Potato Contract Farming in Jharkhand Mihir Sahana Indian Grameen Services (IGS) 4 th Jan,2013

1. Potato Contract Farming in Jharkhand Mihir Sahana Indian Grameen Services (IGS) 4th Jan,2013

2. Partnership • BASIX’s UNDP study revealed that • key factors for low return in the vegetable sub-sector of Jharkhand were marketing and price risk in vegetables; Low productivity; unavailability of high quality planting material/agriinputs; Poor PoPs; higher costs of cultivation; lack of timely availability of credit/microfinance services, and Lack of proper crop insurance • Hence this intervention (promote livelihoods)

3. Environment • Insufficient assured supply of desired quality potato in open markets • Dealing directly with small producers, i.e. farmers, a cumbersome task • contract farming with an intermediary taking responsibility of the producing clusters feasible and productive option • FritoLay– PepsiCo’s food and beverage division produces potato chips in Kolkata, West Bengal; Channo, Punjab; and Pune, Maharashtra

4. Win-win for all… • Potato crop required farmers to invest more than the usual practice •  PepsiCo proposed a partnership •  BASIX took responsibility of providing credit++ to farmers and •  guiding them to produce the desired quality of potato. •  PepsiCo would then buy the potato.

5. The yummy opportunity • Could increase yield from 3000 to 5000 kg/acre • PepsiCo - INR 6–7 per kg price( vary seasonally) • Good opportunity to both provide microfinance support and offer training modules on Ag/BDS • BASIX, under the guidance of PepsiCo, would provide PoP • Loan at 18 - 21% and for AgBDS, charge fee of INR 300 per cropping season • Farmer - to benefit from financial/technical support services

6. Collective effort • A win-win situation for all parties concerned • IGS of BASIX signed a MOU with PepsiCo on behalf of the farmers’ association for the first two years. • The service was later passed on to BSFL by IGS in the third year when the operation grew and the model was almost stabilised.

7. Here we go! • PepsiCo, BASIX and farmers entered tripartite agreement • Produce to be supplied/sold to PepsiCo ONLY at a pre-determined pricing • Seeds cost INR 13 per kg in 2005–06 and INR 14.50 in 2006–07 • Severe crisis of seed materials in 2007–08 it cost INR 19 per kg • 3rd generation seeds from Punjab and Simla during the first and second years

8. How do we go about it? • 3rd year: due to increased damage to seeds while transporting from long distance viz. Punjab, majority of the seeds supplied from West Bengal cold storage • As per contract all rotten seeds which do not germinate will be audited and will either be replaced or adjusted against the final payment

9. Where is the money? • Credit through joint liability groups (JLGs). • A suitable loan product where BASIX supplied seed in kind and paid the balance credit in cash • Bullet payments desired • In case of crop failure, loan extended to a maximum of 11 months.

10. Preciseplanning, hard work • PoPdelivered by BASIX’s LSA/LSPs • Harvest time predetermined ; farmers to comply • Potato between 45 and 85 cm size is a must • Diseased and rotten tubers discarded • Green tubers sorted separately • Tubers weighed on-farm or on nearest weigh bridge • Purchase slip given to the farmers /Basix for particular truck loads

11. Precise planning, hardwork • Transported straight to (Howrah) factory; again weighed, graded and tested • Based on the quality parameters, time, and grading incentives, PepsiCo to pass on payment via BASIX • after adjusting loan amount payments made

12. The who is who… • BASIX key facilitator and driver • Acted as the intermediary • Organised 15–20 small-holder farmers into PGs • BhartiyaSamrudhi Finance Ltd (BSFL), the MFI of BASIX group, undertook appraisal • Provided credit to the farmers in easy terms • All loans linked with life and health insurance arranged in collaboration with Aviva and Royal Sundaram

13. Who does what… • PoP developed by PepsiCo • BASIX facilitated linkage (input suppliers) • Also explored possible collaboration with ICICI Lombard provided potato insurance • PepsiCo introduced a new variety of potato with high solid content in Jharkhand for the first time with a detailed PoP • Information booklets on farming techniques distributed by BASIX

14. The downside  • Defaults occur as huge gap between contract price and market price • Farmers get furious when paid lower prices for better quality produce   • Seed at times less than adequate for the acreage to be sown under the contract • Two-thirds growers reported lower yields as a case of crop failure – disease or pest attack, natural calamities, or seed failure included

15. The blame game • PepsiCo blamed the yield loss on the farmer; did not offer compensation • Farmers found recommended pesticides costly and non-viable • Some growers reported problems; lack of coordination of activities and technical assistance, delayed payments, and outright cheating by the company • Sometimes farmers had to wait at the factory gate for a day or more leading to weight

16. Turning the back • 1st & 2nd years PepsiCo adopted promotional policies • (better prices; accepting low quality produce; providing generous inputs; good technical support) • Done to establish procurement base for raw materials • Later found it difficult to sustain • by which time growers committed substantial resources

17. Clause of the contract • 3rd year supplied poor quality seeds; no proper delivery of PoP(due to large number of farmers and difficult logistically) • Also raised quality standards • Penalised farmers for undersize, underweight and diseased crop • Contract biased in favour of PepsiCo • Protected firm against all obligations • BASIX and farmers required to meet contractual obligations under all circumstances

18. From the horse’s mouth • First of its kind intervention in the tribal state • Farmers expressed overall satisfaction with contract ‘model’ .. Their views: • Found contract farming better than ‘on-their-own’ model • On-time credit availability extremely beneficial • Very good model for small holders • Still want to continue with such models • Continue to benefit from what they learnt

19. The learning is the earning • Inputs and non-financial services help in quality production • also reduce transaction costs to the farmers • Dynamic pricing should be adopted, preferably with weekly review • Production risks assumed entirely by producer but should be equitably distributed • Need for very good clarity on all clauses in agreement • Farm-gate grading/ weighing should be acceptable to all parties

20. Words of wisdom • Contract farming with large agri-processing companies have significant impacts on the livelihood of the people • Organisining farmers in groups and producers organizations like Producers company or company and making them owners of the whole value chain is a pre requisite to getting into any kind of backward or forward linkage • Control over basic raw material locally and not dependent on one agency for market linkage is key to gain better price for produce • Farmers forum at state level helps in bargaining with markets and policy makers.

21. Thank y u!