How Many Companies Buy Directly from Farmers: Insights into the Agri-Industry

Introduction

The relationship between agricultural produce and the industrial sector is a complex and evolving landscape. This article aims to provide insights into how many companies, particularly in the food and manufacturing sectors, buy directly from farmers in India. This information is crucial for understanding the dynamics of the agri-industry, especially during critical periods like the ongoing farmer stir in India.

Understanding Direct Buying from Farmers

There is no direct data available that specifies the exact number of companies buying from farmers. However, by analyzing market indices and company information from the Ministry of Corporate Affairs (MCA) website, we can derive an estimate. This article will explore two primary methods by which companies buy from farmers:

1. Contract Farming

Definition and Characteristics

Contract farming involves a company providing direct assistance and management in the production process, from seed selection to harvest. This method ensures consistent quality of raw materials, which is particularly important for companies in the fast-moving consumer goods (FMCG) sector. The contracts typically run for 2 to 3 years and are renewed based on fluctuating production costs and market conditions.

Examples of FMCG Companies

Unilever Procter Gamble Nestle

These and several other major FMCG companies have been relying on contract farming for decades to ensure the raw materials meet their stringent quality standards.

2. Direct Sourcing

Definition and Characteristics

In direct sourcing, companies procure crops directly from farmers, often using distribution centers or warehouses. This method is particularly useful when contract farming is not feasible or when farmers prefer to remain independent. Sourcing through direct contracts is common for crops like sugarcane, cotton, wheat, rice, and palm. Once a farmer starts supplying to a specific company, they tend to continue unless offered a price significantly higher by a competitor or the government.

Examples of Crops

Sugarcane Cotton Wheat Rice Palm

In this method, pricing is primarily market-driven, although negotiations may play a significant role in determining the final sale price.

Sources and Impact of Agri-Procurement

Approximately 150 to 200 listed companies in the FMCG, utilities, basic materials, consumer discretionary goods, and other sectors engage in direct procurement from farmers. Additionally, another 800 to 1000 unlisted companies also follow similar methods. These companies collectively buy around 10 to 15 percent of the total agricultural produce in the country.

The majority of the produce is utilized as raw material by these companies, with some portion being marketed to smaller companies that may not have the resources to procure materials on time.

The Role of Middlemen

Middlemen play a crucial role in the agri-industry. They store crops in warehouses or cold storages, either to sell to industries at a later stage or via 'anaaj mandis' (a type of market). They act as the linchpin between farmers and industries, ensuring a steady supply of agricultural produce.

Conclusion

The agri-industry in India is characterized by a mix of direct and indirect purchasing methods. Understanding these procurement patterns can provide valuable insights into supply chain dynamics, market practices, and the overall well-being of the agricultural sector. As the farm sector continues to face challenges, such as the farmer stir, it is essential for companies and policy-makers to work together to stabilize the supply chain and ensure fair trade practices.