24 Good Businesses 2012

Good harvest

Zamindara Farm Solutions’ pay-as-you-go model helps small farmers avoid a debt trap

Pakistanis reached until here during the 1965 war,” says a local waving his arm around. “The border is just about 4 km away.” This close to the India-Pakistan border in Punjab’s Fazilka district, boundaries get fuzzy. Farmers cross into no-man’s land to tend their fields, with passes issued by the Border Security Force, and tall tales of war and opium smuggling are dusted off for the entertainment of any newcomer. But soon enough, the conversation shifts to debt and farmer suicides.  

Neighbouring districts like Sangrur and Bathinda may have grabbed the headlines but Fazilka is no stranger to farmer suicides either. But the state government and Centre don’t recognise Punjab as a suicide-affected state and there is great disagreement over the number of deaths — the numbers quoted by various agencies range from 50,000 to 90,000 in the past 20 years. According to the National Sample Survey Organisation, 65% farmers in Punjab are in debt with an average per acre debt of₹18,000. Clearly, the country’s bread basket is crumbling. And it’s taking the small farmer with it. 

For several years, Vikram Ahuja was a mute spectator to the crumbling. Born in a land-owning family of Fazilka, his family successfully ventured into selling tractors and farm equipment in the 1960s. Ahuja joined the family business after completing his education; 20 years later, he decided he could no longer just watch from the sidelines. “Small farmers are neck deep in debt; the size of holdings is not viable, yields are stagnant, water table is receding and labour costs are headed north,” he lists. 

Ahuja may not be able to solve all that ails Punjab but he made a start by setting up Zamindara Farm Solutions in 2005. “If you want to fly to Mumbai, do you buy a plane? If you want to read a book, do you buy an entire library?” he asks. “That’s the folly small farmers commit — buying the equivalent of an airplane.” Zamindara (from the Punjabi word for land husbandry) is Ahuja’s version of an implement bank, quite like a library. His workshops house 170 machines: tractors, harrows, JCBs (excavators), rotovators, seed sowers, harvesters, fodder choppers and many more.

Farmers call to hire equipment for as long as they want, paying a daily rental. Where needed, operators and know-how is provided. It’s convenient and cheaper than owning the machinery: for instance, a farmer may need a tractor for a week during sowing, which will cost him about₹14,000.

That’s less than half the cost of replacing a tractor’s tyres (₹35,000). In fact, the average rice or wheat farmer needs a tractor for just six hours every year for each acre of land. Renting the machine would cost₹1,200 a year per acre whereas owning it means spending about₹83,000 every year on interest alone. So unless a farmer owns 70 acres of land, it doesn’t make financial sense. The average land holding in Punjab, though, is just 1.75 hectares (4.3 acres).

 Revolution baggage

Punjab’s farmers are weighed down by the legacy of the Green Revolution. The high-yield grain introduced in the late 1960s came at a cost — it requires intensive use of irrigation, fertilisers and machines. Anu Nagpal, director, Zamindara, explains that just a tractor and its accessories costs₹6.5 lakh. But, “Farmers like to own a tractor — even if they die of the debt — because they think a farmer isn’t a farmer without one,” says Kulvinder Grewal, a farmer with 18 acres of land. But he concedes that maintenance is costly. “I prefer Zamindara’s services. God knows how the others manage.”

The company organises meetings at gurudwaras and distributes pamphlets — even the logos on the machines have been replaced with Zamindara’s to build brand visibility. But convincing farmers remains a challenge. “Explaining the economics to 40 farmers converts just five,” laughs Ahuja. “They ask us what our political agenda is.” In the past seven years, 6,000 farmers in a 300 km radius around Fazilka — including Ferozpur, Mukstar and Sangrur in Punjab and Sriganganagar and Hanumangarh in Rajasthan — have availed of this service. There are implement lenders in the unorganised sector but few offer the expertise that Zamindara does. Which is why Ahuja’s₹10-lakh investment has grown to a₹6-crore business.

Tweaking the model

Ahuja started Zamindara with a simple business model. The company would borrow from banks to buy machines. The hourly rent was arrived at by taking the 13-14% bank borrowing cost, and adding depreciation, operating expenses and margin of 5-6%. “This way, an implement breaks even in three years,” says Ahuja. There were several hurdles: borrowers used the machines roughly, switched new tyres with old…. The company introduced a better checking system, but the biggest change came from engaging farmers as partners. In 20 villages, Zamindara brought on farmers as co-owners of machines — they invest₹30,000 and get a cut from the rent received. More importantly, they ensure the machines are in good repair and the local partner becomes a hub for nearby villages. 

At Taliwala village, 23-year-old Parminder is one such entrepreneur. He joined Zamindara after having been a customer for a few years. He’s impressed by the economics of renting. “If you have 4 acres and spend₹9 lakh on machines, you will end up in a debt trap,” Parminder says. He hires out tractors and keeps 10% of the rent as his cut. “We need thousands of Parminders to solve India’s agrarian problems,” says Ahuja. Meanwhile, a start has been made.