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Farm it out to farmers

On the ground contract farming in India suffers from a fundamental debility: the lack of enforceability of these contracts.

india Updated: May 28, 2007 23:17 IST

Contract farming is a win-win situation. On paper, that is. The farmer gets around the crippling-scale inefficiency of niggardly land holdings, is assured of a price and marketing, and gains from the capital employed to improve the quality of his produce. The company at the other end of the contract can pencil in regular supplies, realise better prices by cutting out the middleman, and rake in higher margins on value-added products that can feed a common market not available to unprocessed crops. Such issues related to private participation in agriculture will be discussed by the Prime Minister and Chief Ministers today. On the ground contract farming in India suffers from a fundamental debility: the lack of enforceability of these contracts. If the farmer finds a higher price for his produce there is nothing to stop him from reneging. Likewise a company unable to lift the entire crop contracted for. Just about 10 states have amended their agriculture produce marketing laws to make such contracts binding. Others need to get cracking.

One way to get around the problem is to make both parties to a contract stakeholders in the enterprise. Here’s where corporate farming comes in — a new-age cooperative — where farmers become shareholders along with a corporate body. The farmer invests his land in the venture, the company’s holding is limited to 26 per cent and the land stakes are hereditary. Again on paper, corporate farming brings together two appealing concepts: capitalist farming without the social cost of redistributing land holdings. And it holds out the hope of trouncing endemic low agricultural productivity in a country where most farmers own less than two hectares of arable land.

What was a twinkle in Sharad Pawar’s eye merits the serious consideration the government is giving it. Indian cooperatives, except for a few notable exceptions, have been uncomfortable in a market economy, a shortcoming just about any corporation can help overcome. If the cooperative idea had to be rolled out all over again, it has a better chance of succeeding with the participation of India Inc. Agriculture is in desperate need of some out-of-the-box thinking. Farming’s contribution to the gross domestic product is shrinking fast — it is under a fifth now. Two out of every three Indians are at risk of being left out of India’s prodigious growth experience. If the bulk of our farmers cannot be brought to the market, corporate farming just might be a way of bringing the market to them.