Agriculture cannot be viable till it provides for an assured price.

French farmers dump potato on streets.

Pic courtesy -- Daily Mail 

A few weeks back, French farmers hung suicide dolls on trees outside Parliament to draw attention to the devastation brought about by continuously sliding market prices. In a country which follows modern agricultural practices, it is disturbing to know that while three farmers on an average commit suicide every two days; growing indebtedness is resulting in the closure of at least 1,500 farms every year. 

That such a grave tragedy should afflict the biggest farm producer in the European Union (EU), and ironically, which also happens to be the topmost recipient from the $100 billion agricultural subsidy kitty that Europe provides for every year, shows clearly how markets are tightening the noose leaving struggling farmers in exasperation. “How can anyone want to be a farmer today?” Dominique Metenier, a farmer, told the French storytelling platform Narratively, adding: “What is the point to being in debt all the time, and toiling for no reason? We are sacrificed so the consumer is always happy with low prices.” 

With very high crop productivity, and with market-oriented agriculture expected to provide a higher price to efficient producers, why are French farmers increasingly in crisis remains baffling. Wonder what has happened to a progressive farming community that has always been on the forefront of adopting high-tech farming practices and innovations. To reiterate what I said earlier: the top 44 per cent of the French farmers are saddled with a bankruptcy of Euro 400,000 each. In addition, an estimated 10 per cent of the French farms, carrying a gross debt of Euro one billion, are fast heading towards closure.

This is despite huge subsidies French farmers receive year after year; significantly adding to the low incomes that markets otherwise leaves them with. And yet, nearly a quarter of the French farming population is somehow struggling below the poverty line, and in neighbouring Germany an estimated 130,000 farms have closed down since 2005. Surviving literally at the mercy of supermarkets, farming has ceased to be profitable. Ironically, farms are dying at a time when ample capital investments have already been made in modernising agriculture with food processing, building warehouses, creating rural infrastructure like roads, providing internet connectivity, scientific storage and a chain of cold storages. If the logic is that modernisation boosts farm incomes then why after such huge farm infrastructure investments, should farmers be struggling to survive? It clearly demonstrates that the benefits of modernisation are actually reaped by the agribusiness companies and of course, the supermarkets.  

With farm mechanisation at its peak, and powerful market intelligence solutions available at the drop of a hat, one wonders why European farmers have failed to take advantage of a policy prescription that is routinely doled out to farmers everywhere, including India. Already the farming population in France, Germany and elsewhere has come down drastically, and if economists are to be believed, farm incomes should be going up when the number of farmers decline. That didn’t happen. The average farm size in France has grown to 135 acres and still farm incomes have declined. 

To add, in Australia, where the average farm size is 4,331 hectares (or roughly 10,827 acres) one would expect farmers to be dictating the prices. Going by the logic of economy of scale, Australian farmers should be super rich. But on the contrary, Australian agriculture too presents a gloomy picture. A report in The Guardian says that the rate of suicide among male farmers is double the national average. In addition, the suicide rate among farm workers is still higher. Economic hardship is among the reasons cited. 

Returning back, several studies have shown that European farmers are struggling for survival, the tragedy on the farm is being compounded by the devastation and deprivation wrought by free markets. Still, what remains unexplained is the inability of economic leadership (and that includes university professors) to acknowledge that the idea of price discovery by markets has failed miserably. Although the economic textbooks say so, but nowhere in the developed world have markets succeeded in turning farming into a profitable venture. Otherwise I see no reason why subsidies should form 40 per cent of the farm income in America, and 57 per cent in European Union. 

Economists Bruno S Frey and David Iselin have argued in their book Economic Ideas You Should Forget that many of the old theories are outdated and need to be discarded “because they are misleading, or at least no longer fruitful.” This holds true for the outdated belief that markets help in getting the right farm prices. Universities and management schools should make this book a part of the course curriculum to get over the fixation they have with certain failed ideas and concepts. After all, how can economists go on talking about the virtues of free markets in agriculture without ascertaining why farmers are in misery. It only shows the disconnect economics has with the ground realities.   

In another book ‘Zombie economics: How dead ideas still walk among us’ an Australian economist John Quiggin says that the time has come to discard the ‘efficient market hypotheses’ among some other outgrown ideas. I completely agree. Although his analysis was in relation to financial markets collapse but considering that the ‘efficient markets’ in agriculture too have failed to translate into higher farm incomes, the time has come to abandon the ruinous pathway that lazy economists still go on suggesting.   

An analysis published in Nature, examining 118 studies conducted in 51 countries over a period of 50 years, demolishes the general perception about the efficiency of modern agriculture, concluding that small farms have higher yields and are ecologically sustainable. This is what India needs, and should call for an immediate policy shift from environmentally damaging industrial agriculture to an environmentally-safe and productive small scale farming. The new approach for a revitalised agriculture cannot be economically viable till it provides for an assured income by way of an assured price as a fundamental right for farmers. That’s the cardinal rule the world must adopt to move to a new agriculture. #

Shift from industrial to small-scale farming. The Tribune. April 2, 2021. https://www.tribuneindia.com/news/comment/shift-from-industrial-to-small-scale-farming-233481?fbclid=IwAR1TsjJA33SmETjU9CBfmayHKskIXbeCNtgnVWLnX0-7TGqr2qZt0gdUBXA

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Markets fail to provide farmers with higher income

 

Inflatable suicide dolls hung on trees outside the French Parliament by farmers.

Pic courtesy -- TRT World

It’s difficult to imagine. At a time when free markets are generally believed to provide farmers with a higher price thereby enhancing farm incomes, the farm gate price for wheat in Canada happens to be much lower in 2017 than what it was 150 years back in 1867. This is not only true for Canada. Even in the US, as per media reports, farmers say the price they receive for wheat is much lower than what was prevalent at the time the four year American Civil War ended in 1865. 

So what happened to markets? After all, wheat is a staple food and its demand, considering the population boom the world has witnessed in the past 150 years, has grown exponentially over the centuries. According to the UN Food and Agricultural Organisation (FAO), wheat production forecast is pegged at 780 million tonnes in 2020-21, an increase of 7.5 million tonnes this year. Given the food insecurity the world is faced with, FAO considers the cereal production estimates (including that for wheat) to be positive.    

Now before you wonder how this could be possible, given the fact that economic curriculum in colleges and universities teaches us that markets provide the rightful price, take a look at an analysis by the US National Farmer Unions (NFU) which explains how the continuously declining peanut prices since 1965 had pushed three out of four peanut farmers out of business in America, and that too at a time when peanut consumption was on the rise. Defying the supply demand logic, the peanut prices slumped from $1 per pound in 1965 to less than $0.25 per pound in 2020, a drop of more than 75 per cent. And if you are still thinking it probably happened because of surplus production, a Washington Post report tells us how just three companies, controlling the entire peanut market, had actually fixed the purchase price. After a lawsuit filed by 12,000 peanut growers, these companies finally agreed to pay $103 million in compensation for deliberately keeping the prices low.   

Peanut is no exception. This kind of match fixing has been going on for decades. Whether in America, Europe or India, what the farmers need to understand is that the match is already fixed. It is not without any reason that market prices, when adjusted for inflation, have remained frozen or have been on a decline over the years. 

Coming back to the issue of wheat prices, a Canadian author, critic and writer, Darrin Qualman, has in an insightful series of blog posts explained how the prices have been on a steep decline since 1867. Adjusted for inflation, the price of wheat per bushel (27 kgs) was close to $30 in 1867. Like on a ski slope, the average price had continuously been on the downward slide ever since. With global emphasis shifting to agricultural exports in the mid-1980s, the prices began to slump further. In 2017, the wheat price collapsed to a little over $ 5 per bushel. The price a Canadian wheat farmer sold his wheat for in 2017 was less by $25 per bushel than what his great grandfather sold it for 150 years back. 

No wonder, while small farmers abandoned agriculture in large numbers, the average size of a Canadian farm has grown to 3,000 acres with the big farms several times larger. While the number of farmers declined drastically, the economic argument in support of market reforms claiming that farm incomes go up when the number of farmers recedes too has turned out to be untrue. America has lost more than 5 million farms in the in less than 100 years, and Australia has lost 25 per cent of its farms between 1980 and 2002. Economists will say this is a healthy development, and will make farming profitable. But surprisingly, the speed at which farmers across the globe have got out of agriculture hasn’t increased farm incomes but on the contrary it has only worsened the agrarian crisis.   

This is the same flawed argument that Niti Aayog too is promoting, saying that farm incomes will double when the number of people on the farm comes down. If this be true, I don’t understand why in Canada, for instance, the farm debt should be exceeding $102 billion, more than double than what it was in 2000. In US, where hardly 1.5 per cent of the population remains in agriculture, farm debt has multiplied to a staggering $ 425 billion in 2020. In France, with only 7 per cent workforce employed in agriculture, more than 44 per cent farmers carry a debt burden of Euro 400,000 and 25 per cent farmers earn less than Euro 350 per month, less than the poverty line. 

While farmers have been denied the rightful price, the consumer prices have been on the rise. In another blog, Darrin Qualman explains that while the price of a bushel of wheat in Canada and US has remained static since 1975, the retail price of loaves of bread produced from each bushel in the US had increased by $ 50 on an average, from $25 in 1975 to a little over $75 in 2015. The same holds true for other food products as well. How can efficiency be only measured in terms of reducing farm gate prices whereas the food processing and retail giants continue to increase prices, walking away with a larger share of the end consumer price? If the markets were efficient, why the food processing and retail giants continue to thrive in inefficiency? 

There is nothing sacrosanct about markets. To believe that markets provide farmers with a higher price is an outdated economic thinking (and education). Markets have historically failed to prop up farm incomes anywhere in the world, a fact that economists failed to acknowledge. Demanding no trading to be allowed below the MSP, protesting farmers are actually seeking a historic correction in economic policy and thinking. This holds the future for a reverberating agriculture, and a new economic design that provides for Sabka Saath, Sabka Vikas. #

Markets have failed to prop up farm incomes. The Tribune. Mar 19, 2021 https://www.tribuneindia.com/news/comment/markets-have-failed-to-prop-up-farm-incomes-227289?fbclid=IwAR0IiGibi8oR20ULhS4y6KWFNsV99V2-H2t7uxnesiQefqKuMFOce7eOuZc

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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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Farmers are a victim of inefficient markets

For over 40 years now tomato prices have remained frozen -- Pic from web

Consider this. For nearly 40 years now, the average price Indian farmers are getting for tomato in 2018 is not much different from what they were getting in 1978. Adjusted for inflation, the price of tomato remains almost the same, perhaps a little less. Reports of angry farmers dumping tomato onto the streets for failure to get a price that covers even the cost of cultivation have donned the media space for the past two consecutive years. As far as I can recall, reports of farmers feeding tomato to cattle or throwing it on the streets used to appear frequently in the newspaper even way back in the early 1980s.

In the absence of a truly national market, with restrictions on movement and open participation of traders, one can certainly say that an efficient market for agricultural commodities is still not a reality in India. Even if only 6 per cent farmers get the benefit of Minimum Support Price (MSP), which means the remaining 94 per cent are dependent on markets, the low prices of farm commodities are not a reflection of market efficiency. In that case let’s look at farm prices in the US, which is still the world’s most advanced (and one of the largest in terms of market prices) economy in the world. US markets are competitive, bigger players operate with relative ease, and where futures trading dominate thereby allowing for what is called as price discovery.

Writing on his blog, an American farmer, Mike Callicrate, says that the price at which his father sold corn some 44 years back, on Dec 2, 1974, was $3.58 per bushel (equal to 25.40kg). In January 2018, he sold corn at $ 3.56, down two cents from what he earned 44 years ago. In a tweet, another Canadian farmer, Philip Shaw, who farms in Ontario province, quotes the corn price on September 12, 2018 at $3.52 per bushel, which means another fall of 4 cents from what was traded in January this year. In the words of Mike: “The farmer who planted his first field of corn in 1974 can expect the same prices for his corn as he retires.”

If markets were so efficient, I don’t see any reason for the completely distorting price signals. If for 44 years, the markets fail to discover the real corn price that a farmer needs to get, it is quite obvious that the markets are far from efficient. After all, as the American farmer said, all the while the prices of seed, land, equipment, fertilizer, and fuel have grown exponentially but the output price remains the same. Nothing can be more painful.

Dr Robert Johannson, Chief Economist of the US Department of Agriculture (USDA), while addressing the 2018 Agricultural Economic and Outlook Foreign Trade Forum in Mar 2018 stated explicitly: “Real farm prices, when indexed for inflation, have fallen sharply since 1960.”Yes, you heard it right. This is happening in America. No wonder, to meet the market’s inability to pay the farmer the rightful price, the US provides an average of $ 50,000 per year as subsidy support to every farmer.

In India, a recent OECD study has conclusively stated that farm prices remained frozen for the past two decades. Farmers have been deliberately paid 15 per cent less all these years to keep food inflation under control. In the absence of any corresponding subsidy or direct farm income support, Indian farmers have been very conveniently left in the lurch. Hit by rising input prices, declining public investments in agriculture, and the increasing price volatility, farmers are the victims of an inefficient market. Yet, the dominant economic thinking is that the best way to address agrarian distress is to further liberate the markets, which will provide the right price signals. What is however not being acknowledged is that even in the US markets have failed to prop up agriculture.

As the kharif harvest season begins, prices of moong, urad, groundnut, bajra and jowar are already ruling much below the MSP. Take the case of moong. Against the procurement price of Rs 6,975 per quintal, the prevailing prices in the past week in Madhya Pradesh mandis hover between Rs 3,900 to Rs 4,400 per quintal. In Maharashtra, the best price offered is Rs 4,900 per quintal. In case of urad, against the MSP of Rs 5,600 per quintal, what the farmers have been able realise in Maharashtra mandis is anything between Rs 3,900 to Rs 4,200 per quintal. This is the beginning of the season and I wonder what will be the prices when the arrivals peak. But going by the past two years experience, when prices of pulses fell by 20 to 40 per cent in mandis across the country, there is hardly any expectation of prices going up this year.

At a time when markets have failed miserably to pull out farmers from perpetual indebtedness, the launch of Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) has to be seen as an acknowledgement of the fact that farmers need a guaranteed income. The thinking behind assuring farm incomes alone is a significant step forward in bridging the great income divide that prevails in agriculture vis a vis other sectors of the economy. As part of the PM-AASHA initiative, the government will in reality push three schemes, including the continuation of the existing price support scheme, and expanding the price deficiency payments scheme as tried out in Madhya Pradesh. The third scheme, and which needs critical evaluation, is to allow on a pilot basis private players in procurement operations, to begin with in oilseeds.

After announcing a higher MSP, even if it is much below what farmer unions have been demanding, the promise to buy 25 per cent of the entire marketable surplus can only be implemented successfully if an adequate market infrastructure is laid out. Against the requirement of 42,000 APMC mandisat 5 km radius, India only has about 7,600 mandis. While the mandi network has to be expanded, what is also needed is an appropriate financial back up to meet the price support. The budgetary provision of Rs 15,053-crore that has been set aside for the next two years is far too low. If India Inc can be provided with an economic stimulus package of Rs 1,86,000-crore in 2008, and which has still not been withdrawn, I see no reason why a similar package by way of procurement prices cannot be announced for agriculture to begin with. #

Lack of mandis, funds may blunt PM-ASHAA. The Tribune. Sept 18, 2018.

https://www.tribuneindia.com/news/comment/lack-of-mandis-funds-may-blunt-pm-aasha/654517.html 

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