The grain of truth

India’s food security is under strain with the current neo-liberal policy prescriptions in agriculture

Sukumar Muralidharan Delhi

Village Tivaya, some 13 kms from Saharanpur in western Uttar Pradesh, is a site of agricultural practices that policy makers dearly wish, would be typical of India. Vijay Yadav, the largest landowner in the area, has just harvested his wheat crop for the year, but not sold a grain. “Prices are low,” he says, and he will reserve his harvest for sale around the time of Diwali. Wheat is a crop that Yadav is rapidly losing interest in. With currently ruling prices, he is assured of annual revenue of no more than Rs 1,000 for every bigha he sows with wheat. Sugarcane in contrast, yields him no less than Rs 7,000. There are of course, certain adverse factors associated with sugarcane, which requires year-round irrigation and allows for no other crop to be grown through a sowing cycle of three years. But with irrigation and electricity assured, Yadav does not feel unduly constrained by these factors.

Yadav’s is an atypical case. Rakesh Singh of Mahuari village in Sonbhadra district of eastern Uttar Pradesh has a rather different take. His harvest of wheat this year has been no less than before and with all the problems involved – high labour input, unreliable water and electricity – he has no option but to sow the crop. He also sees no alternative to making an immediate sale of his output at the harvest. “Farmers don’t have the means to hold their stocks for long,” he says, bringing a different perspective to the issue than his more prosperous counterpart in western U.P. The aadti or trading intermediary is the key figure he sells his produce to. Most of the poorer farmers, he says, incur a debt to the aadti during the slack season, which leaves them under compulsion to sell their produce right at the harvest, if not before.

Across the agrarian landscape of India, the rabi harvest has signalled changes that seem marginal, when viewed in their local contexts. But adding them up, there are unmistakable signs of a fundamental transformation that Indian agriculture is being primed for. Devender Singh of Khandwaya village in Bulandshahr reflects some of these changes. The land he sows with wheat has been steadily diminishing. The erratic supply of water and electricity does not make for a very settled environment in which to plan annual sowing. And dalit labourers who provided much of the inputs of hard work for sowing and harvesting wheat, have begun migrating in droves to nearby towns in search of industrial employment. Devender Singh too has no option but to sell to the aadti at the time of the harvest. Aside from the problems of tiding over the lean season, he depends upon this ubiquitous intermediary of the agricultural trade, for loans to buy essential inputs.

The salience of the aadti in the grain trade would suggest that the farmer is unlikely to be the principal beneficiary of the current buoyancy in wheat prices. Among farmers, there is an evident disappointment in certain quarters at being passed by in terms of the market processes. Referring to the Central Government’s still controversial decision to import wheat in large quantities this year, Dharam Raj Bhati of Murshadpur village in Gautam Budh Nagar, wonders why the high price being paid could not be offered to India’s farmers. If Rs 900 a quintal is the price that the government pays for imports, it defies reason that it should reserve a price of no more than Rs 700 for the country’s wheat growers. With little incentive to sell to the procurement and distribution arm of the government, the Food Corporation of India (FCI), the farmer has been enjoying the brief luxury of selling directly to private traders and millers at prices significantly higher than those notified for the procurement season.

Viewed from the other side of the marketing chain, the aadti also has ample grounds for complaint this season. Accustomed to a system of selling through official channels and obtaining a price notified in advance, the aadti has not quite been able to keep pace with the shifts in underlying market parameters. Indeed, this rabi season for the first time in several years, has seen a substantial drop in the importance of the official procurement agencies as a player during the harvest. In the first fortnight of the harvest, the private trade had bought up over a fifth of the market arrivals in Punjab and Haryana. Significantly, multinationals like Cargill and ITC Ltd were major buyers in the grain mandis of Khanna, Sonepat and Karnal.

At Hapur in Meerut district, the mandi itself wore an air of doleful inactivity when it should have been bustling with the noise and din of the trade. Mukesh Mittal is a pucca aadti, or an agent who buys grain directly from the cultivator. He has suffered a massive erosion of business this season. “I’ve not bought more than half of my usual volume this year,” he recounts rather unhappily. As a small trader with relatively little ability to take commercial risks, he cannot offer a price that is significantly different from the official procurement price. And this has been a season when cultivators have shown little interest in selling at that price.

Kailash Chand Tyagi, a kachcha aadti (or commission agent), has been watching the wheat trade at Hapur for four decades. He cannot recall a lean period quite like the current one through all these years. “Whatever little does come in,” he complains, is “smuggled out with the connivance of the mandi committee.” The pattern of market arrivals at the harvest, he suggests, augurs rather poorly for the consumer in the lean months to come. The wheat wholesale price he predicts, could well touch Rs 1,500 in the near future. And this would almost certainly involve higher retail prices and major hardships for the consumers.

Traders at the main consumption centres do not seem, as yet, to share the concerns of their counterparts at the primary marketing yards. A cross section of traders interviewed at Naya Bazar in Delhi, were unanimous in their view that they had sufficient stocks to tide over the next few months without undue price increases. The removal of the stock limits imposed in earlier years under the Essential Commodities Act, they say, is of little relevance to them, since they rarely approach the stipulated levels. The purpose of the policy change rather, has been to benefit the big trader and the corporate interest that is now entering the agriculture business in a big way.

These dispersed responses from the field convey between them, a story of transition, of agricultural practices and trading patterns being subtly altered to conform more rigorously to the rules of the free market. If the high politics of this transformation were to be considered, there was much in the response that Sharad Pawar, Minister for Food and Agriculture, delivered to a debate in both Houses of Parliament on the agrarian situation that underlined these points. The minister was facing considerable irritation and incomprehension from both the treasury and opposition benches over recent turns in policy. True, he said, the seeming bounty of official stockholdings of food grain had been whittled down to a figure below whatever might be deemed safe. True again, that this was necessitating the import of wheat in quantities not seen in decades. Yet none of this was cause for worry, since it was all part of the process of transition. Food imports, Pawar indicated, could well become a regular feature, if the government were intent on meeting basic welfare commitments. The earlier expedient of seeking imports in emergency situations was at an end. Amendments made to the agricultural marketing law were sinking in and farmers were using their newly-won freedom to sell to the private trade at the best price they could obtain. It would be a part of the process of transition, said Pawar, that a credible policy of imports and exports in the farm sector would soon be put in place. This was an unavoidable change that the prevailing international scenario called for.

Pawar also revealed the appalling statistic that over 100,000 farmers had been induced by economic distress, to end their lives between 1998 and 2006. The main cause of the epidemic of farm suicides, he suggested, was indebtedness, occasioned in turn by the collapse of the cooperative credit system in the rural sector. Economic distress meant that working capital loans and investment credit were being diverted into consumption. This in turn, trapped the small and medium farmer in an unending spiral of debt. With institutional credit also falling short of requirements, the recourse to unofficial sources – the village moneylender and mahajan – had increased enormously. Working in a completely unregulated environment, these agents often felt at liberty to charge extortionate rates of interest, leading the farmer down the slippery slope towards insolvency and the complete loss of assets.

As the month of May wears on and the harvesting of the winter crop nears its end, anxious eyes in the Indian countryside turn to the skies. As well-worn techniques of divining the weather are brought into play, minds would turn to what the monsoon has in store. The summer sowing, by far the more important for livelihoods in the farm sector, is still immensely dependent on the monsoon that breaks over India’s south-west coast on June 1.

Aggregate growth rates may not suffer unduly with a monsoon failure, but the harsh reality, which mostly remains obscure to those now revelling in the miracles of the “new economy”, is that every plunge in weather conditions – the last one being the drought of 2002 — results in crushed livelihoods, spiralling debt and a massive erosion of assets. Indeed, the economy only managed to ride out the last drought, because it held massive stocks of food grain that were pumped out through special welfare allocations and employment schemes. Ever since, because of the political pressure to attend to the burgeoning crisis in the countryside, the volume of grain issued for these schemes has kept increasing, despite more favourable weather conditions.

Paradoxically however, the drought year also witnessed a boom in food grain exports, from a moderate 4.6 million tonnes in 2001-02 to no less than 12.5 million. The following years have also seen significant quanta of exports. And the prudence of this policy has to be assessed against the fact that in most years, the price at which wheat is released for exports is well below that reserved for the poor among the domestic consumers. The same was the case with the “open market sales” that saw over 14 million tonnes of grain being dumped below economic cost, merely to relieve the central government of a part of the prohibitive costs of holding stocks.

It was a chastening wake-up call then, that the rabi harvest this year opened with an announcement by the government that India would be importing wheat in quantities unheard of since the so-called “Green Revolution”. First off, there was the official announcement that tenders would be floated for wheat imports of the order of 500,000 tonnes. This decision was made, ostensibly, as a tactical convenience. Wheat stocks were down and procuring wheat in the north-western regions of “Green Revolution” agriculture, for transfer to the demand centres of the south, would involve avoidable costs. The cause of economy, said the Agriculture Ministry, would be better served by importing wheat from Australia for the southern market.

The trickle soon turned into a torrent. It was soon put out that with production of wheat increasing sluggishly and procurement expected to be below par, essential stocks for a wide range of domestic needs would need to be imported. The Agriculture Ministry estimated a total input of 7.5 million tonnes of wheat as the basic requirement for shoring up the buffer. But by maximising efficiencies, the actual quantum could be restrained at a relatively modest level of 5.5 million tonnes.

Cereals of course are a perishable commodity and cannot be held in stock for indefinite periods of time. But considering that till just a few years back, the situation was to all appearances, one of an embarrassment of riches, the sudden descent to the parlous situation today, should occasion at least some questions.

The rabi harvest this year indeed, may represent the unravelling of an illusion that was assiduously constructed over the decade-and-a-half of liberalisation. Since the mid-1990s, when official procurement prices were sharply raised to at least partly offset an increase in fertiliser prices, holdings of food grain with the FCI have increased dramatically. Against a recommended buffer stock of 15.8 million tonnes of rice and wheat, which is the level at which the FCI would be optimally able to address essential welfare and employment commitments, the stockholding as of April 1, 2002, stood at 50.9 million tonnes. The effort to cut the fertiliser subsidy in other words, for all its partial success, had seamlessly been transformed into an explosion of the food subsidy.

In earlier years, food subsidy was primarily a consequence of the difference between the prices at which grain was procured and issued. The millennium ushered in a troubling new reality. The food subsidy bill borne by the central government by then was comprised, in the main, of the carrying costs of its vast food grain stocks.

The evidence is undeniable that the vast accumulation of food grain stocks in India was a consequence of a decided plunge in nutrition standards, especially in the rural areas. Two kinds of policy responses to this crisis of livelihoods in agriculture are evident. There has first been an effort to provide better price support, since this was the pattern followed through official channels right from the mid-1990s. Whatever may have been its immediate effect as a palliative for farm industry disgruntlement, its ultimate consequence was little else than an embarrassing explosion of food stocks with the government. With that accumulation of stocks now exhausted, the emphasis has evidently shifted to providing better market opportunities for the farmer through the liberalisation of trade. No longer will the government arrogate to itself the status of the privileged buyer of farm produce. The farmer indeed, would be free to determine where he disposes of his produce and at what price.

A second response has been the defensive, protectionist move. Indeed, early in April, Congress president Sonia Gandhi wrote to Prime Minister Manmohan Singh, urging that ongoing bilateral negotiations on possible free trade arrangements be put on hold. The farm sector, she pointed out, was going through an acute crisis. And the last thing the country needed was an influx of cheap imports – quite possibly subsidised by source country governments – that would deprive the Indian farmer of the few market opportunities he had.

It does not take very much knowledge of the Indian farm scene to identify both these responses as miserably inadequate. In the first place, price has not been a significant constraint for agriculture. Neither for that matter, has a major increase in imports been a concern. The problem rather has been a loss of assets, both ecological and physical, and diminishing autonomy for the farmer. Since structural adjustment kicked in as official policy in 1991, the decline in public investment in the agricultural sector – already a matter of some concern – has only accelerated.

Over the last decade-and-a-half, there has been a steep decline in the proportion of the central government’s budgetary outlays that go into agriculture to provide the broad orders of magnitude: in the late 1980s, roughly 1.3 percent of budgetary resources were devoted to agriculture, but by the early 2000s, the figure had fallen to a paltry 0.7 percent. A similar decline in budgetary outlays has been the case with industry too, though budgetary cutbacks in industry, unlike agriculture, could be made good by private initiatives. Indeed, gross capital formation in agriculture after a gradual decline over the years, began to fall rapidly in the 1990s. In the expert reading, the diminishing interest in agriculture has been impelled by the job in public investment. It is also fueled by the ethos of globalisation, which view stock market speculation as a worthy pursuit than investment in the land.

The steep fall in budgetary outlays, which has led the plunge in investment in agriculture, also aggravates the institutional crisis engendered by the loss of common property resources in the rural sector. At one time, the typical farmer could count on a number of inputs into his yearly labour being met through common property resources – water, soil replenishment, and pasture land for draught animals being the most obvious of these. Since the so-called “Green Revolution” kicked in, these resources have either fallen into disuse or been appropriated for the aggrandisement of the already well-aggrandised farmer. If the budget has been the key instrument through which the central government intervenes in these processes – which have been quite unambiguously to the detriment of the farmer – then the story of the decade-and-a-half of liberalization has been a sordid saga of default.

An issue which strictly speaking is outside the scope of the Budget is agricultural credit. Finance Ministers in the past though, have often spelt out policy guidelines on agricultural credit during their Budget speech. Over the decade-and-a-half of economic reforms, there have been concerns about the flow of credit to agriculture being far below requirement. Also there have been concerns in the recent past that the benefits of a low interest regime have not been passed on to agriculture.

Simultaneously, the other pillar of the centre’s policy on agriculture has also run its course. The food subsidy, as argued earlier, has been more a source of sustenance for the FCI than for the farmer. And the fertiliser subsidy, according to a report prepared by the Ministry of Finance in 2003, has been of greater benefit to the fertiliser industry than to the agricultural sector. If import parity prices were to be used as the benchmark, only about half of the total fertiliser subsidy borne by the government is the farmers’ share.

The picture that emerges is clear: subsidies have run their course as a useful instrument of food security and farm support. Manipulating price variable is no longer adequate, since subsidies are beginning now to serve quite the reverse functions that they were conceived to address. Neither does it serve any purpose to demonise the international trading system for the woes of Indian agriculture, since the influx of produce from abroad has never been of the magnitude that could cause agrarian distress in this country. The Indian agricultural sector today requires policy inputs of a fundamental sort, not the palliatives of protection. Issues of equity and productivity need to be re-examined, and the crisis of under-investment in agriculture frontally addressed. To stick to the discredited path of price supports and liberalised rules of market access for the farmers, would be to invite disaster.

With inputs from Sandeep Yadav and Amendra Pokharel