Farming enables pooling the resources of the farmer viz. land, labour and know-how, and that of the corporates viz. capital, technology and market linkages, creating a much larger value for the consumer and transferring a higher share of that to the farmer. However, this model works better in crops where the corporates and the farmers have a natural reciprocal dependency, for example, any produce farmed to special specifications, such as seeds, or organic products. Otherwise the relationship becomes one of zero-sum game, and one of the two contracting parties gains by reneging on the contract when the market prices turn adverse to them. The zero-sum situation can be converted to win+win through institutional solutions such as futures & options contracts where the price risk is transferred to the wider market. Farmer collectives - cooperatives, self help groups - enable equitable negotiation of contract terms. Swifter and inexpensive dispute resolution mechanism helps in better contract enforceability.

For commodity crops like grains and oilseeds, where reciprocal dependency is not natural, and also given that the institutions are still evolving, ITC innovated the eChoupal model. Leveraging the power of the Internet and co-opting the farming communities in ground level execution, a collaborative ecosystem of organisations deliver end to end solutions to the farmers under the ITC eChoupal model, viz. real time & multi local information, farm inputs including credit, and access to competitive channels for marketing the farm output. Farmer transact at their free will. Participating companies capture value at individual transaction level. Today eChoupals serve forty lakh farming families; for the model to scale even further, the Agricultural Produce Marketing Acts need to be reformed.

One of these vertically coordinated models is more socially appropriate for India than the vertically integrated corporate farming...

As told to Soneera Sanghvi (published in Business India issue dated 16th September 2012)