The Hindu Business Line : The Second Green Revolution — Towards a different kind of green revolution

Contract farming will not only ensure assured markets and remunerative prices for farmers but also an assured supply base for the corporates in agro-based industries. However, to make contract farming a success, the Government has to put in place the requisite regulatory framework and extend fiscal incentives to all the players, says DILIP KUMAR ROY.

IT IS ESTIMATED that an investment of Rs 70,000 crore is needed to boost Indian agriculture and develop markets for farmers.

Gone are the days of Green Revolution, the main objective of which was self-sufficiency in food production for food security. The Green Revolution, however impressive it had been in the past, has in recent years tapered off.

From the mid-1990s agricultural output has been falling short of demand. The reasons are many — prime among them are the unviability of smallholdings and lack of international competitiveness of its produce.

The next phase of agricultural development, euphemistically called the Second Green Revolution, will hinge on `Sustainable Agriculture'.

Circumstances have forced a reorganisation of the production system in the form of corporate sector intervention in the agriculture sector. Profitability in agriculture is one of the most important elements of `sustainable agriculture'.

Role of corporate sector

It is in this context that one must examine the role of the corporate sector in ushering in another kind of green revolution. It has been argued that large-scale corporate agriculture is more effective than the present system of peasant farming.

It leads to greater efficiency, higher private investment and higher output, income and exports. The radically changing scenario in the agriculture sector after the liberalisation of the economy, has brought about greater market focus in the whole gamut of agricultural activities.

Only those corporations that are equipped with technology, management expertise and financial resources can face the challenges of the `Second Green Revolution'.

There is need for a change in the mindset of the farmers, policymakers, intermediaries in the agricultural process and all other stakeholders for ushering in the `Second Green Revolution'.

In spite of the achievements of the first Green Revolution, farming has been beset with problems such as uncertain supply of inputs like fertilisers, seeds and pesticides etc, antiquated farming practices, declining yield and productivity, exploitative middle men and un-remunerative prices.

Contract farming

These days there is demand for quality agricultural produce from the agro-based food industry. Timely and adequate quantity of inputs at the right prices have assumed critical importance. The Union and State Governments' inability to provide the farmers with a support structure that makes farming viable has made corporate investment in this sector a necessity.

Private sector investment in agriculture will ensure a market for the farmers' produce. Crop selection will depend upon the value addition that will be made.

Value addition in contract farming involves moving to a value delivery system. This will ensure that the corporate sector will build backward linkages between agricultural research and development with seed selection and variety evolution and forward linkages between processors, marketers, retail chain, exporters and consumers.

It has been reliably estimated that an investment of Rs 70,000 crore is needed to boost Indian agriculture and develop markets for farmers.

Win-win situation

Contract farming is expected to be a win-win situation for both the farmers and the corporate sector. It will generate gainful employment in rural communities and a steady source of income at the individual farmer's level with assured prices and markets.

The seasonality associated with rural employment will be neutralised with round-the-year agriculture-related activities, which in turn will reduce migration from rural to urban areas. The corporate sector will ensure that our farmers are exposed to world class technology. It will also ensure crop monitoring on a regular basis and free technical advice. Since the corporates that will invest in agriculture will largely consist of large retail chains, exporters or food processors, contract farming will ensure a dedicated supplier base for them, which will be built on long-term commitments. Uninterrupted and regular flow of raw material and protection from fluctuations in market pricing will be some of the other benefits of contract farming.

The flip side

From the farmers' point of view how can we make sure that the corporate players will fulfil their obligations in the contract? A regulatory framework should be in place so that farmers are not short-changed.

In the same way, from the viewpoint of the corporates, there is no credible enforcement mechanism in place to ensure that farmers will honour the contracts. Due to the small size of land holdings in the country, the corporates will need to contract with a large number of farmers, thereby increasing the risk factor. Besides there is no comprehensive and deregulated crop insurance scheme at present.

Therein comes the role of the Government as a neutral broker to ensure that both farmers and the corporate sector fulfil their contractual obligations. Government policies and regulations should make purchase interference by a third party in a contract-farming programme a cognisable offence. A quasi-judicial system of contract enforcement should be put in place. There should be single tier regulation for contract farming at the State level.

The Government should extend fiscal support to the stakeholders, especially the corporate sector. However, a comprehensive legislative measure has to be put in place, which, among other things, will compel them to invest in rural infrastructure and farmer upliftment to the extent of tax saved.

The Government should be ready to offer tax deductions on investments made in the creation of extension services for participating farmers linked to the procurement of output. The proposed comprehensive legislation should contain provision whether or not it is permissible to procure agricultural produce directly from the farmers.

There should be no taxes or duties on import of agricultural implements in a registered contract-farming programme. Measures have to be taken to abolish all fees, taxes, cess duties, and levies on procurement by a registered contract-farming programme.

Efforts are on to upgrade the laws on agricultural marketing to provide, among other things, legal support to contract farming agreements. Several State Governments, such as West Bengal, Andhra Pradesh, Punjab, Karnataka and Tamil Nadu, have already progressed far in actively promoting contract farming.

They have amended marketing laws to enable and support corporate participation in contract farming. Various incentives, including lifting of land ceilings, subsidies and tax rebates, are on offer.

Hopefully, the National Agricultural Policy, which envisages a big role for private sector through contract farming, will accelerate capital inflow and an assured market for crop production will be achieved within a fixed timeframe.

(The author is a Senior Under-Secretary in the Department of Agriculture and Cooperation, Ministry of Agriculture, New Delhi. The views expressed are personal.)