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M&M, Punjab in contract farming agreement

Friday, March 14, 2003

Taking a significant stride towards diversification of agriculture, Punjab today laun-ched the countrys largest contract farming programme with private sector participation.

About 100,000 acres of land will be diverted from other crops, notably paddy, to maize, acrop that is going out of cultivation in the state, in the ensuing kharif season under this

programme.

The acreage will be extended progressively to cover almost one-fourth of the states farm

land under the contract farming system by 2007.

A memorandum of understanding (MoU) was signed by the Punjab Agro FoodgrainsCorporation and Mahindra Shubhlabh Services Ltd, a subsidiary of Mahindra &

Mahindra Ltd, in the presence of Punjab Chief Minister Amrinder Singh, here today.

Singh described it a historic new beginning where more and more private companies

would be encouraged to develop backward linkages with the farmers. The objective

would be to maximise profits and minimise risks in farming.

While Mahindra Shubhlabh will arrange for the supply of inputs and other services

needed by farmers, including machinery and credit, Punjab Agro will procure theproduce from the growers on pre-agreed prices for committed supply to the commodity

pro-cessors and other user firms.

Forward sales contracts made with the user companies will enable the farmers to opt for

either a fixed price contract or a market-linked price contract.

Mahindra & Mahindra vice-chairman and managing director Anand Mahindra called it aunique initiative involving every player in the agricultural value chain from inputs

suppliers to end processors.

Mahindras would provide seed to harvest extension services, including know-how,

through competent extension workers visiting each farmers field in a fixed schedule.

Over 200 extension workers and other service providers would be put to this job to begin

with.

The farmers would also be facilitated to have access to crop loans at attractive termsthrough tie-ups with banks.

Tatas, Punjab team up for basmati contract farming

Economic Times - Apr 3, 2003

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The Tatas and the Punjab government have teamed up to undertake contract farming of

basmati rice in Punjab. Under the plan, the Punjab government will provide 35,000 acres

of land to cultivate basmati rice in the state.

Tata group company Rallis India, Punjab Agro Industrial Corporation (PAIC) and the

New Delhi-based company LT Overseas have formed a partnership to execute theproject. ICICI will provide credit to farmers for participating in the initiative. LT

Overseas markets the Dawat basmati rice brand. While Rallis will provide farm endsupport services, LT overseas will buy the rice that is produced. PAIC has signed an

agreement with ICICI Bank for covering a broad gamut of services. In addition to

providing credit for financing the distribution of seeds and fertilisers, the agreementprovides for assistance to farmers for introducing new crops, varieties and in

diversification of cropping systems.

The initiative is part of the Punjab governments effort to bring about large-scale crop

diversification in the state during the next 5 to 10 years. As part of the plan, PAIC is

planning to forge marketing alliances with huge basmati rice exporters. "Rallis hasestablished farm management services to offer customised packages to farmers. The

partnership will give us a chance to work closely with farmers in Punjab and helpdevelop the best crop," said Rajeev Dubey, managing director, Rallis India. LT Overseas,

which has 40 years of experience in basmati rice processing and trading, is expected to

buy the entire produce from the cultivators.

Rallis had earlier formed an alliance with Hindustan Lever (HLL) for a contract farmingproject for wheat in Madhya Pradesh. This is mainly intended to help farmers grow and

sell wheat for making atta and basmati rice for export in Madhya Pradesh and Haryana.

Rallis and ICICI have also tied up with big retail chains like Food World and Nilgiris,

and juice maker Sun

Contract farming to boost cotton economy

G. Chandrashekhar

A pioneering scheme that seeks to energise the highly enervated cotton cultivation in the

country in an integrated manner launched in Tamil Nadu recently must attract the

attention of all stakeholders in the cotton economy.

The contract-farming schme that has been started as a private initiative and supported by

the Technology Mission on Cotton (TMC) has the potential to bring about considerableimprovement in the farmers' perception of the crop which is largely grown under rainfed

conditions and is known to be susceptible to widespread pest attack.

The scheme envisages economic benefits for growers who come together to form some

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kind of an association of persons (AoP) and undertake to plant a single variety of seed (to

ensure uniform quality) in a contiguous area and follow uniform pre-harvest and post-

harvest practices.

Not only would collective bargaining by farmers result in sourcing inputs - seeds, agro-

chemicals, fertiliser at reasonably discounted prices, easier access to farm services wouldgo a long way in countering risks arising from biotic and abiotic stresses.

Importantly, commercial banks are willing to finance such ventures provided there isassured marketing outlet. Indeed, the facilitator of contract farming assures purchase of

the harvested crop at the market rate.

Normally, under contract cultivation, farmers are virtually tied hand and foot, price ispre-determined and contractors often build some escape clauses. Interestingly, in the

extant case, farmers are free to sell in the open market in an auction system if they are

unhappy with the price offered by the facilitator of contract farming.

Nearly 2,000 acres are expected to come under the integrated cotton cultivation in Tamil

Nadu. No doubt, in relation to the total area under cotton cultivation, this is rather small.But it is widely believed that a good beginning has been made and the formula known as

Appachi formula is fit for replication across the country.

The formula envisages coming together of farmers, suppliers of seeds, agro-chemicalsand fertiliser, commercial banks, insurance firms and farm service providers, while the

facilitator coordinates all efforts. Andhra Pradesh Government has shown considerable

interest in the scheme and is likely to popularise it in the State.

The good news is that the Ministry of Agriculture under which mini-missions I and II of

TMC fall has agreed to extend financial assistance for all the components of integratedcotton development programme under mini-mission II during the current year. Such

assistance will be available to coordinating agencies taking up contract farming provided

the scheme is initiated with the assistance or through Government agencies.

Subsidy on seeds, assistance for field demonstration, distribution of water saving devices

such as sprinklers and drip irrigation system, supply of sprayers/dusters and some

components of integrated pest management are some of the areas eligible for assistance.

There has been an impression not wholly erroneous that not enough attention had been

paid to activities of TMC'smini-missions I and II, which deal with cotton research andtechnology generation, and transfer of technology and development. It should be a matter

of relief that the Ministry of Agriculture has started to bestow attention to cotton

production aspects.

Although it was nearly two years ago that the Government specifically identified cotton

and oilseeds as candidates fit for contract farming in the National Agriculture Policy,

there was no movement forward primarily because industrial units for which cotton is the

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raw material showed little interest in establishing backward linkage.

Globally, cotton-producing countries are going through rough times with historically lowprices. Developing countries are the worst hit as industrial countries continue to heavily

subsidise cotton production and export.

Unless India raises the abysmally low yields and ensures effective production and

acceptable quality, there is danger the cotton economy will become increasingly

dependent on imports, much like the oilseeds and vegetable oil sector. Hopefully,integrated cotton cultivation will seek to remedy the situation.

ITCs 1,200 Internet kioks in villages across 18 states allow this agri-business company

to procure soya and other produce directly from farmers, eliminating the middleman and

saving producers time and money

Traditionally, choupals are community gathering places in the village where locals meet

to discuss issues and iron out their problems. In the digital age, e-choupals are gradually

revolutionising the way Indian farmers do business.

The concept was pioneered by one of Indias largest exporters of agriculturalcommodities, Indian Tobacco Companys International Business Division (ITC- IBD).

Dubbed a click-and-mortar business model, the system constitutes an Internet-enabled

kiosk in a village, which is manned by a prominent local farmer who is familiar with

computers, known as the choupal sanchalak. The setting up of each e-choupal entails aninvestment of between Rs 1-3 lakh.

The sanchalak mans the kiosk, is in touch with company representatives and guides

farmers on the use of the technology. Given the levels of literacy and infrastructure

limitations the sanchalak acts as the interface between the computer and the farmer.Farmers can use the kiosks to check the current market prices of their commodities,

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access market data, information on local and global weather and best farming practices.

The entire contents of the site are accessible to registered choupal sanchalaks only.

Till 1999, soya was ITCs main export item but the import of cheaper palm oil into thecountry prompted soya farmers to shift to other cash crops. In search of alternative

solutions, a chance comment from a farmer at a choupal meeting led to the idea takingshape. ITC realised that constant contact with the farmer was the key.

In June 2000, it launched the soya choupal to assist soya farmers in 2,500 villages acrossMadhya Pradesh. Starting with six e-choupals, by the end of 2002, it had succeeded in

linking 6,000 villages with over 1,200 choupals. All information based on the farmers\'

needs was gathered and the content rewritten, in some cases by the farmers themselves,

for user-friendliness.

Having succeeded with soya, the company expanded the experiment to four other states.

Today ITC-IBD is buying agricultural products ranging from soyabeans, coffee, shrimp,

wheat, rice, pulses, all through e-choupals. IBD is aggressively expanding its network to2,600 choupals by June 2003, says S Sivakumar, Chief Executive Officer of ITC-IBD.

Upto 2002, ITC-IBD invested Rs 750 crore in setting up e-choupals across the country.

Soil-testing services offered at the sanchalak\'s office also provided ITC with a valuable

database. Rather than leaving the middlemen completely out of the loop, a role wascreated for some of them in the logistics operations with the title of \'choupal samyojak\'.

The oath-taking ceremony is public, to ensure transparency in the appointment of

the \'samyojak\' and \'sanchalak\'. The farmers have the option of either bringing the

produce to the ICT warehouse or factories and getting reimbursed for transport costs, or

giving their supplies to one of the collection hubs or to the \'sanchalak\'.

Initially apprehensive of the system, farmers are now accepting the concept. Sohan, a

farmer says, A visit to the mandi means an endless wait, which may often stretch into

days, before a sale finalises. Often the rates offered are very low but then where is theoption? Each one of us spends Rs 15 a tonne in bagging the produce and again Rs 18 a

tonne for transportation, loading, and unloading.

Shashank Joshi a soya farmer in Mendki village, Madhya Pradesh, has a new status as

a \'sanchalak\' in ITC\'s soya e-choupal. A computer was installed in his house andfarmers often visit to access data and drop their bags of soya off at his home-office. The

days of hanging around the \'mandi\', waiting for the agents to examine their stock anddictate prices, are over. Prices of major \'mandis\' are transparently provided on thecomputer screen, giving the farmer the option of selling his stock to ITC or a \'mandi\' of

his choice.

ITC claims that a farmer is able to save between Rs 400-500 a tonne, depending upon his

proximity to the processing centre. Darshpreet K Gill, Manger, ITC-IBD, says that theprocessing centres are designed so that the farmers\' waiting time is reduced by two

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hours. Efficient procedures include a material handling system that ensures that the

tractors, trolleys, or trucks can directly unload the grain without much spillage. A modern

weigh-bridge weighs the produce precisely, and cash is paid to all the farmers in under 10minutes. ITC, on the other hand, even after paying transport costs, saves about Rs 200 a

tonne and gets direct access to the farmers in addition.

The company has set up soya choupals in Madhya Pradesh, wheat choupals in Andhra

Pradesh, coffee choupals in Karnataka and aqua choupals in Andhra Pradesh and Orissa.

The next step was converting the computer from a mere supply chain mechanism to a

one-stop shop for farmers, enabling them to not just sell product but also source their

inputs and daily items for household use.

For instance, ITC has tied up with Monsanto and Madhya Pradesh\'s Seeds Corporationfor seeds and BASF for fertilisers. ITC charges a 10% commission on the percentage of

sales accrued in the choupals, one half of which is passed on to the \'choupal sanchalak

who executes the sale. It also sells solar lanterns and cooking oil through the same chain.

However, the e-choupal story is not without its drawbacks and detractors. ITC has tocontend with poor rural infrastructure and unreliable Web connectivity -- the prime

requisites for the success of this project. The situation is further complicated by the sheer

dispersion of the villages in the country.

Many food security and agricultural experts are anguished by the sums of money beingpumped in to make it feasible. While farmers struggle to procure one decent meal,

millions are being spent in building new synergies between industry and the farmers,

they say.

And while company officials claim that the e-choupals have clearly identified andaddressed the needs of villagers, Devinder Sharma journalist and chairperson of the NGO

Forum for Biotechnology and Food Security says, First, it was the television, then

telephones, and now computers. What do you expect from a farmer having less than 2hectares of land holdings? These are only tactics to help the company grow.

The company\'s target is to eventually have 50,000 choupals to cover 200,000 Indian

villages or one-fifth of the country.

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