Making contract farming suitable for farmers

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Published: May 13, 2019 4:00:03 AM

Do farmers’ rights under PPVFR Act mean trading rights? The PepsiCo case could’ve decided this.

Farmers whom PepsiCo India sued were found to be growing its FL 2027 variety, which goes by the trade name FC 5. (Illustration: Rohnit Phore)

The kerfuffle caused by PepsiCo India taking 11 persons including farmers and traders to court for unauthorised use of its protected potato variety has abated with the company dropping the litigation and the Gujarat government agreeing to play the ‘umpire’. The state’s Chief Secretary JN Singh said over phone that the company was paying “a good price,” and since the government “wants the best possible deal for farmers,” it was willing to be a party to the contract agreements between the company and farmers.

Following a backlash on the social media, and criticism in the press, PepsiCo India dropped the litigation despite obtaining a favourable ex parte court injunction against some farmers. In a statement, the company said it was relying on the government “to find a long-term and an amicable settlement to all issues around seed protection.”

But the amicable settlement depends on the forbearance of farmers who are not part of PepsiCo India’s contract farming system. The tripartite agreements will also not bind potato growers who have opted out. Governments can do little if potato growers find it profitable to use PepsiCo India’s protected seed without authorisation and sell the potato produce to its rivals.

Farmers feel emboldened by the Protection of Plant Varieties and Farmers’ Rights (PPVFR) Act. This is a uniquely Indian law enacted in 2001, which not only recognises the rights of breeders (for 15 years) in the novel varieties they have developed, but also gives entitlements to farmers. On the other hand, the International Convention for the Protection of New Varieties of Plants, known as the UPOV after its French initials, primarily protects the rights of breeders while carving out exceptions for farmers.

Under the Indian law, farmers virtually enjoy a licence. They can save, use, sow, resow, exchange, share and even sell—in unbranded packaging—the produce or seed, even of a protected variety, grown in their fields. The law also condones ‘innocent infringement’.

In contrast, the US, as a country that rewards innovation, has stiff protection for breeders’ rights. Its Plant Variety Protection Act (note that the term “farmers’ rights” is not clubbed to the title) prohibits a person from selling, marketing, offering, delivering, consigning, exchanging or exposing for sale a protected variety without explicit consent from the owner. Growers can save the seeds, for their own future planting, of any legally-purchased protected variety, but they are advised to read the label for limitations imposed by patents or contracts.

Farmers whom PepsiCo India sued were found to be growing its FL 2027 variety, which goes by the trade name FC 5. It got the PPVFRA registration in 2016. But two farmers we spoke to pleaded ignorance and innocence. One of them said he did not know the seed he had planted was FC 5. He had obtained it from his circle of friends. The other farmer also disclaimed any knowledge of FC 5. Their lawyer said his clients had procured the seed through “customary and conventional methods” from friends, relatives and neighbours. They were not interested in growing FC 5 over which PepsiCo India claims registration or in sowing any seed that violated the law.

PepsiCo India executives point to Fulchand Kachchhava, the managing director of Tirupati Balaji Chips Potato, as orchestrating the unauthorised sale of FC 5 seed and procurement of the produce. Kachchhava said he was procuring 40,000 tonnes of potatoes annually. These include table and chips-quality potatoes. Kachchhava also said he bought potatoes according to their physical attributes and not by their trade names. His family grew ATL, which is similar to FC 5. Another large potato farmer, Parthibhai Chaudhary, who supplies chips-quality potatoes to Balaji Wafers through Kachchhava, said ATL and FC 5 are “same to same.” A farmer with 60 acres of land in Deesa, who is not on contract to any of the processors, said FC 5 was being passed off as ATL (ATL or Atlantic is a variety that PepsiCo India had introduced; it is not protected). Vinay Bhardwaj, head of crop improvement at the Central Potato Research Institute (CPRI), Shimla, said ATL and FC 5 have distinct DNA fingerprints. While PepsiCo India says FC 5 is higher yielding, has more dry matter and lower level of reducing sugars, Bhardwaj said ATL is better in some respects.

Farmers whom PepsiCo India sued have had a choice of other chips-quality potatoes like Lady Rosetta, ATL and four versions of CPRI’s Kufri Chipsona. PepsiCo India had offered to buy their FC 5 produce. It said they could join its contract farming system the next season. The amount it is charging for FC 5 seed (Rs 20-25 per kg depending on size) is not too high. HyFun Frozen Foods, which supplies French fries and other potato products to Burger King and KFC, charges Rs 26 per kg of seed. PepsiCo India pays Rs 10 per kg of produce. HyFun pays Rs 9 per kg at the farm gate.

Respect for IPRs is necessary for the sustainability of the processing industry, says Haresh Karamchandani, the CEO of HyFun Frozen Foods, which has licensed a French-fry variety called the Santana from the German plant breeding group KWS. Wouldn’t it be unfair for the company if its rivals brought Santana produce from unauthorised growers by paying a slightly higher price because they were saving on royalty payments? Karamchandani says the Dutch breeding company Meijer Potato was reluctant to bring Lady Anna, its French-fry variety, to India because it feared for its IPR. He sees big opportunities in potato processing and exports. India lags in both, though it is the second-largest potato producer. New proprietary varieties suitable for processing and global palates will not come to India if IPR protection is weak.

Sukhpal Singh, chairman of the Centre for Management in Agriculture at the Indian Institute of Management, Ahmedabad, recalls Gujarat farmers gaming the law and selling Bt cotton seed, with the patented genetically-modified insect-resistant trait, in unlabelled packaging early in the last decade at a price lower than that of Mahyco Monsanto Biotech and its franchisees. (Bt cotton seed is protected under a different law, the Patents Act). Singh says the PPVFRA does not allow commercial exploitation of the exemption it provides for farmers. He says the definition of ‘branding’ is quite broad conceptually. It means anything that gives identity (tangible and intangible) to a product in the market.

There is no reason why farmers should profit from intellectual property they don’t own. If PepsiCo India had persisted with the litigation, courts could have ruled on such practices and also interpreted PPVFRA’s ‘brown bagging’ provision. The legislative intent was to protect farmers’ rights and not traders’ rights.

Congress Party leader Ahmed Patel is reported to have said that PepsiCo India was “brazenly wrong” in taking farmers to court. More than 190 organisations also urged the company to withdraw its litigation. Would they have reacted similarly if the protected variety belonged to a farmer or a small Indian company?

Contract farming is good for farmers as they get stable prices, better technology and new markets. At times, market prices will be higher that contracted prices. But a steady income is better than going bust during price slumps.

Contract farmers like PepsiCo India, McCain and HyFun Frozen Foods have incentivised micro-irrigation and other good agronomic practices in areas like Banaskantha where food irrigation was the norm. They have encouraged mechanisation of planting, sowing and harvesting, which is both labour and cost-saving. Techniques like anti-sprouting coating have been popularised. PepsiCo India is the largest procurer of processing quality potatoes. It says it buys 3 lakh tonnes annually. That’s a transfer of Rs 300 crore to 24,000 contract farmers.

At a conference in 2017, NITI Aayog Member (Agriculture) Ramesh Chand said corporate involvement in agriculture was necessary for profitable and innovative agriculture. He noted that the share of corporate investment in agriculture was just 2%, that of the government was 14% and of farmers 84%.

Singh says his studies of contract farming over the past two decades show that both farmers and companies renege on contracts when it suits them. In Punjab, he found large farmers defaulting more than small farmers. He argues for group contracts that can be beneficial for both small farmers and companies as these reduce transaction costs and improve compliance to contract terms by both parties. He is not in favour of governments insinuating into private contracts. They should frame and enforce laws that protect the farmer interest adequately and are sophisticated enough to take into account the changing dynamics of contract farming. The current model contract farming law, he says, fails in this respect.

(The author blogs at www.smartindianagriculture.com)

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