Agri reforms: Seed industry braces for new B2B business model

In a closed look system, normally companies do not buy and sell to farmers as they try to avoid entry into their own account books.

The seed industry in the country is preparing for a shift in their business model — from B2B to B2C — after the government incentivised contract through an ordinance. Though it may take 6-8 years to see the full impact of the reforms, the companies are nevertheless getting ready to cater to the seed demands from bulk users, who will pass on the key inputs to the farmers after entering into contract farming.

“By the time it will scale up, it may take 6-8 years. A lot of things need to be sorted out between companies and farmers such as structure of contract, quality and payment system,” said Ram Kaundinya, director general of Federation of Seed Industry of India (FSII). The seed industry also does contract farming to procure seeds and it has been built over last 50 years.

There are some companies which are currently getting their raw materials through contract farming on a limited scale. One possibility is they tell the farmers to use a particular variety and they may fix with the seed companies for direct supply to the farmers. The other option could be they might buy and supply to farmers.

In a closed look system, normally companies do not buy and sell to farmers as they try to avoid entry into their own account books. However, the food processing companies may check the quality standards themselves and not just leave it free to the seed companies, some experts said. So far, they were buying whatever was coming to the market. But with the enactment of new laws, the food processors will ensure what raw material they want and the role of seed becomes very crucial as it is the key input.

Kaundinya also said that seed companies would have to enter into price negotiation while dealing with the companies that may be entering into contract farming, unlike the current system when farmers do not bargain on prices.

The Centre on June 5 promulgated the new law on contract farming — The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020, along with another new law on barrier-free inter-state and intra-state trading as well as amendment in the Essential Commodities Act to stop misuse of stock holding limit regulations.

The law on contract farming says: “Any obligation related to stock limit shall not be applicable to such quantities of farming produce as are purchased under a farming agreement entered into in accordance with the provisions of this Ordinance.” While the Centre will issue guidelines to state governments on this contract farming agreement, the law also prescribed that third-party assayers will be deployed to guide, monitor and assess quality, grade and standards for pesticides residues and food safety standards which all can be part of the agreement.