Gujarat’s contract farmers reap profits even as potato prices crash

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Published: March 17, 2015 12:25:25 AM

Farmers are able to avoid the risk of fall in prices because of contracts they have with food-processing MNCs

At the Vinayak cold storage in Deesa, a town in Gujarat’s northern Banaskantha district, tractors overladen with bags of potato occupy every foot of available space, forcing people into reptilian movements through them. Farmers, some white-turbaned and others long-limbed and sporting single earrings, get restive as an end to their long wait does not seem in sight. Seeing our TV camera, one of them hisses that government subsidy for cold storages is not getting to farmers as it should, drawing placatory gestures from the owners. He is not entirely right. Potato growers in small groups tend to set up cold storages in this part of the country, with help from the state and the assurance that their own combined supply will occupy a substantial part of the room. Of the 145 refrigerated potato warehouses in Deesa, most are farmer-owned, says one of Vinayak’s 13 partners, Valaji Chaudhary.

Those queuing up at the godowns are growers of table varieties—Kufri Badshah and Kufri Pukhraj—developed by the Central Potato Research Institute in Shimla. Prices last year were over R10 a kg, driven by exports caused by crop damage in Pakistan, and forcing a stampede to the crop in the following sowing season. The district’s area under potato rose from 45,000 ha to 52,000 ha, says Ramji N Patel, who heads the potato research station at Deesa. Weather played sport, and a rich harvest has sent prices crashing to R4 a kg, a rate at which most farmers who bought seed at fancy rates last year will breakeven or make a loss, says Patel.

Those on contract to McCain, a Canadian company which sells tikkies, wedges and fries under its own frozen foods brand and also supplies to McDonald’s, the US fast-food chain, are relieved. The R8 a kg guaranteed to them is double the spot market price. This will recompense for the notional loss they suffered last year when they had to make do with R7.5 a kg.

“Contract farming is good because the risk factor is zero,” says Kantibhai B Patel, 45, of Iqbalgarh village in Banaskantha’s Amirgarh taluka. A post-graduate in chemistry, Kantibhai has grown potatoes on most of his 30 acres, all of it under contract, a practice that he has not broken for about a decade. Assured of price, he focuses on productivity to increase his income per acre.

Ismailbhai Rahimbhai Sheru, 61, of nearby Rampura Vadla village, has 12 acres under potato, all of it on contract to the Canadian company. Experience tells him that contract farmers lose out at times but make up over time. By dint of hard work and innovative farming, this commerce graduate (“I am a first-class first”) has made the five acres he inherited stretch to 400 acres on which he grows a variety of crops as a hedging strategy. “Despite the risks, smart work can make farming a very profitable activity,” he says.

Deesa has been growing potatoes since colonial times. At that time, it was confined to the bed of the rain-fed Banas river. With the river drying up, the activity spread to its banks. In the early 1990s, McCain followed McDonald’s to India. As North India’s cold weather was not ideal for potato growth, it settled on Banaskantha and Sabarkantha districts of Gujarat in 1998. Towards the middle of the last decade, it began contract farming in these two districts, to feed its processing factory in Mehsana.

Modern technology-led agriculture has to work backwards—from plate to plough, to use agricultural economist Ashok Gulati’s phrase—and the proof of this is provided by the two Gujarat districts. Processing potatoes have to be high in solids and low in sugars (which caramelise and turn wafers and strips brown when fried). For fries, oblong varieties known as Santana and Kennebec are preferred; wafers tend to vibe with round and plump Lady Rosettas, the label derived from their blush pink peels.

Those on contract to the Canadian company get seed at half the price at the start of the sowing season; the rest is deducted when the harvest is turned in. The output has to be a multiple of the seed supplied (usually 10 times). The tubers must be of a certain size and solid matter. The permissible limits for defects are specified as also the deadline beyond which the harvest will not be accepted.

Parthi J Chaudhary, a police officer who doubles up as a farmer, credits McCain with teaching growers in the region the art of potato cultivation. Before the company came, flood irrigation used to be the norm. The amount of water if stacked up would rise to a column of 750 mm, says a field-level company executive. Farmers have now switched to drip or sprinkler irrigation, which not only saves water but also fertiliser and pesticides (as insects thrive in high humidity). Chaudhary, who has a reputation for extracting large yields from his 87-acre farm, says the trick is to be in sync with nature and the crop’s rhythm. He plants during October 1-10, so the crop can make the most of the ‘bulking’ period starting December 20, when weather ensures potatoes add around 1,200 kg per hectare every day. Chaudhary is not longer with McCain. He supplies Lady Rosetta to Balaji Wafers, which assures him a premium price for his fine harvest.

Contract farming can have its downside. Sandip Joshi, 36, a grower and part-time finance professional, of Dangiya village in Dantiwada taluk, had to opt out of contract this year, because the company told him to grow a variety different from the seed he had conserved last year. This is also the case with his neighbour Babulal Chaudhary, 36. If they had fallen in line with company policy, the seed they saved would have gone waste. Choices sometimes are not what they seem to be.

The market for processing potatoes is getting charged up with ConAgra Foods’ Lamb Weston and Simplot, another global supplier of MacDonald’s entering the fray. Simplot is putting up a processing factory in the state. Nikhil Tandon, director of its India operations, is coy about the location. For the past three years, the company has been engaging with a few farmers, as it appraises the varieties that best meet its requirements. Amritbhai Patel, 44, of Iqbalgarh village, is one of few on a contract with the company. A graduate in agriculture, he has been drawn from McCain by the incentive of 20 paise a kg which the company gives beyond the base price of R8.5 a kg when output exceeds 11 times the quantity of seed supplied. Though large buyers like PepsiCo and Balaji Wafers operate through purchase agents, Tandon’s preference is for contract farming as it ensures complete ‘traceability’ of the chemicals and fertilisers that go into the crop.

Mark Heap, the bio-sciences manager at Simplot’s Australian operations, is impressed with the few farmers he has worked with. “Production of potatoes here in Gujarat is surprisingly good considering the environment,” he says. Though the growing season is short, “the specific gravity or dry matter of the potatoes is quite good and the quality is excellent. We are very encouraged.”

Despite McCain’s decade-long handholding, processing varieties (and contract farming) account for less than a tenth of the market. Unlike table potatoes, these do not bulk up quickly. Their market is also limited. Until recently, under-sizes had to be sold at cut-rates but that is changing with demand from plants making flakes and powder.

More processing companies mean greater choice of buyers, and better prices for farmers. But to make the crossover, traditional farmers will have to negotiate a mindset change. Until they are prepared to discipline themselves and embrace scientific practices, there will be queues every few years outside cold storages.

The author is a senior journalist and consulting editor to, a website backed by the crop biotech industry. Views are personal

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