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Triangular deal model for corporate farming

October 12, 2009

The issue of corporate farming (CF) has ignited a debate in the media after surfacing of news reports on leasing/ selling out agricultural land to Saudi Arabia and the UAE. It seems, by this time, much progress, such as identification of farm sites, number of hectares to be leased, and other modalities will have been finalised.

Views of experts, political groups and civil society organisations are divided on leasing/selling out land to outsiders. According to supporters of the idea, optimal utilisation of land resources have remained unutilised over the last 63 years. They think the CF will bring in foreign investments and new farming technology to the country and not only enhance agricultural output but also provide jobs to skilled and unskilled agricultural labour force on better terms and conditions.

For the opponents of the idea, it is an 'industrialisation' of agriculture which would negate the interests of small farmers and would be a lucrative business for local and foreign capitalists. Small farmers, burdened with constraints, would further lag behind in their struggle for survival. The high cost of farming with small landholdings would make their produce uncompetitive even in the local market.

Specifically, many think that the leasing of farmlands to foreign investors will negatively impact more than 45 per cent of the population which is dependent on agricultural incomes, and 93 per cent of whom is small farmers, having meagre resources or no resources to afford capital intensive cultivation. Besides, corporate firms would prefer to grow cash crops instead of food grains. Therefore, there is a possibility of scarcity of food to feed the local population. This pattern of cropping can be a direct risk to our food security.

People also fear that local resources will no more be in the hands of small farmers and their survival will be at stake. The peasants will either get jobs without labour laws or there will be mass exodus to cities, already short of civic facilities.

The reported terms and conditions for farmland deals are as follows

* The state land may be leased for maximum 99 years to the interested investors.

* No customs duty on import of agricultural machinery.

* Duty exemption on transfer of land for corporate farming.* Sufficient credit facilities.

* No upper ceiling on land holding (legal cover to investors by amending the Land Reform Act 1977).

These incentives, though not very comprehensive, seem attractive for investors. The question arises, if these facilities can do wonders for the Middle East investors, why the same is not feasible for the locals. Being the most experienced and adequately manned sector, agriculture employs 44 per cent of the labour force and contributes 21-22 per cent of the GDP. This is the only sector which has adequate infrastructure and support system, such as quality human resource, large network of irrigation system, fertile land, developed fertiliser industry, sound mode of farming, successful model farms in Sindh, Punjab and NWFP and ready local and foreign markets.

Instead of leasing or selling out the lands to foreigners, a much better option would be to have a public-private partnership - a partnership of government and interested investors--- in corporate farming. It should comprise three partners government, foreign investors and local farmers. Each partner, responsible for its own role, should be entitled to commensurate benefits.

Under the arrangement, the government will act as a facilitator by providing land and enabling fiscal and regulatory environment. The investor will be responsible for financial, technical and management, and the farmers will provide skilled and unskilled labour. The partners may mutually agree to an equitable profit-sharing ratio 204040 (government 20 per cent, investor 40 per cent and farmers 40 per cent). To give a visual effect to the proposed partnership mechanism, a model is suggested as follows in the Graph.

In the model, each partner will benefit, but the state would be the major beneficiary as it will be able to maintain its sovereignty over its land. Investors will be able to get due share in the beneficial interventions and farmers will be involved in their own areas of expertise without any fear and sense of insecurity as they become one of the major partners in the venture.