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Wednesday, October 28, 2020

Agricultural bills will provide legal framework for contract-farming

This is the essence of the reform, not the circumventing of mandis or the ECA. And it will benefit everyone — farmers, industry and consumers.

Written by Sudhir Sitapati | Updated: October 19, 2020 8:57:19 am
A worker empties a crate of Alphonso mangoes onto a truck at a local mango trader's premises in Ratnagiri (Photographer: Dhiraj Singh/Bloomberg)

Santosh Ganar owns two acres of land in Raigadh in coastal Maharashtra — home of the Alphonso mango. Yet he chooses to plant cheap rice rather than lucrative mangoes. When I asked him why he replied that he would love to plant mangoes. Rice gives him just Rs 30,000 per acre while mangoes would earn 10 times as much. But he could not afford the initial investment of an “elevated bund” for the mangoes, nor survive the five-year waiting period for the trees to yield fruit.

He also added, with a hint of schadenfreude, that his friends who have orchards complain of wasting almost half their mangoes since they are not able to reach the markets on time. This COVID-filled year was the worst, as most mangoes remained unsold. Ganar told me how he saw pot-bellied monkeys, surrounded by half-eaten mangoes, snoring in his friend’s orchard. His friend didn’t find it necessary to shoo them away with catapults.

The biggest problem the poor in India face is risk mitigation. Since they do not have savings, they are reluctant to undertake even the minimally risky business that you or I would. As a consequence, they remain stuck in a poverty trap, growing cheap rice instead of valuable mangoes. Policymakers the world over have come up with a variety of capital investment and risk mitigation instruments — such as micro-credit loans — for the poor to make money while protecting them against risk. The tragedy of the Indian farmer — who constitute 40 per cent of the country and an even higher percentage of its poor — is that India’s farm laws have prevented these risk-mitigation instruments from reaching them.

Under the laws that governed India until the third week of September, farmers could only sell to the local mandi or agricultural market. The risk-mitigation methods that “contract farming” provide were illegal. The old laws — enacted to protect farmers like Ganar — ensure that they never make enough money to leave poverty.

Ganar’s sorrow is also the sorrow of the consumer since the old laws did not result in fruit being available at a low price for consumers. Quite the opposite.

Fruits are not just expensive compared to other carbohydrates in India — A 100 Kcal of energy from fruits costs five times that from rice — but they are also 20 per cent more expensive than even the western world. As a result, Indians eat fewer fruits than most others. Based on a NIN-ICMR report of 2019, I estimate that Indians eat only 32 grams of fruit a day versus the recommended amount of 100 grams. And this acute deficiency in fruits is much more pronounced among the poor.

This is a particular tragedy because fruits provide the most benefit of all food classes — they give protection and immunity through vitamins and micronutrients. Indians are deficient in Vitamin A, zinc, Vitamin C and iron. The last two make anaemia the number one public health challenge that India faces. We have a situation where horticulture is saddled with unviability for the farmer and unaffordability for the consumer.

I asked Ganar, that if someone offered to invest in a mango orchard in his land, pay him what he loses in not planting rice till the mango trees gave fruit and agreed to buy all the mangoes that grew on his tree five years later, how much discount would he give his benefactor? Without batting an eyelid Ganar said that he’d happily give a 40 per cent discount and still earn Rs 3 lakh. He would still make 10 times more than he makes today. But his investor, an expert in mango cultivation with better access to markets (and doubtless better methods to shoo away monkeys) would make the full potential of the acre — Rs five lakh. After paying Ganar and accounting for a return on investment the investor would still be left with a surplus. In a competitive market, the consumer would get cheaper mangoes.

This is an example of “contract-farming” — one that would benefit the farmer, the investor, and the consumer. An acre of land yielding Rs 30,000 starts yielding Rs 5 lakh. But for all these years why would either Ganar or the investor have agreed to a “contract” that was not legally binding? Ganar could cheat the investor and decide to sell the mangoes at full price five years later. The investor could cheat Ganar and not buy the mangoes he finally produces. And in a year of mango glut, when forced to buy all of Ganar’s mangoes, how could the investor have stored it for the next year, if mangoes were suddenly listed under the Essential Commodities Act (ECA).

The three agriculture bills change all this by providing the legal framework for contract-farming. This is the essence of the reform, not the circumventing of mandis or the ECA. And it will benefit everyone — farmers, industry and consumers. All except the monkeys who have grown fat on years of antiquated agricultural policies.

This article first appeared in the print edition on October 19 under the title “Fruit Of Reform”. The writer is an executive director Hindustan Unilever and is the Co-Chair of the CII Food Processing Committee. Views are personal

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