EXPORTING SEEDS OF FRAGRANCE FROM PUNJAB (INDIA): SUCCESS STORY, POLICY AND INSTITUTIONAL ISSUES
In 1973 as I was cutting my professional teeth mapping sodic lands in Langrian village (Sangrur District) I could not imagine in my wildest dreams that the barren patches would turn into a colorful collage in three decades. Our Best Bet Scenario was that through land development, addition of tons of gypsum, and leaching of harmful salts, the farmers could produce about 4 tons of rice and wheat per hectare in 4–5 years.
SUCCESS STORY
Transformation from subsistence farming through rice-wheat cycle to high value flower seed production for export was spawned by Mr. Avtar Singh Dhindsa of Beauscape Farms in 1985. Although he started exporting a small quantity from 1986 onwards, it was not profitable for several years due to production and post-harvest management bottlenecks compounded by logistics road blocks for export. Late floods in 1988 were a big blow. Persistence and patience finally paid off, and the export became profitable in 1993.
While Beauscape was learning by trial and error, 35 km away at Dhablan village (Patiala District) Dr Allah Rang plunged into the uncharted waters in 1993 by starting a similar venture (Biocarve Seeds). After exporting 25 kg seed in the first year, no seed was produced for the next two years in the absence of commercially viable production technology. Production resumed in 1996 after in-house adaptive research.
These flower seed production, processing and export firms have organically grown learning while doing, continuously fine-tuning their operations, and going up the value chain. Starting with seed production on their own farms, the two firms over the last three decades have identified, trained, contracted and empowered more than 2,500 farmers for supplying flower seeds. Although the primary focus remains on flower seed export, they are diversifying into vegetable seeds. After harvesting paddy, during the Rabi (winter) season the farmers grow flowers instead of wheat, an operation which is labor intensive and involves high production costs. The returns are about 2–3 times as compared with the wheat crop. Consequently the farmer dropout rate is practically zero. They are providing direct and indirect employment to more than 3,000 persons every year, including landless rural women. Biocarve uses eco-friendly renewable energy for most of the operations. Other initiatives include free education of girls of full-time employees, and educational tours for school and college students. During Covid-19 lock-out they provided free ration to the entire labor force.
Central to the success of these ventures is the high level of trust between the producers and the buyer firm. The contract signed by the two parties clearly specifies the roles and responsibilities of the each party, including the area and the types of the flowers grown, and the price at which the seed will be procured. Before signing the contract the firm does due diligence to satisfy that the land is suitable for flower cultivation, the farmer has the resources and the attitude for carrying out the laborious manual work from sowing to threshing, unlike the mechanized wheat production. Although every step is important, weed control and harvesting are very critical for quality seed production. Absentee farmers are not eligible. Normally a ceiling of 2 acres is imposed on the first time farmer. Based on the mutual confidence developed during the first year, the area can be increased in the subsequent years.
The entire foundation seed is imported by the firm from reputed global seed producers. For the directly sown flowers, the seed is supplied to the contracted farmers. For the transplanted crop, the firm supplies robust, disease-free and hardened seedlings at the farm gate. The entire cost of seeds and seedlings, which can vary from INR 10,000 to 20,000 per acre, is borne by the firm. Comprehensive guidance on all aspects of seed production is provided free of cost through handouts, demonstrations, videos and visits by the firm personnel. A 24-hour phone service is available to reply farmer queries. All-out efforts are made by the firm for quality assurance at every step and for optimizing production. After threshing and winnowing, the raw seed is picked from the farm gate by the firm. The farmer bears the production risk and meets the production costs. All costs of seed, seedlings, and advisory and logistics services are borne by the firm.
The companies have developed state-of-the-art seed cleaning, sorting, testing, grading, packing and storage facilities at the two villages. In order to ensure complete transparency, mechanical cleaning of the raw seed received by the firm is done in the presence of the farmer. The firm provides free food and accommodation to the farmer. The cleaned seed is weighed in the presence of the farmer and payment is made as per the contract agreement.
The ownership of the seed then shifts to the firm. The cleaned seed undergoes rigorous sorting, testing and grading using modern machinery, tools and techniques to remove weed, off-type and sub-standard seeds. Although the specifications vary from country to country, each seed lot must meet 99% purity and 85% germination requirements. Often the firm incurs additional costs to improve germination of the cleaned seed procured from the farmers. The seed is stored in temperature and humidity controlled cool warehouse for reducing/maintaining moisture content and ensuring seed vitality for 2–4 years. In addition, the rigorous sanitary and phyto-sanitary requirements of the importing countries are complied with.
By consistently meeting the three basic tenets of the international trade — price competitiveness, assured quality, and timely supply of the agreed quantity — these firms are now supplying about 500 different types of flower seeds to more than 30 countries in North America, Europe, Middle East and Asia, inasmuch as Beauscape Farms has penetrated the most difficult Japan market. The quantity traded by Biocarve Seeds has increased from 25 kg in 1993 to 180 tons in 2020. About 90% of the seed is exported and 10% is sold in the domestic market.
POLICY AND INSTITUTIONAL ISSUES
The 1991 reforms dismantling some elements of the ‘License Raj’ — panoply of bureaucratic obstacles to business — have facilitated these ventures. Although they have made steady progress, the following policy and institutional issues remain germane:
1. The progress of these small firms (which are essentially start-ups), like global experience elsewhere, demonstrates that trust, transparency and mutually-reinforcing benefits for the producer and the buyer are the central pillars of successful contract farming. Although they never have had any dispute with a farmer, the Dispute Settlement Mechanism should be prompt and fair without disadvantaging either party. Recourse to the judicial remedy should be the last resort as it is costly and cumbersome, and frontloads punishment, even if the accused eventually emerges not-guilty. The major beneficiaries of this process are the lawyers.
2. These small seed export firms face several challenges. The first and the foremost are the high cost and the limited quantum of institutional capital available. Unlike some other agri-ventures, seed export has a long one year cycle. They incur expenditure upfront but receive payment after testing of the seed following delivery at the destination. In some countries detection of single weed seed (which is banned in that country) can result in rejection of the entire lot. Although their competitors in the developed world can access cheap loans (@ about 2% interest), they are paying @ 8% interest to the Banks. They can obtain loans only against their own assets (land, buildings, machinery, etc.) although they upfront provide costly seed/seedlings and advisory services to every contracted farmer for free. Obviously availability and cost of capital is restricting their operations. Provision for raising loan against the contracted crop can greatly help in scaling up operations and benefitting more farmers.
3. Transactions costs are high due to spread of the contracted farmers over a large number of, and often distant, villages. Perhaps at some stage they may have to adopt a cluster approach.
4. Output from the publicly funded and self-aggrandising research is not of much use. For many flowers, these firms with limited resorces undertake their own in-house research for two years to develop the package of practices for their contract farmers. The situation is similar to PepsiCo when it introduced contract farming for tomato and chilli. Unlike PepsiCo, however, these start-ups do not have deep pockets.
5. Support available under the National Horticulture Mission for cut flower production is not available for seed production. Lakhs of rupees are spent every year on setting up unviable poly houses which become dysfunctional in 2–3 years. On the other hand, Rs 6,000 per acre subsidy available to the cut flower producers is not given to the seed producers.
6. Every year the Punjab Government spends Rs 8,000 crores to provide free power for agriculture but does precious little to promote water saving precision technologies (e.g., fertigation and plastic mulching) which can give a major boost to flower seed production and other high value agriculture in the state, and reduce water and carbon footprint of agriculture.
7. Often the funds available under the Government of India (GoI) schemes are not utilized due to lack of counter-part funding (state share), bureaucratic indifference and cookie cutter approach. Schemes like Krishi Vikas Yojna and National Horticulture Mission have elements of flexibility but the Punjab Government Departments lack the attitude and the writing skills for using these funds for new ventures. It will immensely help innovative farmers if some of the officers changed from auditors to problem solvers.
8. Covid-19 has created another set of problems. The transportation cost of the imported seed has increased 3–4 folds in 2020 due to cancellation of the international flights. The shipping (to foreign buyers) problems have become acute due to an acute shortage of containers, choking of shipping lines and ports resulting in high costs and delivery delays.
9. Closure of Kilaraipur Dry Port due to prolonged picketing by the agitating farmers has resulted in higher shipping costs and longer delivery times.
10. The GoI has reduced the Duty Drawback from 1% to 0.15% whereas their main competitors (from China and Tanzania) enjoy 5–10% Duty Drawback. This is impacting their competitiveness.
11. These small firms incur high costs to display their products at the international exhibitions in USA, Europe and Asia. Post Covid-19 they have to considerably upgrade their IT infrastructure to participate in the Virtual Exhibitions. Narrow bandwidth and slow internet in rural Punjab are becoming additional headaches in the digitalised world.
12. Punjab needs to learn from states like Maharashtra for leveraging public funds to attract private investment for promoting high value sophisticated precision agriculture involving fertigation, mulching, tissue culture and cool chains. It will also attract enterprising youth to agriculture. The starting point for the modernization of Punjab agriculture is appointment of competent, upright, innovative and result-oriented bureaucrats and technocrats in leadership roles like the reform-oriented, astute political leadership did in 1950s and 1960s. Is it asking for too much when playing victimhood and announcing freebies can get votes?
[Acknowledgments: This Post benefitted from insightful conversations with Dr Allah Rang and Mr Avtar Singh Dhindsa. The views expressed are mine and should not be directly or indirectly attributed to them, Biocarve Seeds or Beaucape Farms.]
