Corporates in agirculture

In India's agriculture sector small family farms constitute around 80 per cent of all land holdings. But they contribute only about 42 per cent of grain production and over half of all fruits and vegetables. Various land ceiling laws limit individual land holdings to 12 acres, and do not allow companies to buy farm land. Corporates have a way out in contract farming, where they either lease land from farmers or work directly with them.

"Fragmentation is environmentally destroying the farmlands," says Samar Gupta of Trikaya Agriculture. "The future is in aggregation, and it will work if farmers themselves set the pace of change." He has aggregated 125 acres of land and has leased another 120 acres from migrating farmers. By growing niche vegetables such as gherkins for local markets and hotels in Mumbai, Samar’s agro-business generates at least Rs 10 crore in revenues a year.

Jain Irrigation derives Rs 300 crore of its revenues from agri business by aggregating 7,000 acres of farmland to grow white onions and mangoes for Cargill, the global seed company. The fruits and vegetables are processed and shipped to Cargill, which in turn supplies them to retail companies around the world. “We work with 1,500 farmers, and have been working with them from the seed input stage,” says Anil Jain, MD of Jain Irrigation. But their model of contract farming has no formal signed contracts with the farmers. The arrangement is based on the strong relationship built by the company by selling drip irrigation systems to these farmers. Desai Fruit and Vegetable in Gujarat works with over 2,000 farmers aggregating over 5,000 acres of land. Most of the produce it contracts — bananas and mangoes — end up in Europe.

Because contract farming is an issue in the country, Indian companies are acquiring land in other countries, and developing alternative models. KS Oils, an edible oil refiner, has been given 50,000 acres of land by the Indonesian government to refine palm oil and create inclusive growth for 10 villages. For the majority of farmers who grow foodgrains — rice, wheat and pulses — the government offers a minimum support price, besides subsidies on fertiliser and other input. But contract farming by corporates in agriculture, offer new technologies, new agricultural produce, and new markets for agricultural products.
Businessworld
Vishal Krishna

Delayed monsoon agricultural growth

The Monsoon is finally here but was delayed by more than two weeks; the Meteorological Department predicts Monsoon rains at 93% of normal this year. What impact will this have on agricultural growth? The dry Almatti Reservoir, took care of the irrigation needs of farmers in Bijapur, Bagalkot, Gulbarga, Bidar, and Raichur districts of Karnataka. Built across the Krishna River, the reservoir depends on Monsoon rains in the Western Ghats to fill up :



Businessworld reports that while agriculture’s contribution to GDP has been falling, at 18% now it can still upset the applecart. For every 1% drop in agricultural GDP, 18 basis points are deducted from overall GDP growth rates. According to a senior official in the agriculture ministry, agriculture growth of 0.5 to 1 per cent is being anticipated against the targeted 4 per cent. “If agriculture growth fails, no sector can compensate it to achieve the 6-7 per cent GDP target, since it will directly affect the purchasing power both in rural and urban India,” the offical says.

But others are not so pessimistic. Anil Jain of Jain Irrigation Systems told moneycontrol: "It is a matter of concern but it is still not time to panic because lot of farmers have still not sown a lot of seeds of whatever crops they wanted to do. And even if rains come within let us say two-weeks maximum, then still good amount of output will come and the impact may be only about 5-10% depending on whatever the crop shifting takes place.

For example let us say in Maharashtra lot of farmers are going for cotton. If the rains don’t come for the next 2-3 weeks especially dry land farmers, they will try and do some sunflower, urad or any other short crops."

Infrastructure hopes from the Budget

Infrastructure companies are demanding a range of measures to enhance flow of funds into infrastructure development:

Investment) The Interim Budget had postponed the infrastructure investment target of 9 per cent of GDP to 2014 instead of 2012 set earlier. But with the signs of revival, the target may be advanced to 2011.

Disinvestment) The Government should also expedite disinvestment in PSUs to augment funds for infrastructure.

Bond market) A secondary market for debt trading should be in place to enable private sector raise funds in infrastructure space through long term corporate bonds.

Pension funds) could also be allowed to invest 10-15 per cent of their corpus in infrastructure bonds along the lines of permission granted to LIC to invest in equity.

Introduction of the common goods and service tax) will help the construction industry rationalise its tax structure and simplify compliance.

External commercial borrowings) The Government should permit domestic companies to refinance rupee loans through external commercial borrowings; capital gains tax treatment for special purpose vehicles (SPVs) have to be rationalised, say industry representatives.

Taxation) The law should be amended to reduce capital gains tax rates for SPVs on a par with listed companies. It is mandatory that infrastructure projects are handled through SPVs, which are generally unlisted and cannot get capital gains exemption granted to the listed/parent companies.

Similarly, dividend distribution tax should also be rationalised. Infrastructure development business calls for a multi-tier corporate structure with a holding company at the top which is a listed entity.

Build on core for growth
R Balaji