Thursday, March 11, 2010

The Economist on Contract Farming in India

Another good article about recent developments on India's agricultural sector. THIS piece argues that contract farming -where farmers commit to grow a commodity for a particular buyer- is growing rapidly in response to the severe problems faced in the sector. A combination of poor agronomic techniques, such as flooding irrigation and animal traction, combined with government policies that create incentives for over-fertilization (see WSJ article) and  use public money to get votes (see other Economist Article), have encouraged farmers to look elsewhere for a better future. That elsewhere is McDonald who, after five years of trying, now buys its potatos directly from Indian farmers.

These are good news for farmers in developing countries. They have traditionally been marginalized by better-off urban consumers who tend to preferred imports over local produce. A similar example is what Wall-Mart is doing in some Central American countries: through NGOs and other partners, Wall-mart equips farmers with the technical information (extension services), credit, and tools and inputs necessary to produce shelf-worthy products that meet the standards of the demanding urban consumer.

These types of relationships can be mutually-beneficial as they: a) make good local politics for the foreign-own corporation; b) can reduce the price of raw materials, especially now that transport cost is skyrocketing; and c) provide farmers with the markets they need to leave subsistence agriculture. However, it may be to early to name contract farming as the panacea for poor farmers. What it's clear, though, is that the McDonald and Wall-Mart examples show that the private sector can play a very positive role in helping farmers break their cycle of poverty. This, unfortunately, is often absent in the donor-driven agenda of agricultural development.