Corporatization of Indian Agriculture

WHY IN NEWS?

States like Karnataka are planning to amend their land reform acts, to legalize leasing of agricultural lands and thereby encourage corporatization of agriculture.  

INDIAN AGRICULTURE: AN OVERVIEW

• The agriculture sector is the largest employer in the country, employing nearly half of the workforce in the country.
• However, it contributes to only 17.5% of the nation’s GDP.
• Agriculture predominantly relies on the monsoonal rains. Roughly 60% of the gross cropped area is rainfed.
• India’s production of food grains has been increasing every year, and India is among the top producers of several crops such as wheat, rice, pulses, sugarcane and cotton. It is the highest producer of milk and second highest producer of fruits and vegetables.
• Several farm inputs, such as seeds, fertilizers and electricity, enjoy subsidy benefits. But they are skewed in favor of a few crops such as rice and wheat, which has affected the cropping pattern in the country.

ISSUES PLAGUING INDIAN AGRICULTURE:

• Subsistence nature:
  • Most parts of India have subsistence agriculture. The farmer owns a small piece of land, grows crops with the help of his family members and consumes almost the entire farm produce with little surplus to sell in the market.
• Lagging growth of agriculture sector:
  • While the national growth rate has been over 6% throughout the past decade, agriculture’s growth has been lagging at less than 3%.
  • Hence, people’s income is rising faster than net food production. Demand is rising much faster than supply, and this is causing the high levels of food price in inflation.
  • In addition, population is growing by 1.3% per year and diets are becoming more diverse. This is further increasing the demand for food.
• Low productivity:
  • The net productivity from farmlands have increased four-fold since the 1950s. However, it is far behind those of other major economies like USA, China and Brazil.
• Infrastructural deficits:
  • Mechanization continues to be limited in the late stages of agriculture, such as harvesting and threshing. Mechanized farming is still a distant dream in India. 
  • The storage facilities and supply chain remain highly fragmented. Storage facilitates of FCI are scattered and are generally crop specific. Cover and Plinth (CAP) storage continues to be in use despite efforts to eliminate them. This results in poor post-harvest management of crops.
• Institutional deficits:
  • Lack of access to formal agricultural credit:
    • As per the NABARD All India Rural Financial Inclusion Survey 2016-17, more than half the agricultural households in the country have outstanding debt. In this, a large share is indebted to informal sources such as moneylenders.
    • Small landholdings, lack of awareness, delays in payment of subsidies/MSPs and delays in approval of formal loans are some of the reasons why the people continue to rely on informal sources.
  • Issues in procurement by government agencies:
    • Though MSP is announced for 22 crops, focus in collection is given to only a few.
    • The open-ended procurement by FCI poses challenges of storage and management of grains, while discouraging private participation in post-harvest operations. 
  • The public sector research and development which served well during the Green Revolution period, has become defunct after 1980.This has resulted in high input costs for farmers. E.g.: Farmers are forced to spend more on terminator GM seeds produced by foreign MNCs every year, since indigenous varieties of similar characteristics are few.
• Pest attacks:
  • Attacks from new varieties of pests have been on the rise in India. The recent attack of Fall Armyworm on Maize crop and return of pink bollworms on India’s cotton fields are examples in this regard.
• Climate variations and its impact:
  • The Economic Survey 2017-18 says that the proportion of dry days (rainfall less than 0.1 mm per day), as well as wet days (rainfall greater than 80 mm per day) has increased steadily over time. It notes that an extreme temperature shock in unirrigated areas reduces yields by 7 % for kharif and 7.6 % for rabi.
• • With sea levels rising, droughts and heat waves becoming more recurrent and monsoons becoming more dynamic, the impact of climate change in the coming years is going to be more severe.

NEED FOR REFORMS:

• Rising demand: The country’s requirement for food grains in order to provide for its population is projected to be 300 million tons by 2025. To meet this, the annual growth rate in agriculture should be at least 2%.

• Generate employment: Despite recording significant growth in other sectors, agriculture continues to be the largest employer in India. With the population expected to grow in the coming years, development of agriculture is crucial to generate enough employment in the country.  
• Ensure livelihood: Agriculture is the sole source of income for a large share of Indians. Thus, its development is essential to ensure their livelihood, eradicate poverty as well as curb social issues such as farmer suicides.
• To promote economic development: Though agriculture contributes only 17.5% of the GDP, it fuels the Indian economy. A stable agrarian sector is essential to ensure the sustainable growth of India.  
• Meet a climate uncertain future: India needs to adapt its agrarian sector to sustainably meet the changing global climate.

THE 4Cs:

1. COMMERCIAL FARMING:
   • It is the farming method where crops and livestock are raised to be sold in the market for profit.
   • It is usually capital intensive, covering large areas of land, heavily mechanized and uses modern inputs such as high yielding crop varieties, chemical fertilizers and irrigation.
2. CORPORATE FARMING:
   • Corporate farming is the practice of large-scale agriculture on farms owned or greatly influenced by large companies. Corporatization of agriculture is a concept which embodies the capitalistic ideals of the entry of the corporate bodies and thereby to commercialize the sector.
   • It includes corporate ownership of farms, selling of agricultural products, in-house research and development facilities.
3. CONTRACT FARMING:
   • Contract farming can be defined as agricultural production carried out according to an agreement between a buyer and farmers.
   • The contracts outline conditions for production of farm products and their delivery to the buyer’s premises. The farmer undertakes to supply agreed quantities of a crop or livestock product, based on the quality standards and delivery requirements of the purchaser. In return, the buyer, usually a company, agrees to buy the product, often at a price that is established in advance.

 

4. COOPERATIVE FARMING:
   • Cooperative farming refers to the method wherein each member-farmer remains the owner of his land individually, but farming is done jointly.
   • Profit is usually distributed among the member-farmers in the ratio of land owned by them.
   • It is an ideal method for areas having small farm holdings and where the individual capacity of farmers to spend on inputs is less.

CORPORATISATION OF AGRICULTURE:

 

CORPORATE AGRICULTURE AS A REMEDY:

Corporatizing Indian agriculture can solve many of the issues that ails the sector today.

• Formalization of the sector:
  • At present, Indian agriculture is largely informal in nature. Corporatization induces a professional approach as it treats agriculture as business rather than subsistence.
  • Professionalization also attracts youth into the agricultural fields. Farming is not seen as an attractive profession today. But inducing corporate values can greatly increase its attraction as a potential career.
• Better economies of Scale:
  • Co-operative farming can solve the problems of small and uneconomic holdings. By pooling the small and marginal farms, members can reap the benefits of large-scale farming, such as reduced input cost, added mechanization, scientific crop management and better price realization for the products.
• Attracts institutional investment:
  • One of the most important features of Corporatization is the involvement of private investment. They can effectively supplement public resources and help government reduce its spending such as on subsidies and price support schemes.
• Improved productivity:
  • Under corporatization, the motto is ‘minimum investment, maximum return’. Hence, the corporate will try to raise agricultural productivity by facilitating farmer's access to inputs like high yielding seeds and plant breeds, better quality fertilizers and pesticides, creating critical infrastructures like pre and post-harvest treatment, storage and transport infrastructure.
• Improve Competitiveness:
  • Corporatization will result into increased competitiveness on point of price. Multiplicity of corporate bodies as well as farmer co- operatives will play a great role in determining the price of commodities.
  • This can help reduce the influence of middlemen and APMC markets in determining the prices of crops and thereby help farmers with better price realization.
• Increased income & reduced risk:
  • Better price realization and improved productivity results in better returns to the farmers.
  • The corporates also provide facilities like crop insurance and climate resistant farm technologies, which can greatly reduce the risks associated with farming.
• Better Supply Chain Management:
  • Corporate farming has a keen focus on quality. To ensure this, they seek to develop an effective ‘farm to fork’ linkage through strong forward and backward linkages. They provide backward linkages in the form of agricultural research, technological inputs and credit facilities, and forward linkages in the form of sorting, storage and marketing facilities.  
• Protection of the interests of farmers:
  • Various labor legislations will be directly enforceable in the agri sector if corporatization of the sector takes place. The farmers will have greater bargaining power and remedy in case of violation of their rights, which is largely absent in the present system.

HOW TO BRING CORPORATIZATION:

• Land consolidation: Corporatization can be effective only if large areas are available for cultivation. At present India is facing rapid land fragmentation. This needs to be addressed.
• Encourage Agri entrepreneurship: Entrepreneurship is the key to the development of any business ecosystem. The same is applicable to agriculture. In a country like India where agriculture is practiced in subsistence nature, measures are essential to improve the attractiveness of agriculture as a potential business.
• Development of forward & backward linkages: Corporatization is not restricted solely to the farm fields. It covers all areas from seed development to storage and value addition. The development of these areas is essential for development of good corporate environment.
• Develop Financial system: Strong financial system, capable of lending for both long and short terms is essential. In this regard, India needs to address its NPA crisis and develop on secondary financing institutions such as bond markets.
• Adopt regional approaches: India is a geographically diverse country, with plains, plateaus and hills. Hence regional approaches are best suited to promote corporate agriculture. For e.g.: For the Gangetic plains where the soil is fertile and large swaths of land are available, the American Prairie models can be adopted, but for the arid Rajasthan area the Israeli model is best suited.
• Establish effective dispute settlement mechanism: Quick and efficient dispute settlement is essential to promote ease of doing business. The present judicial mechanism is overloaded. Hence, alternate dispute resolution mechanisms like land tribunals, arbitration, mediation and negotiation should be established in the country.
• Establish proper regulatory structure: A proper institutional mechanism, involving central and state governments, local self-governing bodies, representatives from farmers & corporate bodies and third party auditors should be established so as to regulate the growth of corporate agriculture while ensuring the welfare of common man.

CONCERNS OVER CORPORATE AGRICULTURE:

• Liberalization of agriculture:
  • The corporatization of agriculture demands the liberalization of agriculture to attract large investors. This would mean reducing restrictions over fertilizer imports, deregulating domestic manufacture, removal of subsidies on irrigation, electricity, credits etc., all of which will detrimentally affect the small and medium farmers.  
• Landlordism:
  • Corporate farming in its complete sense suffers from all the defects associated with landlordism. Under this system the production is carried on with the help of hired workers and with the extensive use of mechanization. The capitalist or the corporate personnel take all related decisions in relation to production while the workers have no role to play in the control and the management of the farm.
• Farmers at the mercy of the Corporate Houses:
  • The significant role of large corporate houses, along with their upfront investments and monopolistic decision-making powers, can render the farmers at their mercy.
  • The recent issue between PepsiCo and Gujarat farmers over FC5 potatoes in an instance in this regard. 
• Profitability as priority concern:
  • The emphasis is on trade rather than sustainable means of domestic production. This single pointed agenda on profitability leads to the increased and indiscriminate use of ·chemicals and genetic engineering, which could undermine sustainable growth, reduce water and soil fertility, upset ecological balance and damage to biodiversity.
• Issues of food security:
  • If corporatization is not properly regulated, then private corporate bodies tend to maximize profit and may not pay due attention in protecting the interests of the common people such as food security.
• Profiteering without Social Security dragnet:
  • Profit making motive of the corporate houses will lead to a situation where it will supersede social security, social justice and several other interests of the farming class.
• Lack of transparency:
  • Corporate bodies have strategic plans and policies that are not revealed to the farmers or general public.  Thus, at times, farmers may be forced to become part of experimentations in farm fields without knowledge. E.g.: The cultivation of GM crops.  

MEASURES BY GOVERNMENT:

I. LEGISLATIVE MEASURES:

• Model Land Leasing Act, 2016:
  • The Act was prepared and approved by the NITI Aayog to offer an appropriate template for the states and UTs to draft their own legislations.
  • Its salient features include:
    • Legalize land leasing
    • Under no circumstances will the leased holders' claim on land will be valid.
    • Allow automatic resumption of land after the agreed lease period.
    • Incentivize tenants to make investment in land improvement.
    • “Special Land Tribunal” to resolve dispute
• Model Contract Farming Act, 2018:
  • It is developed by the Ministry of Agriculture to create a regulatory and policy framework for contract farming in the country.
  • Its salient features are:
    • Emphasis on protecting the interests of the farmers, considering them as weaker of the two parties entering into a contract.
    • Proposes a "Registering and Agreement Recording Committee" or an "Officer" for the purpose at district/block/ taluka level for online registration of sponsor and recording of agreement provided.
    • Contract framing to be outside the ambit of APMC Act.
    • Contract Farming Facilitation Group (CFFG) for promoting contract farming and services at village / panchayat level provided.
    • Accessible and simple dispute settlement mechanism at the lowest level possible provided for quick disposal of disputes.
    • No title ownership or possession to be transferred or alienated or vested in the contract farming sponsor etc.
    • Limits of stockholding of agricultural produce will not be applicable under contract farming.

II. INSTITUTIONAL MEASURES:

• Small Farmer's Agriculture-Business Consortium:
  • SFAC was established as a society in 1994 to facilitate agri-business ventures by catalyzing private investment.
  • The scheme aims to support new ventures in agro-based industries and to promote the farmer producer organizations (FPOs) and their integration in agriculture value chain.
• GI tag for agricultural products:
  • Based on the TRIPS agreement, India provides GI tags for several agro products to encourage their marketability. E.g.: Banaganapalle Mangoes of Andhra Pradesh, Kangra tea of Himachal and Marayoor Jaggery of Kerala.

III. SCHEMES & PROGRAMMES:

• SAMPADA yojana:
  • “Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters”
  • To create modern infrastructure facilities for food processing through cluster-based approach with strong forward and backward linkages.
• Yuva Sahakar Scheme:
  • It is a youth friendly scheme which seeks to attract youths to cooperative business ventures, introduced by the National Cooperative Development Corporation (NCDC).
  • The scheme is linked to Rs.1000 crore Cooperative Start-up and Innovation Fund (CSIF).
  • The scheme envisages term loans at subsidized rates, including 2 years moratorium on payment of principal.
  • The scheme has special incentive for cooperatives of North Eastern region, Aspirational Districts and cooperatives with women/SC/ST/PwD members.
• Sahakar-22
  • It is a mission launched by National Cooperative Development Corporation (NCDC), to double the farmers’ income through providing new employment opportunities generated through cooperatives.
• Pradhan Mantri Annadata Aay Sanraks Han Abhiyan:
  • PM-AASHA is a new umbrella scheme aimed at ensuring remunerative prices to the farmers for their produce.
  • The three components that are part of AASHA are Price Support Scheme, Price Deficiency Payment Scheme and Pilot of Private Procurement and Stockist Scheme.
• Paramparagat Krishi Vikas Yojana:
  • It is to promote organic farming through a cluster-based approach.
  • These clusters have the potential to be developed into corporate entities.

WAY FORWARD:

• The rapidly changing agriculture sector requires proactive policy management which can maximize benefits for all stakeholders. Raising the MSP, price deficiency payments or income support schemes can only be a partial solution to the problem of providing remunerative returns to farmers. What is needed are long term policies and their effective implementation.
• Corporatization can provide solutions to several issues faced by the Indian Agri sector. While the measures taken by the government are commendable, more needs to be done. Reforms in other areas such as land consolidation, development of forward and backward linkages, agri research, irrigation and formal credit ecosystem are also needed.
• Professionalism in agriculture will not be possible without adequate entrepreneurship opportunities and professional courses in agriculture. Hence for the same, a conducive ecosystem must be created, for which the “Startup India mission” can be utilized. Also, there is a need to create more agri-related professional courses across the country to create a band of agro-professionals.
• However, involvement of private entities in any sector of India is bound to face criticism. Hence, careful checks and balances should be put in place so as to balance corporatization with the protection of India’s small and marginal farmers.

GLOBAL EXAMPLE: DAIRY SECTOR IN NEW ZEALAND

In New Zealand, agriculture is the largest sector of the tradable economy, contributing about two-thirds of exported goods. In this, dairy and meat farming forms the largest share.  ‘Fonterra’ is the major processor of milk in New Zealand. It is a multinational cooperative which from the moment of its creation in 2001 became New Zealand’s largest company.

Practice Question

Q. Among the 4Cs-commercialisation, corporatization, contract and cooperative farming for saving the Indian agriculture, corporatization is the least emphasized aspect. Explain how corporatization can solve the issues pertaining to Indian agriculture. Also, suggest measures to tap this unrealized potential?