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Child Labour and Trans-National Seed Companies in Hybrid Cotton Seed Production in Andhra Pradesh

SECTION III


Production of cottonseeds -
linkages between companies and seed farmers

Companies including MNCs are clearly linked to child labour, even though they do not themselves employ child labourers. The companies put their labels on the seeds produced by the children's labour. The economic relationship between MNCs and child labour is multi-tiered and complex.

Companies dependence on seed farmers

In order to market large quantities of seed, companies need to multiply the relatively small quantity of foundation seed either developed by them (proprietary or research hybrids) or sourced from public institutions (public hybrids). Public hybrids are developed by government research institutions and are given to any one for multiplication of seeds. Companies are dependent on local seed farmers for multiplication of seeds. The multiplication of seed is done by seed producers at their fields. Since Indian landownership laws do not permit individuals or companies to own large areas of land companies are constrained to have their own farms producing large quantities of seed for their companies. So they depend upon local seed farmers for production of seeds. Most of the companies do not make direct agreements with seed farmers. They operate through intermediaries or middlemen called 'seed organizers'.

Seed Organiser - link between companies and farmers

Except Advanta which is making production agreements with seed farmers directly in some areas17, all other MNCs discussed in this report are operating their seed production activities through 'seed organizers'. A 'seed organizer' is an independent businessman who mediates between company and seed farmer for organising the seed production. The institution of seed organiser is a recent phenomena innovated by the companies as an administrative convenience to deal with large number seed farmers. Prior to 1990s most of the companies were having contacts with seed farmers directly. As the demand for hybrid seeds increased and companies expanded their scale of operation they found it difficult to deal with large number of farmers and started depending upon intermediary institutions like seed organizers.

Contracts between companies and seed organizers - buy back agreements

Companies make production agreements with 'seed organisers' with a buy back arrangement of resultant seed. Some of the seed organisers are also the owners of small seed companies who organise seed production for various big companies.

In the agreement between company and seed organiser, the company fixes the target of production for each organiser (type and quantity of seed it wants), the price it will charge for foundation seed it supplies to them, procurement price it will pay to the farmers once organisers collect seed from the farmers and hand over to the company, amount of service charges or commission it will pay for the organisers, quality of seed etc. It is the responsibility of seed organiser to identify the farmers interested in undertaking seed production by accepting the terms and conditions set by the company. Depending upon the production target given to them by the company, organisers decide the extent of area and number of farmers. They make separate agreements with farmers reproducing all the terms and conditions set by the company to them. Companies also advance production capital to the seed organizers to the tune of Rs 15000- 20000 per acre (about 30-40% of the cost of cultivation).

"Companies will not come into picture in identifying the farmers. They give us targets. We will identify the farmers who are willing to undertake the seed production. Depending upon the target given by the company to us we will decide the extent of area and distribution of area to different farmers. We will make separate agreements with farmers. The agreement between us is almost similar to the kind agreement we make with the companies. We will supply foundation seed to them and inform them about the quality standards set by the company for purchasing the harvested seed. If the company gives us any advance capital we will pass it on to them. After the harvest farmers will deliver the seeds to us and we will pass on the same seed to the company. The company, after quality tests (germination and genetically purity), pays money to us and we in turn pay the farmers as for the agreed price" says a seed organiser who is arranging seed production for Syngenta18.

Organisers collect foundation seed from company and supply it to the farmers. Farmers grow the foundation seed in their farm and hand over the harvested seed to organisers. Seed organisers collect harvested seed from farmers and supply to the company. After receiving the seed from organizers, the company will test the quality of seed and if it meets its quality standards then only it will pay money to the organizers. Three types of quality tests are conducted by companies i.e physical, germination and genetical purity of seed. It takes about 3-4 months for the company to complete these tests. After completing these tests only the company clear the payments to organisers. It is only after receiving payments from the company, organisers pay back to the farmers. After handing over the seed to the organizers farmers have to wait about 4-5 months for the payments.

It is important to note that in the entire process at no point of time companies makes any direct agreement with farmers either for production or for payments. All the transactions are routed through seed organisers only. Although companies are not directly involved in the production process and making agreements with seed farmers they exerts substantial control over farmers and production process by way of supplying foundation seed, advancing production capital, fixing the procurement prices and quality controls. In addition the company representatives make frequent visits to the farmers' fields to supervise the quality of production.

Cotton seed production - linkages between MNCs and child labour


Though it is the seed organisers who make final agreements with farmers they are not independent to decide about the procurement prices to be paid to farmers. The company fixes the procurement price to be paid to the farmers by the seed organisers well in advance. Seed organisers do not have any control over it. They simply get service charge or commission (Rs 15- 20 on each packet of 750 grams weight) from the company. The seed produced by farmers in their fields is the sole property of the company and either the seed organiser or the seed farmer does not have any right to sell seed in market other than to the company.

How procurement prices are fixed?

Procurement prices paid to the seed farmers are fixed in two ways. With regard to public hybrids a common procurement price is followed by all the companies. Till recently, 'Seedsmen Association' of Andhra Pradesh, an organisation representing the interests of seed companies, used to decide the common procurement price for the public hybrids. Seed farmers had no role at all. Since the year 2000, seed farmers have started demanding that they too should have a role while determining the procurement prices. They have formed their own association called 'Seed Growers Association'.

Currently, the prices of public hybrids are fixed through the consultations between the representatives of seed companies and seed growers. It is binding upon all the companies to follow this price. In the year 2001-2002 the procurement price of NHH 44 cotton hybrid was fixed at Rs 180 per 750 grams packet and Rs 220 for Savitha variety. Currently, the Seedsmen Association exerts greater control in determining the procurement prices because of its strong organizational base. Unlike Seedsmen Association, the Seed Growers Association is not very strong because of unorganised nature of their members and their dependency on companies/seed organisers for production capital19.

Though seed farmers have some voice in determining the procurement prices of public hybrids they have absolutely no role in determining the prices for private research hybrids. The concerned companies who own the seed are at liberty to fix their own prices. In 2001-2002 HLL and Syngenta offered Rs 220 for 750 gram packet for their own seeds 'Brahma and Sandocot 35'.

Difference between procurement and market prices: huge profit margins for companies

There is a huge difference between companies' procurement prices and market prices. Table 7 indicates that what companies pay to the farmer for producing the seed is several times less than what they get by selling the same seed in the market. During 2001-2002 the market price of HLL's cottonseed 'Brahma' is about four times the procurement price. The company procured the seed from farmers at Rs 290 per kg and sold the same seed in market at Rs 1100. The market price of Syngenta's cottonseed 'Sandocot 35' is about three and half times the procurement price. Compared to HLL and Syngenta the market price of Mahyco-Monsanto's BT cotton is very high. It sold one kg of BT cotton at Rs 3550.

Though companies have a huge profit margin they do not seems to be making any rational calculation about cost of cultivation while fixing the procurement price to be paid to their seed farmers. With the current procurement prices of companies, seed farmers can not afford to pay better wages to the labourers and still earn a reasonable profit. Unless better wages are paid, it is difficult for the farmers to attract adult labour to work in their fields. It is estimated that the farmers (using child labour) are currently incurring about Rs 220 for production of one kg of cottonseeds (see table 7). The procurement price they are getting from companies is about Rs 290 per kg of seeds. After meeting the costs farmers get about Rs 70 as a profit. About 50% of the production cost i.e. Rs 110, is spent on wages for labourers. As already indicated the wage rates paid to children in cottonseed fields are about 30% less than adult female and 55% less than adult male wages in the market. If farmers have to replace the child labour with adult female labour the cost of labour would increase by 30% and with adult male labour it would increase by 55%.

Seed farmers have stated two main reasons for their preference for child labour: children's wages are much lower than adult wages and they are generally easier to control. Given costs of cultivation and prices they get for their produce seed farmers can not afford to hire adult labour by paying better wages and still earn a reasonable profit. According a seed farmer who is producing seed for HLL 'Government and non-governmental organisations are saying we should not employ child labour. If we have to employ adult labour we will have to pay double the wages than what we are paying now to children. With prices we get from companies we cannot afford to employ adult labour. Though our costs are increasing every year companies are not coming forward to increase their procurement prices. In the early 1990s when we paid Rs 8 per day for each for labourer the procurement price was Rs 150 per packet (NHH 44 Hybrid). Now we are paying about Rs 20 for labour but the procurement price is only Rs 180 per packet. Our profit margins have come down drastically during last one decade but companies are able to increase their profit margin'20.

Table 7: Per kg cost of production, procurement and marketing prices of cottonseeds of HLL, Syngenta and Mahyco-Monsanto, 2001-2002
Name company (seed)
Cost of production for farmers (Rs)
Procurement price paid by the company to the farmers (Rs)
Marketing price (price sold by the company in the market) (Rs)
HLL (Brahma)
Syngenta (Sandocot 35)
Mahyco-Monsanto (BT cotton)
220
220
220
290
290
250-300
1100
1100
3550



SECTION II   SECTION IV

India Committee of the Netherlands / Landelijke India Werkgroep - April 24, 2003