11542489 contract farming in pepsi

8/8/2019 11542489 Contract Farming in Pepsi

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Raveendhar.k R08PGDM034

Section-1



About PepsiCoy With 5 largest food and beverage companies which

includes 16 brandsy available in nearly 200 countriesy Entered India in 1989 and its investment is

700million $y Employment to more than 60,000 people.y Brand Pepsi is now the 2nd biggest brand in

the country



C oncept of contract farming?ESSENTIALLY

y The farmer is contracted to plant the contractor s crop

on his landy Harvest and deliver to the contractor, a quantum of

produce, based upon anticipated yield and contractedacreage

y This could be at a pre agreed pricey Towards these ends, the contractor can supply the

farmer with selected inputs



THE ADVANTAGES OF CONTR ACT FARMI NGy Farmer gets exposure to world class agro technology

y Planting materials/healthy disease free nurseryy Crop monitoring technical advice free at his doorstepy Agricultural implements

y The farmer obtains an assured up front price & marketoutlet for his produce

y Focus shifts from prices to returns per acre - driven by productivity increases

y

The private sector gets requisite quality material regularlyat predetermined pricesy Promotes long term planning and investments



THE PR OBLEMS TH AT BESET CONTR ACT FARMI NG

y Small size of farmer landholdings.y Need to contract with a larger number.y No mechanism to discourage default. No legal recourse

when faced with large scale contravention of contracts.y Lack of a comprehensive crop insurance scheme to protect

against natural calamities.



C ontract Farming in Pepsi C oFLI (Pepsi) Potato CF in M aharashtra and Karnataka

y The company decided to work through an intermediarycalled Hundekari in Maharashtra and informal groups inKarnataka

y

This CF system of the company is different from itsindividual contract grower system being used in Punjabwhere farmers are larger land holders and even lease largechunks of land for contract farming

y Buying only quality potato under two price options ± fixedcontract and open market linked prices.

y Managed production risk of the growers by bringing ininsurance, and low cost input supply and credit intocontracting with formal contracts



BUILDING BLOCKS FOR A SUSTAINABLE

CONTRACT FARMING PROGRAMME IN PEPSI COLand preparation & planting,crop monitoring during growing periodharvesting & procurement, transportation logisticsprompt farmer payment system

The extension services team- selection and trainingFarmer education programField trials at farmer fields- multi-locational & crop timing

Evaluation of promising varieties and hybridsMulti locational trials and short-listing - selectionBlueprint for agricultural practices after adaptingto local conditions, to suit intellectual & financialmeans of the farmerEvaluation of farmer economics modelDemonstration farming

Commercialization

Technology Transfer

R & D Activities



Grower

L ocalMiddleman/Facilitator/productionorganiser

CompanyCollectionCentr

Company

Grower

Contract production organization, supply of company seed (with part advance payment bygrower), extension, and input credit under agreement with no liability on company

Procurement atfixed or mkt.linked price,grading &quality testing

of produce byfacilitator

Tri-partite (Intermediary) model of contract farming by FLI

(Pepsi)



CompanyParameter

FLI(Pepsi)

Area ( states) Maharashtra and Karnataka No. of farmers 14500Contracted Acreage 28,000

Average size of holding (acres)

5 acres

Average area under contract per grower 2 acres

Nature of contract Acreage

Pricing formula Fixed price of Rs. 5 per Kg. for September, October harvest and Rs.5.50/kg. for the November 03 harvest of multiplied chip grade potatoesdelivered by the GROWER to FLI plus an incentive based on the solids andTPOD (table 1) OR Market linked price plus an incentive based on thesolids and TPOD

CF in PepsiCo brief



Contd.., Nature of Organisation of growers

Contract growers thru Hundekari in Maharshtra and through informal farmer associations in Karnataka (bi-and tri-partite agreements). A commission of --

paisa/kg. on the total accepted quantity of potatoes procured by FLI from thespecified farmers. Hundekari to manage local quality labs for cook test & solidsmeasurement and to provide inputs given by FLI and loans from his account togrowers for purchase of inputs. For this, he gets a service charge of -- paisa/Kg.of seed supplied to specified farmers, and another service charge of -- paisa/kg.on the total accepted quantity of potatoes procured by FLI from specifiedfarmers for providing extension support including lab operation and FLI boardmaintenance. In Karnataka, an elected farmer representative manages most of thesefunctions.

Input Supply Through Hundekari but FLI shall replace the rejected seed at the time of delivery incase the seed is found to be of inferior grade or of lower germination. FLI shallreplace the seeds in case the germination fails due to virus;50% advance payment for seed,

50% on delivery of produce



Contd..,Technical advice andExtension

Free of cost

Quality Under size/over size potatoes to be paid @ 30% of FLI rate.Rotten/soil/green mechanical damage potato to be returned the same day.

Delivery point Factory

Payment Within 15 days

Seeds/root andProduce

Not to be sold to anyone w/ocompany permission

Major markets Domestic and export

Crop failure No liability of co.



K ey elements of Pepsi C o¶s success:y Core R&D team

y

Unique partnership with local agencies including a public sector enterprise

y Execution of technology transfer through well-trained extension personnel

y Supply of all kinds of agricultural implements free of cost to contractedfarmers

y Supply of timely and quality farm inputs on credit

.



Contd..,y Prompt dispatch/delivery/procurement of the mature produce from every

individual contracted farmer through the system of µQuota Slips¶

y Effective adoption/use of modern communication technology like pagers for communication with field executives

y Regular and timely payment to contracted farmers through computerised

receipts and transparent system

y Maintenance of perfect logistics system and global marketing standards



Conclusion:y Co-ordination, Motivation, and Transaction costs are

three pillars of a contract arrangement

(i) co-ordinating to minimize production costs(ii) balancing decentralization and centralisation in farm

decisions(iii) minimizing or sharing risk and uncertainty(iv) encouraging group or co-operative action



V . motivating long term contracts to reduce hold up problem

VI. balancing pros and cons by renegotiation of contractsover time

VII. reducing direct costs of contractingVIII. using transparent contracts

Several Indian and Multinational companies have begun such initiatives in India and have

demonstrated repeated success .



T hank u.,,

11542489 contract farming in pepsi

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