Post Independence, markets have failed Indian farmers

 

Reiterating what a former US Agriculture Secretary Earl Butz (at the time of Richard Nixon) had once given a call: “Get big or get out,” Sonny Perdue, US President Donald Trump’s Agriculture Secretary too recently said: “In America, the big get bigger and the small go out. I don’t think in America, (as) for any small business, we have a guaranteed income or guaranteed profitability. “ 

Wherever agriculture is being opened to markets, the big capital has successfully managed to push out the majority farming population and concentrated its control over food. That’s how the markets behave, with its own set of logic and ethics. As the big get bigger, the small farms struggle to survive. In America, after decades of market reforms in agriculture, only 1.5 per cent of its population has somehow managed to survive on the farm. Despite providing for $ 867 billion support under the Farm Bill 2018 over the next 10 years for agriculture, nutrition and conservation programmes, rising suicide rate, worrying trends of depression in rural areas, declining milk and farm commodity prices, and the mounting bankruptcy in farming – estimated at $ 425 billion -- will make it tough for the family farms to survive the transition.

With the suicide rate being 45 per cent higher in rural areas as compared to urban America, low prices and mounting debt has pushed much of the rural population into the grips of stress and depression. What happened in America is no exception. It has in fact become an international agricultural design, with agribusiness gaining strongholds over the food value chains across the globe, in reality their competitive strength depending on the huge subsidies received. In Europe, farming too is in a severe crisis despite an annual subsidy support of $ 100 billion, of which nearly 50 per cent goes as direct income support. Low prices and mounting debt has gradually pushed small farmers out of business. In UK alone, 3,000 dairy farms have closed down in the past four years. In France, a study had shown that nearly 500 farmers commit suicide on an average in a year. 

Compare this with India, where 3.64-lakh farmers have officially committed suicide in the past 25 years as per the National Crime Record Bureau statistics. Despite 94 per cent farmers being dependent on markets all these years (as per the Shanta Kumar committee report), Indian agriculture is still in the throes of a terrible agrarian distress. Interestingly, an NSSO report in 2014-15 had shown that nearly 54 to 84 per cent farmers (depending on crops) in the kharif marketing season had sold their produce outside the mandis to private traders. In other words, farmers had the freedom to sell anywhere. They were not in the clutches of the mandis. The question therefore that needs to be asked is if markets were so efficient, why farmers should be increasingly abandoning agriculture and migrating to the cities. If markets were so benevolent, there is no reason why agriculture shouldn’t have been the engine of economic growth. I am not sure whether the markets have now undergone a heart transplant given the exuberance being shown, promising higher price discovery for farmers.  

But this is how markets operate. It pushes people away from agriculture primarily to provide cheap workforce for the industry. The big get bigger in the process and the small go out. For India, the Washington-based International Food Policy Research Institute (IFPRI) has a similar proposition – ‘move up or move out’. For several decades, mainline economists in India had been arguing on similar lines. Numerous committees and reports had pointed to the need to move towards market-friendly agriculture. Minimum Support Price (MSP) was blamed to be the culprit, coming in the way of real price discovery. In one form or the other, the emphasis had been on dismantling the vast network of Agriculture Produce Market Committee (APMC) regulated mandis in Punjab and Haryana.   

To strengthen the argument, even the Commission for Agricultural Costs and Prices (CACP) had come out with a table ranking States in terms of market-friendliness. Bihar was among the states that topped the chart, and Punjab was at the bottom. 

Punjab is at the bottom of the chart because 87 per cent of wheat and rice (as per CACP) is procured by the Food Corporation of India (FCI) or by public sector agencies on its behalf at a guaranteed MSP. In Bihar, less than 1 per cent of the wheat harvest is procured. If this is market-friendliness, economists need to explain what is so good about it. In Punjab and Haryana, comprising the food bowl, farmers receive Rs 80,000-crore a year by way of price support. As far as I can remember, barring a few instances farmers have not received a price higher than the MSP in open markets. Market prices have always remained lower than the MSP announced for wheat and paddy, the two crops that are being procured. Similarly for the 23 crops for which MSP is announced every year, open market prices have generally been lower. That’s the reason why agriculture continues to be in a serious crisis.   

The real price discovery for farmers is by MSP only. The need therefore is to make MSP a legal right of for farmers and ensure that no trading takes places below the MSP, not only for wheat and paddy but for all the 23 crops for which MSP is announced. 

Although the government says MSP and APMC markets will remain intact under the new marketing reforms being ushered in, farmers fear that APMC mandis will gradually become redundant. With APMC markets heading towards a collapse, the new sets of reforms are aimed at encouraging corporatisation of agriculture, with big business moving in agriculture, storage and marketing. As the experience of US/Europe shows, when unregulated markets become dominant, small farmers are the first to be pushed out of agriculture. Given that 86 per cent farmers have less than five acres of land holdings, the message is clear: get big or get out. #

*Ensure no trading takes below MSP. The Tribune. Sept 24, 2020 https://www.tribuneindia.com/news/haryana/ensure-no-trading-takes-place-below-msp-145671#:~:text=In%20Punjab%20and%20Haryana%2C%20comprising,by%20way%20of%20price%20support.&text=The%20need%20therefore%20is%20to,for%20which%20MSP%20is%20announced.

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Dumping by rich countries destroys farm livelihoods in developing countries

Pic courtesy: internet

It was in 2003 that the Heads of State of four West and Central African countries – Benin, Burkina Faso, Chad and Mali – wrote a joint proposal to the World Trade Organisation (WTO) asking for scrapping the massive cotton subsidy support being given in the US/EU, which depresses global prices. At the same time, in a signed letter published in the New York Times, these leaders had said: “Your subsidies kill our farmers.” An international uproar erupted, and it virtually led to the collapse of the Cancun WTO Ministerial Conference.

This particular incident, in lot many ways historic, is an important lesson to learn from in the context of the ongoing debate on whether Minimum Support Price (MSP) being paid to farmers is much higher compared to international prices. Also, it allows us to understand there is nothing sacrosanct about international prices. As the West African challenge to the rich developed countries on the contentious issue of cotton subsidies clearly demonstrated how easily market prices were manipulated hitting the livelihoods of farmers in another part of the world.  

Several studies, among them from Oxfam International, the International Food Policy Research Institute (IFPRI) and the Catholic social justice organisation CIDSE, had analysed the issue in depth. Accordingly, the US had spent $ 14.8 billion in just four years, between 1998 and 2002, to subsidise a cotton crop valued at $21.6 billion. Some other news reports showed how, in addition, the US provided a subsidy of $ 1.7 billion every year to the textile industry to buy the subsidised cotton. This brought down the global prices pushing cotton farmers in West Africa to suffer economic losses.

If these cotton subsidies were to be removed, studies showed that nearly 25,000 cotton growers in the US (at that time) would have incurred an average loss of $ 871 per acre. On the other hand, imagine the economic loss for the four West African countries (better known as Cotton 4) which had only 4 per cent of the global cotton area but relied heavily on exports. Lower international prices meant lower price realisation for the African cotton growers. What impact the artificially low international prices had on cotton growers from the developing and least developing countries is provided by another World Bank study which worked out that a 40 per cent drop in cotton prices leads to a 21 per cent reduction in farm income. Drop in farm income in turn results in a 20 per cent rise in poverty.

Subsequently, in a case filed by Brazil against the US cotton subsidies, the WTO Dispute Panel in 2005 did acknowledge that some of the cotton subsidies indeed reduced global prices.

In another interesting study, Sophia Murply and Karen Hansen-Kuhn  of the non-profit Institute for Agriculture and Trade Policy (IATP) had worked out the cost of ‘dumping’ agricultural commodities on the global markets for five major crops America exported – wheat, corn, soybean, rice and cotton. This interesting research project, initiated by Mark Ritchie, IATP’s founder, has certainly made a significant contribution in understanding how ‘dumping’ influences global trade. Accordingly, in 2017, the US was dumping wheat at an export price that was 38 per cent less than its cost of production. Similarly, cotton was exported at a price that was 12 per cent less (despite the West African challenge), corn at 9 per cent, and soybean at 4 per cent less. The authors also observed a consistent pattern that America followed in dumping these commodities for over two and a half decades, barring a few years in between.   

Whatever be the ‘dumping’ size, what emerges clear is the role these subsidies, often hidden, have on lowering international prices. In 2018, the OECD countries, comprising the richest trading block, provided agricultural subsidies to the tune of $ 246 billion. Along with unfair trade practices, these subsidies have always played a significant role in protecting developed country farmers against price volatilities. Cotton being a classic case.

More recently, another IATP study entitled ‘Milking the planet’ explains how in a bid to remain competitive, European dairy corporations are dumping cheap dairy products and in turn pushing small dairy farms out of business in developing countries. Along with EU, the US too has been heavily subsidising milk and milk products. In a joint representation before WTO in 2017, India and China have said that dairy (and also for sugar) continues to be in receipt of a high product-specific support in America for over a decade. Similarly, the EU provides a product-specific subsidy support of 71 per cent of the value for its production for butter and 67 per cent for skimmed milk powder (SMP) thereby pulling down global prices.

How the fob prices actually hide the massive subsidies is better illustrated by a careful look at the wheat subsidies being provided in America. As per the non-profit Environmental Working Group (EWG), the US has given a subsidy of $ 47.8 billion to wheat growers between 1995 and 2019 (there are 29 heads under which these subsidies on wheat were given, a few of these may have discontinued now). These subsidies actually encourage over production thereby reducing market prices. The big trading agencies gain in the process. Also, what needs to be understood is that if markets were offering a higher price to wheat growers in America, I see no reason why the US should have provided such a huge subsidy support to wheat growers over the years.  

If the US/EU/Canada and other big players can subsidise exports of agricultural commodities or export at prices which are actually below the cost of production why Indian farmers should be penalised for it? International prices should therefore not be treated as a benchmark for fixing MSP for domestic farmers. India must ensure that regardless of the global prices domestic farm incomes grow in the same proportion as other sections of the society. To begin with, make MSP a legal right for farmers, as the Commission for Agricultural Costs and Prices (CACP) had earlier recommended. Follow this up with direct income support to fill the income shortfalls so as to realise the dream of Atmanirbhar Bharat. #

A case to make MSP legal right of farmers. The Tribune. June 23, 2020

https://www.tribuneindia.com/news/comment/a-case-to-make-msp-legal-right-of-farmers-102423?fbclid=IwAR3UUC9ZP9popmfDLNgUVCxcXde0cea76Tn41VhByxGm_IUkIMK4FW3VZCQ

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