India needs a rethink on 'free market'

Pic courtesy: Fairtrade Foundation 

All of us like chocolates. But the next time you bite into a chocolate bar, just be reminded. The average income a cocoa farmer earns a day is probably less than the price of a medium-sized chocolate bar that is in your hands. About Rs 100 ($1.30) a day is what a cocoa farmer in Western Africa earns.   

At a time when the $ 210-billion global confectionary industry has been growing leaps and bounds, with chocolate taking the highest market share, the biennial Cocoa Barometer 2020 report illustrates how the prevailing market-driven business model leading to excessive profits for chocolate industry is based on achieving higher productivity of cocoa that in turn has kept nearly 5 to 6 million cocoa farmers perpetually in poverty. Discarding the dependence on markets, if only cocoa farmers had received a minimum support price (MSP) over the decades, it would have helped millions of cocoa farmers ascend the ladder out of poverty, hunger and malnutrition. 

In Britain, after the Milk Marketing Board, which regulated milk prices and marketing, was removed in 1993, the number of dairy farms has come down drastically in the past 25 years -- from 40,000 in 1995 to an estimated 8,310 in 2020. Although 99.9 per cent milk producer had wanted price regulations to continue but market economists thought otherwise. Between 1994 and 2010, milk prices had fallen by 28 per cent and there came a time (in 2015) when prices slumped further by 40 per cent. Farmers were simply unable to even recover the cost of production. The plight and agony emanating from the destruction of farm livelihoods in the process was brushed under the carpet. As a British farmers said: “Every genuine farmer is now stuck unfairly on a treadmill with accumulating debts to meet unless he goes bankrupt, commits suicide or finds another source of income.”    

What happened in Britain or for that matter in Europe was no exception. In America, at least 50 per cent dairy farms have disappeared in the past two decades. According to the US Department of Agriculture, the number of licensed dairy farms had come down from 70,000 in 2003 to 34,000 in 2019.  While small farmers bowed out, mega-dairies have instead taken over. As a result, despite the closure of small dairy farms, milk production has further swelled. This is certainly not what India needs. In a country where roughly 50 per cent of the population remains engaged in agriculture, and which tops the global milk production chart, what India needs is a production system by the masses, where small farmers earn a decent livelihood from an assured price delivery mechanism. 

As expected, ‘free market’ in dairy benefitted the milk processing companies, and pushed small dairy farmers out of business. Thus began a vicious cycle of over-production, bringing down the market prices. Instead of fundamentally addressing the flaws in supply chains, by ensuring assured prices to dairy farmers to begin with, Europe and America focused more on providing bailout packages to temporarily assuage farmer’s ire. British farmers (and also in Ireland) therefore continued to protest against the ‘unfair’ prices and have since been campaigning for a fair deal.   

The tragedy on the dairy farm was further compounded by an unjust WTO’s Agreement on Agriculture which allowed heavily subsidised milk from European countries to be dumped in developing countries. Breaching the five per cent product-specific subsidy support norms for developed countries, EU had actually subsidised skimmed milk powder by 67 per thereby easily dumping cheaper milk in developing countries. In the process, small dairy farmers suffered at both the ends -- in the developed as well as developing countries. 

No wonder, at a time when mainline economists in India are excited at the possibility of ‘free markets’ enhancing farm incomes, Canadian farmers are seeking more protection to save their livelihoods. Three major farm unions in eastern Canada are demanding protection (by way of subsidy and import tariffs) against US President Donald Trump’s recent $ 32 billion subsidy package to American farmers, which they say threatens their survival. “Farmers need to be able to cover the cost of production or many of them will not be able to survive much longer.” 

Now let us look at America. The prosperity that we see on the farm is a reflection of the massive subsidy support. To ensure that small farmers are not wiped out, the US has been coming out with a Farm Bill every five years. In the 2018 Farm Bill, US has expanded the safety-net umbrella for farmers making a provision for $ 867 billion for the next ten years in commodity support, numerous measures to enhance farm incomes as well as for nutrition schemes.

Instead of leaving farmers to face the volatility of markets, the US has time and again come up with programmes to offset the losses incurred. In the 2018 Farm Bill, it has introduced an Agricultural Risk Campaign (ARC) and a Price Loss Coverage (PLC) programme. Both these programme are aimed at covering losses a farmer suffers when crop prices or revenues drop, and covers 24 commodities including wheat, oats, barley, corn, grain sorghum, rice, soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, seed cotton, dry peas, lentils, small chickpeas, large chickpeas, and peanuts. In addition, there are numerous other programmes for relief from natural disasters, crop insurance, structural adjustment and environment. 

Even in China, markets have failed to help increase farm incomes. According to a report in Washington Post, ‘China’s agriculture support includes government purchases at above-market prices, as well as market price support programs, where farmers receive a direct payment from the government if market prices fall below a minimum set price’. This has helped raise farm incomes by 38 percent in wheat, 32 per cent in rice and 29 percent for corn. China provided a farm subsidy support of $ 212 billion in 2016, the highest in the world. The US had challenged this subsidies in the WTO. 

Well, if the agricultural giants realise the inability of markets to help raise farm incomes, India too must rethink its approach. There are significant lessons here. #

India needs a rethink on 'free market'. The Tribune. Dec 30, 2020. https://www.tribuneindia.com/news/comment/india-needs-a-rethink-on-free-market-191160?fbclid=IwAR19TsKH-Uxz5Zdyz1UfgKAWdZl1qdrQp6YRuf-cknlwYksvBU83vsLbyHY#.X-30cqEmiYY.twitter

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Farmer of no value in value-chains

Pic courtesy -- from the web

Inaugurating the National Convention of the National Growers Federation – group of associations of coffee growers in Karnataka – at Bangalore, I asked how much would be a farmers share from a hot cup of coffee that consumers normally drink in a trendy coffee outlet. It took them sometime to work out the cost, so much so that they even looked at some international analysis, and what they presented a day later would simply sound unbelievable.

For every cup of hot coffee that costs consumers Rs 250 on an average in any upwardly mobile coffee bar/lounge, the farmers share is only Re 1.

It didn’t however startle me. More so at a time when the international prices of coffee is a third of what it was about 13 years ago. The commodity futures market for coffee has remained depressed making the lives of producers more tenuous, forcing growers in many countries, especially the younger generation, to abandon plantations. In India, coffee prices have been on the decline for almost three decades thereby further aggravating the crisis in the picturesque coffee belt. To overcome growing debts, estimated at over Rs 8,000-crores, many growers have turned their homes into ‘home stays, some have abandoned plantations and many have moved out.    

Earlier, a British Economic Survey report had computed a farmer’s share in a cup of coffee costing an average of 2.50 pound sterling, at only 10 pence. In other words, the coffee value chain, whether in India or in Britain, offers little or no succour to the coffee growers. Strangely, while all other stakeholders in a value chain end up making profits, it is the primary producer who is left to bear the brunt. “Unlike producers of commodities such as oil and natural gas, coffee farmers have long suffered from being at the wrong end of the value chain - receiving only a small fraction of the retail price of their crop,” says a Reutersnews agency report. Knowing that commodity future trading has played havoc with coffee growers’ livelihoods, the Financial Times had even sought a mechanism to stable coffee prices, which only shows that trading in futures market is no answer to the declining farm incomes across the globe.

Coffee is not the only agricultural commodity to be on the wrong side of the value chain, most other agricultural products fare equally badly. Several studies have shown that in case of bananas grown in Central and Latin American countries and traded in America/European Union, farmers share from every dollar worth of sale of bananas is a paltry 2 pence. Even for the best of the value chains, workers earn around 5 to 7 per cent of the total value of bananas while the retail pockets 36 to 43 per cent of the value. This is true for all agricultural commodities. It is the retail trade that walks away with a disproportionate share of the profits. In the case of milk, some dairy farmers in UK say that they receive at best 19 cents from every litre of milk consumers buy, which is not even enough to cover the cost of production.

To illustrate how farm prices have been declining over the years, the US National Farmers Union worked out a farmer’s share from what the consumers normally spend on a Thanksgiving dinner. Accordingly, a farmer gets just 12 cents from every dollar consumers spend. The US Department of Agriculture (USDA) has meanwhile also worked out that in 2018 for every dollar a consumer spent on food, farmers share of the profit pool was only 14.8 cents, which has seen a five per cent decline over the previous year. Interestingly, USDA analysis shows that while more than 85 per cent of every food dollar spent in the country goes for marketing, processing, wholesaling, distributing and retailing, farmer’s share is too low.  

NFU says for one pound (0.45 kg) of tomatoes costing $ 3.19 in the retail, farmer gets only $0.54; for five pounds of potatoes retailing at $2.30, a farmer’s share is only $0.70; and for two pounds of bread costing $2.10 to the consumer, farmer share is only $0.10. Similar illustrations by the Indian Council of Agricultural Research (ICAR) are required showing what percentage of the retail price of vegetables, fruits and food products actually are passed on to farmers thereby helping consumers to understand the reasons behind growing indebtedness in agriculture leading to farm suicides and deepening of agrarian distress. Take the case of poultry eggs, a newspaper report quoted the Indian Poultry Equipment Manufacturers’ Association saying how in the past one year, the producer ends up making a loss of Re 1 on every egg consumers buy.

If becoming part of a value chain is an effective way for ensuring what is called ‘price discovery’ then there is no reason why farmer’s share in a food product available in the market should be declining. Further, linking these value chains with commodity futures trading is no assurance of price stability or a higher price as the coffee experience has shown. This is because to gain competitive advantage and high profit levels, companies are squeezing farmer’s price.

Since the farmer too needs a stable and appropriate income to survive, to maintain his family, to pay the health and education bills like all of us, the challenge is to find a workable mechanism that ensures the continuous viability of a farming enterprise. My first suggestion is to draw from the experience of Amul milk cooperative, which claims to pay dairy farmers nearly 80 per cent of the end consumer price, and to expand the cooperative farming network to include vegetables and fruits to begin with. The other approach should be to announce a minimum support price or intervention prices for every farm commodity, linked to inflation, and then credit the difference between the market price and the support price into farmer’s account as deficiency payments.

As far as the value chains are concerned, a cess on value added products can go towards providing direct income support for farmers. For this, it is time to look into a policy suggestion made by a Kerala Cabinet minister K Krishnankutty, who has himself been a farmer leader. Calling it Actio Apportum, his suggestion is to create a fund by fixing a cess on a value added product, say Re 1 on every kg of rice, and from the amount generated, which will vary depending on the profit margin, an income support can be provided for farmers. #   

Farmer of no value in chain. The Tribune. Jan 17, 2020
https://m.tribuneindia.com/news/farmer-of-no-value-in-chain-27300?fbclid=IwAR3cP9boJAAdATgih6A0NAutSQU9DAyl4n_dhI63b2_5hQoICQiL_wPvH6k

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