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Investing in Jatropha
Contract Farming of Jatropha in India
Business Model for Contract Farming can work well where the Post Harvest Processing Technology is difficult, and Supply is Greater than Demand (as in case of Aloe vera). In case of Jatropha, it is other way round. The Demand will be THOUSAND times the supply for next decade, and post harvest technology to extract oil, through a hand press, is very simple. A farmer will sell his seeds at good price, else he can crush the seeds himself and use Crude Jatropha Oil as Fuel Additive and to burn Lamps. Realizing this BP has terminated its Tie-up with D1 Oils of UK and Mission BioFuels had to wind up its operations in Mumbai. Jatropha is important to Uplift from Poverty, the Rural Poor in Developing Countries, supply of Fuel to Rural Population and Correcting the ill effects of Climate Imbalance occurring very frequently. This is a good Model for Charity in Poor Countries, with Charity Funds from Rich people from those countries, who have made millions abroad.
Some International Companies had entered into India, and had bought Bankrupt Indian companies who were earlier engaged in same business. They have advertised a big foray into jatropha cultivation through the contract farming route across the country. These companies have evolved their own models, which will enable them to scale up planting of this shrub to 50,000 acres in some identified districts. The International Companies sign contract farming agreements in the name of the Bankrupt companies, so that when these International Companies too wind up, they have no responsibility.
These Contract Farming companies tie up with Banks which disburse loans to farmers, and confirm that the Contract Farming company has ensured a buyback arrangement for the produce. Bank extend the loan through its branches to contract farmers for the project. The Contract Farming company appoints two franchisees in each district, who in turn appoint 10 direct selling agents who interact with the farmers. Jatropha, being a hardy plant, can be planted on the periphery of a field or property without the main crop being impacted. The company encourages farmers to form groups of 25 each, akin to a self-help group. The idea is that this will be responsible for the repayment of the loans.
How these schemes operate: The contract farming companies sign an Agreement with franchisees for facilitation of contract farming of Jatropha in particular area and getting the Contract Farming Agreement (CFA) of company duly filled from the farmers with compilation of 7/12 Extract and 8A Papers. Also franchisee has to supply the quality Jatropha saplings to the identified and guided areas as per agreement. Franchise's work limit is mutually agreed till identification of the farmers, getting the CFA filled from the farmers, supply of sapling, submission of DCDN Database duly signed by respected farmers on the day of receiving saplings and further charge to be handed over to company for further field activity.
The bank funds each farmer to the tune of Rs 6,000 while the farmer would be required to bring in Rs 3,000 as his contribution per acre, to the project. There will be a three year moratorium on the loan and the farmers will need to start repaying the loan from the fourth year onwards. The Contract Farming company supplies the saplings to the farmers at Rs 2 to 4 a sapling, for which it does not set up a nursery on but buys from others. As per the Payment Schedule of Contract Farming company, the payment date to sapling supplier for the CFA, is within Ten business days of both old and new CFA papers. Total sapling cost is fixed at Rs. 0.45 per sapling. 25% of the cost of sapling supply is paid, at the time of placing the order. Next payment of 45% of the purchase consideration is made within Seven business days of delivery and plantation. Last payment of 30% of the purchase consideration is made to sapling supplier, within 4 months of plantation or within seven business days of disbursal of bank loan for the concerned plantation, which ever is earlier.
Most of the work by franchisee, is not completed in time and booking goes on till end of monsoon. Those who have booked earlier are not supplied with saplings and training, just on the onset of monsoon, due to non availability of funds from abroad. This results in planting some saplings at the end of monsoon. These do not survive well, and mortality rate is very high. This failure is blamed on sapling supplier and he is not paid. This vicious circle repeats year after year, and it is the poor Indian farmer who suffers.
Contract Farming assure as low price as Rs 4 to 6 per kg to the farmers when the plant starts yielding seeds for crushing from the third year. Fair price for Seeds should be Rs. 10 per Kg. (25% of the price of Diesel at the pump). If you carefully analyze the figures, you will find that the loan amount and farmers contribution are highly inflated. If the farmer produces his own sapling, he can produce it at Rs. 0.30 to 0.50 each, inclusive of seeds and manure. All manual work for Nursery, Digging of pits, Planting saplings in field is done by the farmer, for which he is not paid. The total expenses for plantation for him (Rs. 500 for saplings and Rs. 2,000 for manure) is much lower than his contribution of Rs, 3,000 per acre. This shows that all these schemes are to exploit poor farmer. This has led to failure of most of the schemes.
What should a farmer do?
A small farmer can set up a his own nursery in 1 to 2% of plantation area of his land. 1,600 saplings are required for plantation in 1 hectare (600 in 1 acre). He should set up a nursery in March (for plants to be ready by June). Seeds are sown in soil at a distance 150 mm in square formation. If nursery is started in any other time (for plants to be ready by June), seeds should be sown in soil at a distance 300 mm in square formation. The saplings should be grown in nursery till June and replanted only on onset of monsoon. There is no need of plastic bag for growing sapling. If nursery is set up in summer, it should be done under the shade of big trees. 2,000 kgs of Cow Dung is required for 1 hectare of nursery which is added to soil in the beginning. Soil should be moist at all the times with plenty of water. 1.5 to 2 kgs of seeds are required for 1,600 saplings.