Corporatisation of agriculture: Awaiting facilitation

Maj Gen Amjad Khan Chowdhury (retd)

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Agriculture is important to man, perhaps the earliest occupation after hunting. It provides a basic need, nourishment for subsistence. As civilization progressed agriculture too adopted new forms and met new demands. Agricultural production met the needs of a growing populace which has multiplied manifold. Adaptation to local climatic conditions is an attribute of development of agriculture. Human civilization cannot survive for any length of time without agriculture.

Agriculture is a very broad subject encompassing field crops, fruits and vegetables, horticulture, dairy, poultry, mushroom cultivation, fisheries and the lot, dictionary meaning being “practice of cultivating the soil and rearing animals.” Anything that pleases the palate and fills the stomach and is organic by nature falls within the definition of agriculture.

People who practice agriculture are called farmers. There are rich farmers and poor farmers depending on the assets they hold, be it land or livestock. In Third World countries like Bangladesh, India, Vietnam, Indonesia etc, where there are large densities of population we find peasant farmers. Farmers who subsist on tiny parcels of land owned or rented by them fall in this last category. Highly fragmented land holdings resulting from geographical and historical reasons are the foremost problem we face in agriculture. Since most people in these developing countries are employed in agriculture and agro-related sector it is the greatest impediment to ameliorating poverty and hunger.

Corporatisation implies being part of a corporation which a body of many individuals is working in unision for a given objective. All resources, be it human, capital or technology, are directed towards a common purpose. As we know it, in our country, corporates are the form in industrial enterprises and service industries. They can be proprietorships or partnerships or a private company with or without limited liability, or a publicly traded corporate. There are advantages and disadvantages of each. However, when it comes to agriculture, rather agribusiness, the concept of corporatisation raises eyebrows. This monograph makes an effort to highlight the importance of corporatisation in agriculture, even going to the extent of suggesting that without corporatisation our future in raising production and productivity in agriculture is bleak.

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For a developing country like Bangladesh with a very high density of population, agriculture plays a singularly important role. It provides jobs and livelihood for a very large segment of population, particularly women. Any developmental effort must be initiated at the rural level so as to attract the largest segment of the population and it is here that we face the severest challenge. Failing to do so was the cause for defeat of Congress Party in India in a past election. How to percolate developmental efforts to grass root rural scene is the greatest challenge faced by modern democracy aspiring to achieve welfare of the masses though economic development. A foolproof answer is yet to be found.

The situation has become worse confounded by globalisation of world economy when a fall in production or even a threat of it in a major growing area for a certain crop immediately impacts on global price lines and indeed our own market. Shortfall in sugar production in Brazil tends to raise prices in local market in Bangladesh. Same applies to rice, edible oil, more recently onions and other staples.

It is a foremost developmental challenge that we face in Bangladesh. Our people are aspirant, they are hard working and population is very large compared to our natural resource endowments. Some three million join the labour force each year. We must enhance agricultural productivity if we are to survive as a modern democratic nation. In this treatise we suggest a wholesome concept for agricultural production, that of corporatisation of agriculture.

Let us review the case history of poultry industry in Bangladesh. Raising fowl in the backyard has been a tradition in rural Bangladesh. Those of us living in urban areas relished free-range chicken. Then came poultry raised in farms. Eggs hatched in large hatcheries were sold as day old chicks which our campatriots raised to sell in the market. Thus started what we may call revolution in our poultry industry.

Companies came up who put up large hatcheries to meet growing demands. Market prices for poultry stabilised and today it is one of the cheapest source of protein, down from the dearest, for our growing population. Together with chicken and eggs provide a relatively cheaper but hygienic source of nourishment for our working people. In the process many challenges were met, that of scarcity of corn, veterinary medicines, poultry feed etc. Would all this have been possible without the organizational umbrella of a corporate based on The Company's Act? Company laws provide the basis for induction of capital, know how and even direct foreign investment. Without corporatisation under aegis of The Company's Act and relevant rules for financing laid down by Bangladesh Bank this achievement in the poultry sector would not have been possible.

We have the distinction of living in probably the most densely populated country of the world, land being highly fragmented, a principal cause for low agricultural productivity resulting in persistent poverty. More than 10 per cent households are totally landless owning no land what-so-ever. About 40 per cent own between 0.05 and 0.49 acres and may be qualified as marginal farmers. Some 50 per cent fall in small farm category owning between 0.50 to 02.49 acres. Out of these about half own between 0.50 and 0.99 acres and this percentage is growing with further fragmentation of land consequent upon growth in population. Medium size farms of 2.5 to 7.49 acres comprise about 10 per cent of farm households. Just over 1 per cent of households own 7.5 acres and above. It is difficult to eke out a living from these tiny parcels of land which could be of variable quality. A part could be higher than the rest impacting on requirement of irrigation or the crop to be cultivated. Minimum farm size for a family of five to survive is estimated to be two acres.

To grow crops you need seed, fertilizer, insecticide/pesticide, plough power, labour, irrigation and finally marketing of product. Some of these are divisible while others are not, thus creating a serious problem in production. Seed, fertilizer, insecticide/pesticide and labour can be bought in variable quantities as per requirement. Quality of inputs is another issue. If it is bad or contaminated crops will be bad, sealing the fate of the poor farmer.

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Irrigation is based on a shallow tubewell if you are lucky enough to be in an area with high water table. A shallow tube well can irrigate around 15 acres while a deep tubewell irrigates approximately 45 acres. But land holdings being small necessitate water sharing which often is a bone of contention among farmers. In some areas local entrepreneurs who sell water or plough the field with the help of power tillers have come up. The latter generally work well. Selling irrigation water poses problems for delivery channels to run through as those wanting to buy may not have contiguous farm holdings.

Selling your farm produce is a dilemma. You need to take it to a village hat or an “arot” where you are subservient to market forces. Often you fail to get a fair price. Market prices depend on supply and demand in that very market and luck may not favour you. Besides, a good crop often leads to gluts to the distress of the farmer when prices fall sometime below production cost.

In the Punjab in India this marketing problem was identified and a marketing board was set up. They put up markets in rural Punjab. There was a levy on the product sold by the farmer to sustain this marketing board. The scheme worked as farm sizes were much larger than in Bangladesh.

The peasant farmer can display little initiative in improving the quality and quantity of his production being restricted by his tiny plot size. Fragmentation of land is the biggest impediment we face in agriculture. A farmer is a victim of exogenous forces be it in the form of increase in fertilizer or diesel or even seed prices, not to mention their quality. By himself he is too small an operator to dictate anything and is generally left to suffer the consequences.

Weather has a profound impact on a farmer's fate in any country, more so in ours, where resource poor governments are unable to help in spite of best intentions when a calamity like flood or cyclone strikes, or for that matter, a glut occurs. In advanced economies prices of agricultural commodities are pegged at a certain level by state policy.

Faced with these adverse circumstances the Communists collectivised farms taking over all lands. This failed to produce the desired result as exemplified by wholesale/ near wholesale reversal in Russia, Communist China and even Cuba where such a drive is presently on going.

The model we have tried to promote in PRAN is that of contract farming based on an agro-processor. The processor is PRAN. To cite an example our agro-processing factory in Natore has contract growers all over North Bengal. Some produce chini gura rice, others mung dal, or chilies or mustard or tomato or pea nuts or turmeric or coriander or other spices, not mentioning the thousands of tons of green and ripe Mangoes and other fruits and horticulture products that we purchase every year. In 2010 alone close to Tk.300 crores worth of fresh farm produce was purchased by PRAN and quantities increase every year.

We have a full-fledged company tasked with encouraging farmers, teaching them to grow better, selling them improved seed at cost price and working with and for them to grow better quality and quantity. Results have been rewarding. Farmers have benefited and so have we the agro-processor. Purchase is guaranteed at prevailing market prices. This tie up between the agro-processor and contract growers holds the key to ensuring prosperity in agriculture in Bangladesh. Defining factor is buy-back guarantee by the processor at market prices for products of a predetermined quality. This production model ipso facto extends corporatisation to agriculture with all benefits that go with it. What now needs to be done is recognition of the model and promoting it by fiscal and monetary measures available to the government.

In spite of remarkable progress in agriculture in recent years in Bangladesh, dairy has languished in neglect. Progress in this area has been lamentably slow and there are good reasons for it. Nutrition level in the country is depressingly low impacting on child development and health. Milk is an excellent source of nutrition particularly for growing children and the dairy sector is well suited for corporatisation but for certain organisational anomalies.

We have a shortfall of 32 mill ltr/day going by WHO numbers, requirement being 250 ml/head/day and availability at 47 ml/head/day at a population base level of 160 mil. Current production is 3 ltr/day/cow which could be raised to 10 ltr/day/cow with improvements in animal nutrition, breed, veterinary care, cattle housing and training of farmers. Conventional dairy farms would need an investment of around $(US) 18 bill in 4800 dairy farms to meet the requirement of the entire population which could be hard to find. Meanwhile we will bleed our hard earned foreign exchange importing powdered milk from abroad.

In the backdrop of importance of dairy for creating job opportunities and wealth in rural Bangladesh, energy by way of bio-gas and organic fertilizer, dairy is acclaimed to be best investment to ameliorate poverty and hunger in a low income country like Bangladesh with high densities of population. Here is an opportunity that is going totally amiss.

As opposed to full-fledged dairy farms, if we were to train farmers in improved dairy farming methods through intimate logistic support and know how, with buy-back arrangement for milk produced, on the lines of social dairy farming, we could meet the same end for a much lower investment. This is what PRAN Dairy has opted for and is doing presently. Dairy Hubs are being set up in northern Bangladesh to promote milk production where farmers raising cows are given all types of support to produce more milk by way of improved nutrition, breed, disease control and animal housing. Milk collection centres have been set up in each village as part of buy back guarantee. This per-se will create jobs in rural Bangladesh where they are most needed and also be a source of energy in bio-gas, and organic fertiliser for cultivation.

That any increase in milk production is only possible through corporatisation of dairy industry is being demonstrated by PRAN Dairy. Up until now the preferred model for milk production was cooperatives. Due to structural inadequacies in the applicable guidelines for cooperatives this has failed to take off. Without corporatisation large scale investment is not possible as has been the case with dairy industry in Bangladesh. This is the principal reason why the sector has not taken off. The Indian experience too bears testimony to this experience. Amul which grew under state patronage in the initial years is giving way to large dairy corporates all over India. So is the case in Pakistan.

Scale of production is another reason as to why corporatisation is a must in agriculture sector. Average unit cost is always high in small scale production. As an entrepreneur goes up the scale of production, average production cost tends to go down. You can afford faster and improved hardware where maintenance costs are low. Though initial cost is high it is more than offset by volume of production, qualitative improvement in product and reduced break downs and enhanced plant life. Average labour cost also goes down due to higher rate of production. Even raw material costs go down due to bulk purchases and transportation.

Some years ago a notion that “small is beautiful” was widely prevalent. Beautiful it could be, but it is certainly not cost effective. Average unit cost goes down as we climb the scale of production and economies of scale kick in. I had read this in books on micro-economics but only felt its real and drastic impact in real life in my business. Now consider the production cost of a peasant farmer on the one hand and a corporatised capitalist farmer on the other. There is a yawning gap between the two. The peasant farmer in Bangladesh lives hand to mouth. His options are limited whereas farming is big business in developed countries like USA, Australia, New Zealand, Brazil and Argentina. The sooner we move towards corporatisatised agriculture production the earlier affluence will visit us, jobs will be created in rural areas ushering in prosperity where most needed.

Agricultural extension organization in Bangladesh as it exists presently is based on extension officers. Most are dedicated and work hard but they are unable to do better because the span of their responsibility is much too wide. An officer has to take care of thousands of acres, tilled by lacs of farmers. He commands very little resources by way of farming inputs like fertilizer, insecticides/pesticides, irrigation, seed and the lot. He has no control on marketing either. Perhaps the only role be can perform is that of a mentor. So between the lonely farmer in the village and deep blue sky over him there is only the agricultural extension officer as his guide dictating his fate.

If this farmer were to be a contract producer for an agri-business corporate, it will be the extension officer of agri-business company who will help him in their own corporate interest. He will advise on the type of seed, fertilizer blend and quality, perhaps organize irrigation by way of water sharing among farmers, give power tiller on rent, provide credit if needed, advise on post harvest handling and finally buy back at prevailing market price. To do all this for our lonely peasant farmer on his own is difficult if not impossible. He will not be at the mercy of the seed seller who could as well be selling spurious seeds as is reported often in newspapers. Thus corporatisation of farming a la agro-processing company on the one hand and contract growers on the other holds the solution to boosting agricultural productivity.

Finally, what does corporatisation imply? If we can bring farm level production under the ambit of a body corporate formed in conformity with The Company Laws we would ensure optimum production levels much to the benefit of the farmer as also the company, a win-win for both parties. This will relieve the peasant farmer from exogenous worries and enable him to concentrate on production which is a big enough job by itself. For the agro-processing company it will solve their raw material problem both in terms of quality and quantity. Above all, this arrangement will attract investment in land, irrigation and farm mechanisation, the farmer and the processor being tied up by a buy-back guarantee.

We have today a dynamic Agriculture Minister in the person Begum Matia Chowdhury. She has forcefully driven agricultural production and has achieved appreciable results. As a result our Gross National Product is showing an upturn. Her efforts would be more sustainable in the long term if she could look at corporatisation of agriculture to include fisheries and dairy which go together with production of field crops.

The above monograph is based on our experience and what we have learnt and practiced over the years. Theoretical knowledge must be applied to suit prevailing local conditions. In doing so we have developed certain concepts and models which have been narrated above. Agriculture is important, more so for Bangladesh with an adverse land-man ratio. Failure to meet the challenge ingeniously will spell disaster economically and eventually politically. Should we let that happen while we can help?

For a democratic country welfare of the people is upper most. This welfare must start at the rural level as opposed to urban population who are more articulate in asserting their demands, but comprise mere one quarter of population. This is a dichotomy and tends to impact on election results much to the surprise of vocal urban population. In a larger country like India the impact is more pronounced. For Bangladesh too we must take this aspect in cognisance and initiate our developmental efforts bottom up from the rural level if we are to achieve real economic development and not play to the gallery.

The writer is CEO, Pran-RFL Group.