The Hindu Business Line : Guarded welcome to corporate farming

AN encouraging step, but there could be slips between the cup and the lip - that seemed to be the initial corporate reaction to the Government's recent decision allowing private companies to directly procure foodgrains from farmers.

This is a significant move in disintermediation and tracking solutions sought by the likes of Mr M.S. Banga, Chairman, Hindustan Lever Ltd (HLL), in his 2001 speech to shareholders. Corporates, however, chose to reserve their applause until implementation is done.

"No doubt it is a good move, but by the time it comes down to implementation there could be many twists and turns. These policy announcements do have elements of a good idea. We are yet to see the fine print," Mr R. Gopalakrishnan, Executive Director, Tata Sons and Chairman, Rallis India, said.

Elsewhere too, it was the fine print that bothered. According to officials at a leading multinational in the foods business, the real concern in corporate farming is with regard to the enforceability of contracts. Even if direct procurement from farmers is made possible, both parties to a contract must stick to it.

Currently, there is no certainty the farmer would sell his produce to the corporate buyer should mandi prices be higher than contracted ones. The reverse also is possible - - that of the corporate buying from the mandi instead of from the contracted farmer, should prices that side be lower.

Expectation, therefore, is of the Government taking its recent decision a step further and introducing a model contract that can be properly enforced at ground level.

With agricultural produce marketing under the States' purview, there is much State-level interest required to implement the Centre's decision. From this perspective, two more concerns surfaced among processed food players. First, whether the practice of multiple licences for each mandi would be dispensed with and second, whether mandi fees charged for the upkeep of these markets would be waived while permitting direct procurement from farmers. Some time ago, the Centre had issued model guidelines to revamp State-level agricultural produce marketing committees and States are known to be examining the recommendations.

"It is a very good opportunity for corporates. But everything depends on how State Governments respond to the Centre's decision, as agriculture is a State subject. Some States like Uttar Pradesh have already started allowing companies to procure directly from farmers.

"I am sure States such as Punjab, Andhra Pradesh, Maharashtra and Uttar Pradesh will lead the way," Mr Prasad Menon, Managing Director, Tata Chemicals, said.