Pepsico Industry Analysis
An Analysis of the Model of Contract Farming adopted by PepsiCo
Metika Sikka
Tanvi Singh
Agro-industries are given high priority in India particularly because of their great potential for contributing to development. Contract farming is widely seen to help strengthen the existing marketing system and thereby reap the benefits of technological development. Notwithstanding these benefits the flip side also exists wherein contract farming is further marginalising the small farmers in the competitive bargaining. This paper examines the model of contract farming adopted by PepsiCo with special emphasis on its potato contract farms.
The private sector has been assigned a key role by the government under the national policy of agriculture
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It was a joint venture with Voltas and Punjab Agro Industries Corporation. The main objective of this project was to bring horticultural revolution in Punjab i.e. a shift from only wheat and rice cultivation to fruits and vegetables also. Since PepsiCo found local varieties unfit for processing as potatoes harvested in cooler north-western and west central plains are not fit for processing because low temperatures at the time of crop maturity results in build-up of low dry material and high reducing sugars in the potato tuber. PepsiCo established an agro-research centre and used the contract farming system to procure raw materials. Within 3 years the company took the production from 7.5 tonnes to 20 tonnes per acre. Later two more plants were started one at Ranjangaon, Pune (MH) and the other at Howrah in West Bengal. Hence, to meet its demand for processed potatoes, Frito-Lay now performs contract farming in the states of West Bengal, Maharashtra, Punjab, Jharkhand and Karnataka. PepsiCo is involved in contract farming for potatoes with more than 14000 farmers over an area of 12000 acres. The PepsiCo Company procures the production as per the price, quantity and quality which are pre agreed. Farmers get incentives on their production upon meeting high quality standards, which ensures quality and a continuous generous …show more content…
For contract farmers 20−25 tonnes of the production are bought by the company, the rest is sold to the open market. PepsiCo announces prices before the beginning of the season. Different prices are announced for early crop, peak season and ending crop. In some cases where the farmers have closely followed the production practices of the company agronomists, the yields were as high as 44 tonnes per hectare. The corresponding gross margins in this case can range from Rs 28, 218 to Rs 110, 749 assuming 35 tonnes are bought by the
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