A second green revolution is waiting its turn in the wings, and this time the spotlight is on relieved farmers. They have had their first encounter with a concept that is set to change their entire business — contract farming. And none other than Rallis India is behind this hit.

Rallis’s successful experiments in contract farming are set to change the agricultural landscape for good. Farmers now have only to get to one of four Rallis Kisan Kendras (RKKs) and fulfil their entire spectrum of needs, be they agricultural products like pesticides and insecticides, credit, an assured buyer, or even expert advice. The RKKs are at the four locations at which the company has set up the contract farming projects: at the pilot project in Hoshangabad, at Bangalore for fruits, at Nashik for vegetables, and at Panipat for Basmati rice.

The company has come together with credit provider ICICI and buyers of agricultural produce like HLL and Food World to provide a one-stop shop of all solutions for farmers.

"While no effort on our part has been purely altruistic, we have tried to reach out to the farmer in a new and unique manner that benefits both parties and every other player in the surrounding business environment," says Brigadier J. S. Oberoi, vice president, farm management services, Rallis.

In India, agriculture has long been the traditional occupation. Today it employs almost 60 per cent of the country’s population, but the sector contributes only to about 26 per cent of the national GDP. This is because the agricultural system today does not provide the largely uneducated farmers with the necessary inputs. But contract farming can take farmers’ efficiency to never-before levels.

The Food and Agriculture Organisation’s report on contract farming highlights the overwhelming results of one such initiative. "Hindustan Lever issued contracts to 400 farmers in northern India to grow selected varieties of tomatoes for paste," it states. "A study of the project confirmed that production yields and farmers’ incomes increased as a result of the use of hybrid seeds and the availability of an assured market. Yields of the farmers under contract were 64 per cent higher than those outside the project."

An indication of the dramatic effect of contract farming would come from a straight comparison between what Rallis is doing in the field to the traditional model of farming.

Farmers bear the brunt
The traditional model being practiced today is loaded against farmers. They are hard-pressed for finance, equipment, seeds, fertilisers and even machinery. Most of the inputs are physically difficult to procure. To add to their misery, the farmer is oblivious of the latest in technology and agricultural sciences.

It comes as no surprise then that the final produce lacks quality. Either the offtake itself remains low, or realisation suffers as margins take a beating. Consequently, the farmer has no disposable income. In the chain reaction, finances get strained and every subsequent crop suffers. Any further resource constraint leads to the sale or mortgage of the farmer’s land. And then in comes the exploitative landowner.

Even in cases where the landowner is not in the picture, the mandis and wholesalers adorn the exploitative mantle by paying the farmer much less than the exorbitant rates at which they themselves sell. In the negative feedback mechanism that comes into play, the farmers’ quality of life suffers as they get caught in a vicious cycle of pending debts and interests.

The disadvantages of the system don’t limit themselves to the farmers’ predicament. Even financers of the farmers face the music as loans turn into bad debts. Retailers, too, are not in a position to assure quality to the consumer even after coughing up large amounts of procurement money. They also face the risk of not selling the products altogether.

In some cases, the food processors take up stock directly from the mandis. They pass on their costs all the way to the consumer through the retailers. The resulting high cost has its impact on the industry as a whole.

It may seem like the farmers are irretrievably enmeshed in this system. But Rallis, originally a pure agri-inputs company, has covered many milestones to unshackle the farmer with its contract farming initiatives. Because of its strong background and history in the rural sector, Rallis is in a good position to execute the contract-farming model.

The changes
Gaining the farmers’ confidence was the key to the success of Rallis's model. The idea was to entrench in the farmers’ minds that this wasn’t another purely academic experiment. Rather, it was crucial to make them see that the experiment’s success would mean their success as well. "We didn’t want to be remembered as fly-by-night operators," asserts Mr Oberoi.

"Although the company has extensive reach in the agricultural world, its expertise is restricted to seeds, fertilisers and good research practices," says Mr Oberoi. To overcome the lack of expertise in its non-core businesses, the company decided to partner with existing service providers and to extend the network to the farm. The partner, in turn, stood to benefit from the Rallis-Tata association and gain inroads into the rural segment.

To provide easier finances and lend easy credit to the farmers, ICICI was roped in. For ICICI, the model expectedly provided a platform to reach out to a larger rural audience. To ensure produce offtake, Rallis tied up with HLL. The latter was looking for standardised good quality wheat for its processed atta. This arrangement, Mr Oberoi says, goes beyond the ordinary corporate deal; it is more of a partnership.

When this partnership took its wares to the farmers of Hoshangabad, where the first experiment was carried out, there was cause for great satisfaction. With the increase in available funds, farm credit went up. Offtake was assured as was the quality of the produce and the farmer saw better returns for himself.

The project was aimed at giving true value to all participants of the initiative. "The idea was to take to the farmer any person who could give the best credit along with the best market experience through a Kendra," says Mr Oberoi.

And the one-stop-shop dream did turn into a reality.

What started out as a 1,000-acre project has today expanded to a whopping 5,000 acres. Encouraged by its success in Hoshangabad, the company set up new projects, including those for fruits at Bangalore, vegetables at Nashik and Basmati rice at Panipat. While there are different market-end partners for all three projects, including Food World for fruits and HLL for basmati rice, the credit agency for all three remains ICICI.

The road ahead
Rallis is now on the verge of commercialising its successful model. After a few loose ends are tied up, though.

One of the problems with the current system is that the farmers are not being charged for most of the facilities provided by the partners. In a commercial set-up, the farmers would require to pay, either on an annual basis or by offering allied facilities like soil testing at a nominal fee. "There is no such thing as a free lunch," emphasises Mr Oberoi. Not only is the method of levying the charge yet to be decided, the willingness of the farmer to be a part of such a deal also remains untested.

While the structure seems to be in place, Mr Oberoi says the entire model has to be validated. "Partners must see value in it and, as they scale up, we’ll scale up too." If ICICI is able to pursue its own objective, or Food World generates a business opportunity because of this tie-up, the model would certainly be successful.

"After tying up with us, Food World should either start selling better fruit or start selling fruit in a better way. Either products improve or processes do." The actual quantification of the players would take a season or two. Again, like in any other business, the initial loss would need to be borne by all operators.

Rallis is aspiring to add further value to the model by ensuring good irrigation and continuous water supply through extensive drip irrigation and watershed management projects. The company is already working on certain joint ventures to this end.

Looking to the future, it may even be possible to envisage various Tata companies coming together to provide more than just agricultural facilities to rural India. For instance, to ensure that farmers are not exploited and are able to comprehend what is communicated, it is important to educate them.

Teaching the farmer to use computers and access mails may be an area where companies could extend their capabilities. The conglomerate does not rule out using its telephony, Internet, steel, software, education and other in-house companies to better rural conditions. Effectively, the farmer is all set to gain.