Pepisco drops case against Gujarat potato farmers: Lessons to be learnt by MNC in failed fight with domestic producers

Pepsico has been forced to come down on its knees after the threat of a boycott of its products in India gained traction

Published: May 13, 2019
Image: Shutterstock

PepsiCo's fight against nine subsistence farmers of Gujarat for cultivating the potato variety used for its Lay brand of chips has aptly been described as a David versus Goliath story. The soft drinks and snacks giant dropped the cases like a hot potato as pressure mounted on the company from various sections of Indian society, including farmers lobby groups, political parties and the consumers of its products.

The David-Goliath analogy is apt because the snacks giant pitted itself against a handful of humble potato growers in the Deesa, Sabarkantha, Banaskantha and Aravalli districts of Gujarat, who did not have the means to even defend their cases in the court, let alone pay the compensation of Rs 1 crore plus each which Pepsi had demanded as compensation for alleged infringement of 'intellectual property rights'. The company has been forced to come down on its knees after the threat of a boycott of its products in India gained traction.

Social media launched a national celebration of David's victory. But beyond the hype and hyperbole, there are important takeaways from the episode both for India as well as multinational giants like PepsiCo, who can't afford to lose a market as huge as India's. In ancient times, it was India's riches that kept the world wonderstruck about the country. Today, it is the size of its market.

Indian consumers are today sitting on cloud nine, enjoying the immense power they wield on their finger tips to dictate terms even to global giants. Given India's enormous market size, they always had the latent power, but could not exercise it because there was no way they could federate their potential into use. But social media has changed all that. In fact, the Pepsi instance is one great example of social media performing a positive role, far removed from its negative potential as a medium to spread all types of pernicious influences, including fake news and communal hatred.

It is true that Pepsi had got its timing terribly wrong when it decided to act against the farmers. An issue like this in the middle of an election campaign, that too such a hotly contested one, has the kinetic power to blast off into the stratosphere. And the political parties, both the Bharatiya Janata Party (BJP) and the Congress, could not have missed the opportunity. So a boycott call had all the potential for a volcanic eruption, and this was not lost on the soft drinks giant, which had no option but to give in even without a contest.

There are lessons to be learnt for all those who are involved. PepsiCo has likely learnt some. Unlike in many other jurisdictions where it operates almost unhindered in terms of intellectual property rights, in India it has to contend with issues that are unique to the country. Local sensitivities have the inherent strength to subjugate even the most brutal corporate might, when it comes to community life and practices. If anyone tells the farmers what they produced after all the sweat and toil belongs to someone else, they do not quite understand the logic.

To make matters worse for Pepsi, the Protection of Plant varieties and Farmers' Rights Act, 2001, protects the rights of Indian farmer to "save, use, sow, re-sow, exchange, share or sell his the same manner as he was entitled" before the Act became law. This weakened the Pepsi case, although it held intellectual property rights for FL 2027, a potato variety with less moisture content that it specifically developed for use in Lays chips.

There are also lessons to be learnt by farmers. As per the well-considered stratagem, 'if you can't fight the enemy, join him'. That is like using the enemy's power for one's own benefit. There is no reason why the aggrieved Gujarat farmers cannot join Pepsi's contract farming scheme, under which the American snack company enters into a contract with farmers in different parts of the country to cultivate the variety, which the company buys back at remunerative prices. In fact, the company had offered to include the farmers it had challenged as part of the scheme.

Farmers have no love for any specific variety as long as they are able to secure remunerative prices for their produce. In fact, contract farming is an idea whose time has come in India and the government would do well to promote the concept. Already a number of corporate chains, both domestic as well as international, are doing this successfully and this is perhaps a better alternative to the current mechanisms employed by the government to ameliorate farm distress, which have unfortunately failed to achieve the desired results.

The minimum support price operations, for instance, have proved inadequate in most cases as the infrastructure to collect the produce on time is lacking. In the absence of proper storage facilities, farmers lamenting over their fast-perishing produce in the open has become a familiar sight. Added to this is the problem of timely payments.

The promise of minimum support price actually encourages farmers to produce more. But more production invariably leads to a glut in the market as the procurement agencies are not able to buy all the produce. This leads to heavy loss for the farmers as their produce has a limited life. A major cause for farm distress originates here.

It has been observed that over the years, under the guise of protecting farmers, government policies have been limiting the market for farm produce and depressing prices for the producer. The operation of the agricultural produce market committees in effect leads to division of the market geographically as the farmers can sell only in the local market. This prevents large chains from buying directly from the mandis, which are the hotbeds of corruption and ineptitude.

Leading agricultural economist Ashok Gulati could not have been more right when he put the blame for the current problems on the policies of the 1950s and 1960s when the country had a severe shortage of agricultural produce. Today, we have a surplus situation in almost every commodity.

"There is an in-built consumer bias in the system in the name of the poor. That must change, and we have to have a level playing field for farmers and consumers. If you want to help certain poor consumers, use an income policy, or directly give them whatever you want to give from the general exchequer. Don't try to suppress prices for farmers, because you are trying to protect the poor at the cost of farmers," Gulati said in an interview at the Wharton Business School.

Over-production has led to price collapse and the farmers are not able to realise even their cost of production. This leads to massive distress in the farm sector, manifesting itself through farmer suicides, which have been on the increase.

Gulati then went on to highlight the importance of allowing competition for companies to buy directly from the market and the need to allow contract farming in a big way. This is what companies like Pepsi have been doing and there is need to encourage this further if we have to overcome the problems in the agrarian sector.

For the size of India's agricultural market, the presence of agricultural processing industry is grossly inadequate, which means there is a huge opportunity for investment by private sector giants, who can then enter into buying contracts with the farmers on the lines of Pepsi. So, there are huge lessons to be learnt by the government, which alone can make all this possible.

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