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Protection for the rich; free play of market forces for the poor

By Parshuram Ray

The most striking aspect of the farming crisis in India is that its severity is directly proportionate to the degree of integration with international trade and global markets

It is now well recognised, even by the government, that Indian agriculture is facing a serious crisis. Over 40,000 farmers are estimated to have committed suicide since 1997.

The reported incidents of farmer suicides represent just the tip of the iceberg called distress in the rural economy. For every case of reported farmer suicide, there are at least 100 farmers who have not committed suicide but who face similar or even worse economic conditions. However, the government, the media and many non-governmental organisations (NGOs), while constantly debating the tragedy of farmer suicides, do not engage with the larger issues of the disastrous predicament of the farm sector and/or the pain and suffering in rural areas.

Even official surveys now reveal that the average Indian farmer earns less than an unskilled daily wage worker. In other words, farmers have slipped to the bottom of the economic pyramid. Several villages in Maharashtra and Punjab have literally put themselves up for sale, and indebted farmers in some villages have opened ‘kidney sale centres’ in a desperate attempt to rid themselves of huge debts. Thousands of farmers have written to the President of India seeking his permission to commit suicide.

The most interesting aspect of the farming crisis, or farmer suicides, is that the severity of the crisis is directly proportionate to the degree of integration with international trade and global markets. Farmer suicides are happening mostly in the so-called ‘developed’ states of India -- Punjab, Maharashtra, Andhra Pradesh, Karnataka and Kerala. In these states, agriculture has become highly commercialised and hence vulnerable to volatilities in the international market. There has been no case of farmer suicide in the so-called ‘backward’ states of Uttar Pradesh, Bihar, Jharkhand, Orissa, West Bengal, and in the northeastern region.

The World Trade Organisation-driven (WTO) free trade regime in agriculture is widely regarded as the chief reason behind the widespread farming crisis and farmer suicides. As a result of the WTO, Indian farmers are unable to get remunerative prices for their agricultural produce in the export market. This is mainly due to the fact that global prices for most agricultural products are depressed.

Liberalisation of the Indian economy, introduced during the early-1990s, was initiated with a view to accelerating agricultural growth by ending discrimination against agriculture. The idea was to turn the terms of trade in favour of agriculture through a major, real devaluation of currency and an increase in the output prices of agriculture. During that period, the annual Economic Survey was in an upbeat mood, predicting substantial gains for India from increased agricultural exports running into billions of dollars.

Such exponential growth was expected to have a significant impact on poverty reduction and, thereby, a positive impact on the livelihood security of hundreds of millions of rural poor. Numerous studies have shown that the sector that has the most beneficial effect on poverty reduction is agriculture.

Agriculture is a major sector in India, accounting for 38% of Gross Domestic Product (GDP) in 1980, and declining but still remaining a significant 27% in 2000. It also accounted for 62% of employment as recently as 1998, and since then there has been no major decline. Consequently, any significant growth in agriculture is viewed not only as a means of achieving food security but also as a strategy to fulfil the broader goal of poverty eradication. After all, in a country that has over 600 million farmers, sustainable agriculture is the only way to provide viable livelihoods for a substantial section of the population.

Nearly 15 years after the ushering in of economic liberalisation, rather than experiencing unprecedented growth, the agriculture sector is in the grip of a severe crisis. This is reflected in a significant deceleration of growth rates in agriculture, both in terms of gross product and output. Within the crop sector alone, the growth rate of agricultural output decelerated to just 2.37% per annum during the 1990s, compared to a growth rate of 3.5% during the 1980s. This was the lowest growth achieved during any period. It has now slumped even further, reaching an abysmal 1.5% in 2004-05.

At a time when food production struggles to keep pace with population growth, farmers are being asked to diversify, produce crops that are suitable for export, and compete in the international market. With the promise of cheap food available off the shelf in the global market, the focus has shifted from agriculture to industry, trade and commerce, from small and marginal farmers to agri-processing companies. The WTO Agreement on Agriculture and other trade liberalisation measures have not only shifted the focus to export-oriented cash crop agriculture but also opened the door to cheap imports into developing countries.

India is no exception. Cheap food imports depress prices for domestic produce. Large-scale cash crop cultivation not only shifts land away from basic food production, it also leads to the concentration of land and resources in the hands of big farmers, landlords and private companies. This kind of agriculture also accelerates the depletion of the natural resource base. Meanwhile, the withdrawal of state subsidies and institutional support to agriculture has pushed up the cost of agricultural inputs and production.

All this has led to marginalisation, displacement, loss of land, and greater poverty among small farmers. Many small farmers have become daily wage workers, receiving low wages. Others have migrated to urban centres in search of menial jobs, often leaving an extra burden (of the farm as well as domestic work and the responsibility of looking after the family) on women. In other words, economic liberalisation is impacting not only food security at the household level but also the sustainability of livelihoods.

Over the past few years, ever since economic liberalisation became the development mantra, Kerala has been at the receiving end. Flooded with cheap and highly subsidised agricultural imports, its agrarian economy has been thrown out of gear. Whether it is the import of palm oil, rubber, coffee or spices, almost every aspect of the state’s socio-economy has been negatively impacted.

It is now a well-known fact that the European Union provides dairy farmers with a daily subsidy of US$ 2.7 per cow, the United States US$ 3 per cow, and Japan three times that: US$ 8 per cow. Meanwhile, half of India’s 1,000 million people live on less than US$ 2 a day.

Although the annual subsidies, amounting to over US$ 360 billion, given by countries belonging to the Organisation for Economic Cooperation and Development (OECD) to their farmers have remained intact, in one form or another India was forced to lower its tariffs and remove all quantitative restrictions by April 2001. With the result that imports of agricultural commodities have multiplied over the years. In the post-globalisation period between 1996-97 and 2003-04 imports increased by 375% in volume, and 300% in value terms. For an agrarian economy, importing food is like importing unemployment.

Coconut prices have crashed, rubber prices have plummeted and coffee prices have declined. Even spices have not been spared, with pepper prices falling steeply. The travails of the plantation sector in Kerala alone, in the era of globalisation, symbolise the tragedy of an unjust trade regime. Over a million people depend on tea plantations for their living. Of the 32 tea factories functioning in one of the popular tea-growing regions of the state -- Peermade taluka -- 18 have pulled down their shutters. Another 13 tea estates have been abandoned by their owners, leaving some 30,000 people jobless in the high ranges. India produces 850 million tonnes of tea annually; internal consumption amounts to 670 million tonnes. Until the WTO regime began, plantation products from Kerala -- tea, coffee, cardamom and pepper -- found excellent spice markets and earned considerable foreign exchange.

Kerala is not alone. The destructive fallout from the emerging global trade paradigm has been felt all over the country, though not in the same magnitude. Coffee plantations have laid off over 25% of their workers in the southern provinces of Karnataka and Tamil Nadu. More than 63% of edible oil, worth US$ 3.2 billion a year, is now imported. Ten years ago, India was almost self-sufficient in oilseed production. The lowering of tariffs has forced farmers to abandon the cultivation of oilseeds.

Not long ago, India recorded a spectacular increase both in area under oilseeds as well as output. Production doubled from 11 million tonnes in 1986-87 to around 22 million tonnes in 1994-95, justifying the term ‘yellow revolution’. The near self-sufficiency in edible oil was, however, not palatable to the economic pundits as well as so-called ‘market forces’. Whilst acknowledging that oilseeds had demonstrated a rate of growth that exceeded the national trend, the World Bank called for the discarding of policies that had brought about this positive change. The Bank’s argument was that India lacked a “comparative advantage” in oilseeds vis-a-vis production trends in the US and EU, and should, therefore, be importing edible oil. This, despite the known fact that the support prices paid to Indian groundnut and mustard-growers were less than the support prices paid to groundnut and mustard farmers in the US and Europe.

What the World Bank also did not acknowledge was that the selling price of India’s oilseeds per tonne was equivalent to the production cost of one tonne of oilseeds in the US. Moreover, production costs in the US would have been even higher if the massive subsidies it doles out to its farmers were to be withdrawn. In fact, it is the US that suffers from a “comparative disadvantage,” given the reality that its subsidies distort prices. The US and, more importantly, the EU should therefore be importing edible oil from India every year, given the latter’s advantage of cheap production costs.

Ignoring the ground realities, and blindly following the World Bank’s flawed prescription (under pressure, since India was restructuring its economy in accordance with the Structural Adjustment Programme), the country began the process of phased liberalisation of edible oil imports from 1994-95 onwards. This was at a time when edible oil-exporting countries like Malaysia, Indonesia and Brazil were preparing to flood the Indian market with palm and soya oil. Two years later, the negative consequences of liberalising the edible oil policy became clearly visible. With the country’s edible oil import bill soaring to nearly US$ 1 billion during 1996-97, it was the ministry of agriculture that finally pressed the panic button.

While wholesale prices of edible oil rose by an estimated 14%, production slackened. The only beneficiary of the government’s ‘disastrous’ policy was private trade, which imported sunflower oil and palmolein at approximately Rs 22,000 per tonne and, after blending it with groundnut and mustard oil, sold the mixture for Rs 38,000 per tonne. The free import regime benefited neither farmer nor consumer.

In a complete reversal of the objectives enshrined in the ongoing Technology Mission for Oilseeds, imports of vegetable oil rose three-fold between November 1998 and July 1999. Compared to the import of 1.02 million tonnes in 1997-98, imports multiplied to 2.98 million tonnes in 1999. In 1999-2000, India imported 5 million tonnes of edible oil, thus, once again, emerging as one of the biggest importers of edible oil in the world. In 2005, the import bill soared to $ 3.2 billion. Since most of the oilseeds grown in India are dryland crops, the adverse impact is being felt by millions of farmers languishing in harsh environs in the country. With their economic livelihood lost to edible oil imports, more and more oilseed-growers, particularly coconut farmers in Kerala, began to commit suicide.

India is one of the biggest producers of vegetables in the world. While nearly 40% of vegetables produced in the country rot because of post-harvest mismanagement, imports of vegetables have almost doubled in just one year -- from Rs 92.8 million in 2001-02 to Rs 171 million in 2002-03. Imports crossed 2.7 million tonnes, valued at Rs 480 million, in 2003-04. Ironically, what is being imported -- peas, potatoes, garlic, cashew, dates, gherkins -- are crops that the country has a surplus of, and a comparative advantage. But, while Indian exports are rejected on account of non-tariff barriers, imported vegetables flood the domestic market.

Brazil’s dispute with the US on cotton subsidies notwithstanding, the import of raw and waste cotton has also multiplied. In 2003-04, India imported 300,000 tonnes of cotton, valued at Rs 22,000 million, which constitutes roughly 9% of domestic production. Such heavy imports have depressed domestic prices, as a result of which farmers are forced to ‘distress sell’. Cotton prices have dipped by about 20%. No wonder that the majority of farmers who have committed suicide in Andhra Pradesh and Maharashtra are cotton-growers.

To understand the full impact of international trade on national food security, it is necessary to explore the internal dynamics and imperatives of globalisation on agriculture. Commercial farming is a double whammy. It preys on both producer and consumer by controlling the supply side as well as the demand side. On the one hand, it pushes small and marginal farmers out of business by dumping highly subsidised farm products and killing off domestic production. On the other hand, it facilitates profiteering by grain traders like Cargill that create artificial scarcities of food products through hoarding. For example, while Indian wheat producers were forced to sell their produce at Rs 500-600 per quintal last year, the same wheat was subsequently sold in the market at Rs 1,000-1,200 per quintal.

It is now an established fact that government subsidies to farmers in Western countries damage the livelihood of farmers in developing countries. A report by ActionAid says: “The subsidies have led to overproduction and dumping -- exporting at prices below the cost of production -- which is throwing small farmers in developing countries out of business.” The report, titled ‘Farmgate: The developmental impact of agricultural subsidies’, says rich countries are practising double standards: “Protection for the rich and the free play of market forces for the poor.” 

Industrially developed countries have put pressure on developing countries to reduce or eliminate subsidies, but have not done the same on home ground. Farm subsidies in the EU and the US have encouraged over-production, distorted trade and depressed prices: farm goods from these countries are made available in world markets at artificially low prices, resulting in the dumping of cheap, subsidised produce in poor countries.

For instance, each tonne of EU wheat is now sold in the international market at a price that is 41% below the cost of production, up from 33% in 1997. The EU has historically ensured that returns to its wheat farmers are artificially high, by using a combination of market price support -- including through intervention buying and export subsidies -- and direct payments.

In 2000, there was a sudden and dramatic increase in the volume of cheap, duty-free wheat flour imported by Kenya from Egypt, undercutting local prices by up to 50% and threatening the livelihood of about 500,000 Kenyan people dependent on wheat for their income. In 2000-01, the US and the EU together supplied Egypt with almost 4 million tonnes of the grain. Significant quantities of this were dumped. “There are strong suspicions,” says the ActionAid report, “that subsidised US and possibly EU wheat has been used to manufacture the flour in Egypt that has been sold to Kenya at cheap prices.”

Cheap wheat exports from the US to Nigeria have nearly doubled since 2000, and are having a detrimental impact on the country’s production of staple foods. Subsidised wheat coming into Bangladesh as food aid is also having a negative effect on local farmers. The Washington-based International Food Policy Research Institute says food aid helped undercut prices for local wheat producers, acting as a disincentive for the country to become more self-reliant and grow its own crops.

The Indian government’s decision to import wheat is the direct result of mismanagement of stocks and the failure to procure adequate quantities to maintain a buffer. The government deliberately reduced wheat procurement to cut its subsidy bill. Now, it will pay 50% more for imported wheat. The government has allowed private and multinational traders to play on the foodgrain market, and this has resulted in hoarding even as the Food Corporation of India has been unable to meet the demands of the Public Distribution System (PDS). At the same time, sharp increases in the prices of wheat, atta and bread have hit the Indian consumer hard without any benefit to Indian wheat producers.

(Parshuram Ray is director of the New Delhi-based Centre for Environment and Food Security)

InfoChange News & Features, February 2007