Cartels cause runaway food inflation. Break cartels if you want to honestly address inflation.

A typical organised vegetable and fruit market in India.  

Several years back, the late Nobel laureate Norman Borlaug had shared an interesting insight into the way Nobel prizes are awarded. At the peak of the solidarity movement in Poland, when Lech Walesa was leading a popular workers’ uprising, the Nobel prize committee decided to find out whether Lech Walesa deserved a Nobel Peace prize or not.

Borlaug told me that he was asked to lead a small team to Poland. After visiting a number of places, and meeting a cross-section of the stake-holders and others, he realized that the workers’ solidarity movement was actually fighting for cheaper food prices. But at no stage Walesa and other leaders of the popular movement showed any concern for the millions of farmers who were being asked to produce cheaper food for the workers. “What would happen to the livelihoods of those millions who produce food? If these farmers were expected to produce cheap food year after year, how would they and their families survive?”

For this reason alone, Borlaug said that Walesa didn’t deserve a Nobel Prize. But despite his team’s recommendation, the fact remains that Walesa was bestowed with Nobel Peace Prize.

Now you will ask me what has Lech Walesa’s Nobel Prize to do with the rising food inflation in India. Well, there is a strong correlation. There is hardly a day when I don’t find newspaper articles and comments on the need to do with the procurement prices to farmers. Corporate economists and free market lobbyists have been repeatedly telling us on the dire need to do away with the MSP for cereals like wheat and rice. The Commission for Agricultural Costs and Prices (CACP) too has been vociferously demanding the dismantling of the price support system for farmers, and letting the markets reign. 

So when the RBI governor Raghuram Rajan blamed the Agricultural Produce Market Committee (APMC) Act for the rising food prices, I wasn’t surprised. Unable to control the runaway inflation, propped up more by the rising food prices, the easier option is to shift the onus to the little understood role agricultural markets play in providing an assured price support to farmers.

At 7.2 per cent, the wholesale price index rose to its highest in the past 14 months ending November. The increase in inflation is being attributed mainly to the 15 per cent rise in food prices. Prices of vegetables had earlier shot up by 18.4 per cent in September, and the sharpest rise was seen in onion which had jumped by 323 per cent on a yearly basis. No sooner had the prices of onions come down the prices of eggs and meat has shot up. For the average consumers, rising food inflation is a more cruel form of indirect taxation.

Every year, the CACP recommends a minimum support price for about 24 crops. Out of these, primarily two cereal crops – wheat and rice – are procured by the Food Corporation of India (FCI) and on its behalf by some State agencies. This serves two purposes. First, the foodgrains that are procured by FCI serve as a buffer stock against any emergency and at the same time helps in meeting the food security needs of the poor. Whatever grain that comes into the mandis is first made available to the private trade to buy. It’s only when there are no buyers left that the FCI steps in to purchase it at the support price announced by the government, which in reality becomes an assured price for farmers.

What is little known is that only 30 per cent of the Indian farmers get the benefit of procurement prices. These are the farmers who have a marketable surplus which they are able to bring it to the nearest mandi. It is only in Punjab, Haryana, and parts of Uttar Pradesh, Maharashtra, Andhra Pradesh and Tamil Nadu (and now of course Madhya Pradesh) that a strong network of mandis operates. In the remaining 70 per cent of the country, farmers have to depend upon the private trade. And it is in these areas that farmers are ruthlessly exploited. For instance, while the paddy farmers in Punjab get an MSP of Rs 1310 per quintal, his counterpart in Bihar, where the private trade dominates, is able to sell at a distress price of around Rs 800 per quintal. Withdrawing price support for Punjab farmers will automatically bring them down to the level of Bihar farmers.  

A second explanation is that it is primarily because the farmer is not able to sell his produce directly to the trader (and routes it through the APMC mandi) that he doesn’t get a better price. This is an absurd argument considering that 70 per cent farmers have no access to mandisand therefore do not fall under the APMC Act. Isn’t it time to ascertain why the prices of cereals/vegetable/fruits are ruling high in areas where the farmers do not get the benefit of procurement prices? And as I said earlier, 70 per cent farmers are outside the ambit of the procurement system.

Not only vegetables, prices of egg and milk have also been on upswing. More recently, prices of eggs has shot up in Mumbai market to about Rs 60 per dozen. Milk prices too have been steadily rising. Since APMC Act has nothing to do with eggs and milk, why are the prices rising? The organized retail units like Reliance Fresh, Big Bazaar, Metro are allowed to purchase directly from farmers. Why these retail chains were unable to supply onions for instance at a cheaper price? Similarly, if I may be allowed to cite an example of a non-food sector, why are the air fares of airlines going up. You click three times on an air route and ticket price goes up. It is cheaper to fly to Bangkok and Kuwait than to go from Delhi to Goa.

The answer is simple. Whether it is food, egg prices or airline tickets, prices are being freely manipulated by strong cartels. In case of onions too, a very powerful cartel of a handful of traders had made a killing when there was only a 4.8 per cent shortfall in production. The APMC too is riddled with cartels. As past experience shows, even organized retail chains form cartels. Replacing one set of middlemen therefore with another is not the answer. The answer lies in breaking these cartels. 

Source: Cartels cause runaway inflation. DNA Mumbai, Dec 30, 2013.

dnai.in/bXsg 

Agriculture was the saviour of Indian economy in 2013. But farmers live in misery. Will 2014 be the Year of Aam Kisan ?

With a bountiful monsoon, and a record foodgrain production, agriculture has been the savior of the Indian economy in 2013. At a time when there is an all around doom and gloom -- industrial output failing to keep pace, manufacturing sector refusing to look up, joblessness growing, fiscal deficit mounted and the current account deficit grew to a worrisome level -- it was only agriculture that provided a glimmer of hope.

Foodgrain stocks of wheat and rice soared to an all time high of 823 lakh tonnes. Grain exports increased to 200 lakh tonnes. India emerged as the world’s biggest exporter of rice, and the farm exports zoomed exponentially. While the value of India’s farm exports has nearly doubled from around Rs 12,000-crore in 2010-11 to Rs 20,000-crore in 2012-13, it is primarily because of meat exports. Basmati exports too have increased and farmers have realized a much better price this year.

But that is where the brightness ends. For the 60-crore farmers 2013 has been like any other year. Every time when the dawn of the New Year strikes, there is an expectation of a better year for the annadata, but I have seen their plight worsening with each passing year. The year that has gone into history was no exception. In fact, at a time when the government employees have been promised a further pay rise from the 7^th Pay Commission, farmers remain at the bottom of the pile, neglected and forgotten. On an average, 2,500 farmers quit farming every day to join the army of landless workers.

With farm production looking up, and with no indication of any supply constraints, 2013 also witnessed an unusually high food inflation. With the Wholesale Price Index inflation of 7.4 per cent, and with Consumer Price Index remaining in double digits for most part of the year, all explanations to assuage the rising anger of the consumers failed. Reflected in the overwhelming debacle of the ruling party in the recently concluded State Assembly elections, failure to check runaway inflation cost the ruling party dear.

In fact, inflation dealt a big double-whammy. With a massive trade deficit of over $ 203.6 billion hovering on the horizon and a rising fiscal deficit, the government’s scissor fell on the employment programmes, along with rural infrastructure and agricultural investments. With joblessness growing and the policy thrust on reducing subsidies for the poor and needy, the number of poor in absolute terms has been increasing. By reducing the poverty line to Rs 28 in urban areas, and Rs 24 in rural areas, the government can play around with figures but the fact remains poverty is on an upswing.

The enactment of the Food Security Act ensuring a monthly entitlement of 5 kg of rice/wheat/millets to 67 per cent of the population or 830 million people is primarily aimed at offsetting the additional burden of the unprecedented price rise. The laudable objective of providing a legal entitlement of foodgrains every month without making adequate investments in agriculture clearly shows that the annadata will continue to go to bed hungry. Food security requirements can be met by food imports, and given the emphasis on land acquisition for the industry, real estate and highways, the task of producing food for the population will become more and more difficult. Already there are indications that India will turn into an importer of rice in the next three years.

From a high of 9.3 per cent two years ago, the GDP has fallen to less than 5 per cent in 2013. With agriculture growth expected to provide a push to GDP in 2013-14 financial year, the deceleration in growth is because of the poor performance of the industry and manufacturing sectors. At a time when non-performing assets of public sector banks have grown to Rs 6 lakh crore plus despite a tax exemption of Rs 5.73 lakh crores provided in 2013 budget, the fact remains that the Indian Corporates are slush with money. It only points to the poor performance of these sectors, and the tax exemptions coming in handy to add on to assets/profits. 

A Planning Commission report released early this year underlines the contradictions in India’s growth story. At a time when GDP was galloping at 8-9 per cent between 2005 and 2010, the report shows 140 lakh people were displaced from agriculture. Generally it is believed that those who quit agriculture would be joining the workforce in the manufacturing sector. But the report showed that even in the manufacturing sector 57 lakh jobs were lost. A clear pointer to the jobless growth the country is witnessing.

Nothing has changed in 2013 to bring back the focus on creating employment. Let’s be very clear. More investments do not necessarily lead to more jobs. With the new land acquisition law coming into force, more people would be driven out of their meager land holdings and left to migrate to the cities looking for menial jobs. Agriculture too will not be able to sustain its role as the biggest employer in the country given the push to bring in corporate agriculture linked to foreign direct investment in multi-brand retail. #   

India a major destination for global land sharks.

Following Prime Minister Manmohan Singh invitation to China to set up special economic zones and industrial parks in India, a high-level official delegation from Haryana organised a seminar at the 5th China Overseas Investment Fair held in Beijing in early December, offering land, power and other necessary infrastructure for setting up industrial parks. 

While the prime minister is expecting Chinese foreign direct investment to boost manufacturing output, already sluggish because of surging cheaper imports from China, Haryana is going all out to woo Chinese companies to buy farmland. It has already taken around some potential Chinese investors and shown them sites extending to as much as 6,000 acres in Gohana. Not only Haryana, Chinese investors have also visited Uttar Pradesh, Gujarat, Maharashtra and Tamil Nadu looking for probable sites.

Haryana already has signed an agreement with the Japanese major Mitsui to set up an industrial park in the national capital region. Haryana is no exception. Foreign companies from Britain, US, Austria and Thailand have concluded 36 deals to buy agricultural land in India in the states of Gujarat, Orissa, West Bengal and Andhra Pradesh. Seven of these deals have already been completed allowing 13,105 hectares to be acquired. This much land acquisition is only for seven deals. Imagine the extent of productive and fertile land that needs to be acquired for all the 36 deals in the pipeline.

These figures are based on an excellent detailed insight provided by the website, Land Matrix. Interestingly, the Chinese investors are being offered land for ‘purchase’ and they will have the right to re-sell the land. With more and more Chinese investments pouring in, it is time to also revisit strategic ties with China. After all, with lakhs of soldiers deployed in harsh terrain to guard the 3,380 km long Line of Control with China, of which Arunachal Pradesh alone has a common border extending to 1,463 km, the thrust is to protect every inch of land against Chinese intrusion. This policy of protecting national borders certainly needs a review considering that the Chinese are being allowed to purchase land within the country. But will Beijing ever allow Indian companies to buy such huge tracts of farmland in China?

Nevertheless, coming back to the contentious issue of farmland grab, I remember some years ago, the deputy chairman of the Planning Commission, Montek Singh Ahluwalia, had on a visit to Oman, invited Omani firms to farm in India to produce crops that can be exported. At a time when food prices have hit the roof and any measure to limit domestic production should raise concerns considering the growing food requirement for feeding the nation in the years to come, the public policy priorities seem out of tune.

So far you had read that Indian companies were buying land in Africa, Asia and South America. Of the 848 land grab deals concluded globally since 2008, 80 involve Indian companies that have invested in 65 deals to grow foodgrains, sugarcane, oilseeds, tea and flowers. And as a news report computed, India has already bought land abroad nine times the size of Delhi.

While Indian companies are buying land abroad, foreign companies are buying land in India. That India has now turned a major destination for global land sharks has to be viewed with concern. At this rate the day is not far off when increasingly more and more people will become landless in their own country. The US National Academy of Science calls it ‘a new form of colonialism’ while mainline economists term it as a model of economic growth. However, the fact remains that land grab has become a major investment activity over the past few years. This is frightening as it has grave human rights implications, and will impact global food security to say the least. It calls for a national debate. 

Source: Dangerous trend: India a major destination for global land sharks.        

Hindustan Times, Dec 23, 2013.  bit.ly/1dx6JGC 

Source

Bali WTO Ministerial has only postponed the problem relating to India's food security: My interview

1    

                                           Farmers protesting at a WTO Ministerial

   

      Question:  After the conclusion of Bali Summit, what comes in India hands. How does it affect Indian agriculture sectors and overall economy at large?

Answer: India has only managed to postpone the problem relating to price support for the farmers. Bali Ministerial has allowed an interim Peace Clause which will ensure that no country is able to take India to the WTO Dispute Settlement mechanism till a permanent solution is found. In my understanding this is a lost opportunity. Already the issue of agriculture subsidies in developing countries has been on the negotiating table for eight years. It was therefore crucial for India to push for a permanent solution instead of postponing it effectively for another four years. 

India has breached the maximum quantum of agricultural subsidies allowed for developing countries under the WTO. Under the Agreement on Agriculture, India is allowed a maximum of 10 per cent of what is called ‘e-minimis support in agriculture. This means that the procurement price cannot exceed 10 per cent of the value of the particular crop, treating the 1986-88 prices as the reference period. For instance, in case of rice, against the 10 per cent allowed, India is already providing 24 per cent price support to farmers. This has implications for the livelihood security for India’s 600 million farmers. The issue should have been discussed and finalized once for all. India cannot afford to reduce the procurement prices for farmers. The future of India’s 600 million farmers and 830 million hungry to benefit from food security law cannot be compromised for the sake of future of WTO.

 

2    Q: At the global level, what is the impact of WTO deal on various aspects of economy, like infrastructure spending on agriculture and job creation?

      A: We have just witnessed a nationwide protest by sugarcane farmers. While two farmers died, these farmers were protesting against the low sugarcane prices being paid by sugar mills. Imagine a situation where under the WTO dictat the procurement price for wheat and rice farmers is reduced by 50 per cent. The procurement price for rice at present is Rs 1310 per quintal. If it was to be reduced to ensure 10 per cent level from 1986-88 period, rice farmers should be paid a maximum of Rs 600 per quintal. Such a drastic reduction in farm income will create an unprecedented social and political crisis for the government. This is in turn will make farming highly uneconomical forcing farmers to either commit suicide in hordes or to quit agriculture. There can be nothing more catastrophic than the WTO ruling that binds procurement prices to a level that is outdated.

      Cutting down procurement prices will hit food self-sufficiency built assiduously over the past four decades following Green Revolution. This would mean that India will have to once again go back to the days when food would come directly from the ship into hungry mouths. Those years before the Green Revolution was launched in the late 1960s, India was called a country living in ‘ship-to-mouth’ existence.

      Q: What is your opinion on the trade facilitation services, which aims to brings transparency, lowering down the transaction cost, clearing goods and services at ports/airports by a faster pace?

      A: Trade facilitation agreement essentially benefits the multinational and big business of the rich and developed countries. This was being aggressively pushed by the US/EU since clearing goods and services at the ports would enable business and trade of rich countries to operate flawlessly. It however does not benefit the developing and least developed countries since the rich and industrialized countries do not have to make any commitments. Here again India has lost an opportunity to simultaneously push for more liberalized regime for the movement of skilled labour into the rich countries. Trade facilitation negotiations could have been easily tied with the demand for opening up for India’s skilled manpower not only in information technology but also in other service sectors, medicine, education and sciences.

WTO’s analysis is that trade facilitation would bring in a windfall gain of $ 1 trillion to the world economy. This is an highly exaggerated and inflated figure So far, all the claims of enhanced trade and the boost to the global economy that was projected under WTO have turned to be false. If global trade was so beneficial I don’t see why the global economy continues to be in a slump, with unemployment creating massive political problems in US and EU. The economic gains therefore were fake, and only aimed at luring developing countries to sign on the dotted line. Even the $ 1 trillion figure has now been challenged by Tufts University in America.What is equally important is that India could have also projected the gains arising from increased movement of skilled labour to the global economy as well as to the Indian economy. 

Q: How do the rich countries subsidise their agriculture. What does it mean and where does India stands under this purview?

A: It’s a case of double standards for the rich and developed countries. US provided $ 130 billion support for agriculture in 2012. European Union provided roughly Euro 90 billion support in the same year. Most of these subsidies are protected in the Green Box, which cannot be challenged in WTO. Over the years, the developed countries have only shuffled subsidies from one box to another like a magician and since countries like India did not object, these massive farm subsidies in America and European Union remained sacrosanct. In European Union, farmers get subsidy when they enter into agriculture. They get subsidies for keeping animals like cow and horses, for protection of biodiversity and environment, for machinery, and when they retire at the age of 55, they still get subsidy. These subsidies cannot be challenged.

In America, let us take the example of cotton subsidies. There are 20,000 cotton growers in America. According to a study I did in 2005-06, America produced a cotton crop valued at $4 billion iin 2005. It paid a subsidy (including direct income support) to farmers to the tune of $4.7 billion. In addition, America had paid a subsidy of $187 million to its textile industry to buy subsidized cotton from farmers. Such heavy subsidization of cotton results in international prices coming down by about 45 per cent as a result of which cotton farmers in India appear to be inefficient, and they commit suicide. 

Q: At current level how much food subsidies are given by developed and developing countries and how does the shape of subsidy changes after this deal?

A: In case of food subsidies, America provides 385 kg of food support every year (including cereals/grains) to its 47 million hungry people, under food stamp, mid-day meal programme etc. In 2012, it’s food subsidy bill stood at $100 billion, up from $90 billion in 2010. Against this, India promises to provide 60 kg of wheat/rice/millets to its 830 million hungry. The total financial outlay for food security in India is about $20 billion or Rs 1.25 lakh crore. The US is objecting to India’s food subsidy but has no problem with its own food subsidy which is five times more than India. 

Q: Has the Bali Ministerial made an effort to correct the imbalance in the treatment of subsidies?

      No, it has failed to resolve the issue. It has failed miserably to correct the imbalance. I will blame India for its failure to aggressively pursue for justice in the WTO. While US/EU have nothing to worry from their high levels of subsidy support, a sword will continue to hang over India in the years to come. This is a great failure on the part of India whose only objective at Bali Ministerial was to somehow seek smooth passage before the 2014 elections. The next government is left to face the music.# 

      Further reading: Here is the Hindi version of this interview, in Business Bhaskar, Dec 19, 2013. 

भारत के मुकाबले पांच गुना सब्सिडी दे रहा है अमेरिका 

http://business.bhaskar.com/article/BIZ-u-4468331-NOR.html

2013 Assembly Elections: It's a Verdict Against Economic Policies.

Sonia Gandhi thinks that failure to stymied corruption and check rising inflation cost the Congress party dearly in the state elections. Media analysts opine that the dominant Narendra Modi factor resulting in a 4-0 tally for the BJP actually catapulted stock markets to rally high. Markets love strong and powerful leadership.

But there is more to the 2013 elections than what is being seen on the horizon. The dramatic turnaround by the Aam Aadmi Party (AAP) to the electoral fortunes of the Congress in Delhi, and at the same time the decimation of the Congress in Rajasthan, Madhya Pradesh and to some extent in Chhatisgarh shows that the verdict was not only against corruption and inflation, but was more or less aimed at the overall flawed economic policies that the UPA has been aggressively pursuing for nearly a decade now. Big ticket corruption and inflation were merely a symbol of the growing inequality and economic injustice that people were fed up with.

After the 2009 Lok Sabha election results poured in I remember media pundits talking of the maturity of the Indian voters. They ascribed the returning back to power of the UPA to the widespread appreciation that people have for the market-friendly economic policies. Soon after UPA-II was back in saddle, it shifted its focus back to the GDP-centric growth model. Instead of focusing on the human capital, social capital and on natural capital, the ruling party was gung-ho on financial capital and ruthlessly pushed for more market reforms, which in simple words means more privatization.

This resulted in a massive land grab across the country, and also usurping of the natural resources that impacted the livelihoods of millions of people in the rural areas. While rural India witnessed a thousand mutinies every week, with a significant proportion of the people being forcibly displaced from their meager land holding, their only economic security, those who sat on the TV channels mistakenly considered this as a small collateral damage in the path towards development and growth.

The ‘tyranny’ of the markets as Pope Francis now calls it, actually witnessed food, shelter and education going beyond the means of the aam aadmi. While more and more people were being pushed out of agriculture every passing day, growing unemployment and under- employment had pushed the poor to the wall. Rampant mining of resources in Jharkhand, Orissa and Chhatisgarh had made life miserable for the locals. Migrating to the cities, these millions were being systematically uprooted with slums being gradually being demolished. Pushed out of the villages, and then being driven out of the cities, what do you expect these people to do? They can only exercise their vote to express their anger.

While the media pundits went on repeating ad nauseam that a higher growth was necessary for providing more employment and removing poverty, the reality was just the opposite. Between 2005-2009, a Planning Commission sponsored study showed that when the growth was over 8 per cent per annum, more than 140 lakh people were driven out of agriculture; and an additional 53 lakh people had lost their job in the manufacturing sector. In other words, while the GDP was on an upswing, unemployment too was rapidly growing. Studies have shown when GDP was 3 per cent, employment in the organized sector grew at 2 per cent. But when GDP grew at 7 per cent and more, employment fell to 1 per cent. Let’s be therefore clear. India is staring at jobless growth.

The thrust to reduce mounting fiscal deficit to 4.8 per cent of the GDP also had pushed for flawed economic initiatives that hurt the aam aadmi most. Again, pushed for by the media pundits and corporate economists on the TV channels, the emphasis was on doing away with subsidies for the poor. Calling it a wasteful expenditure, these economists had relentlessly campaigned for doing away with subsidies on petrol, diesel, LPG and even on food security. Withdrawal of fuel subsidies had a cascading effect on market prices, which burnt a hole in the pockets. This was completely unwarranted, as I had been saying. The reason is simple. Instead of taxing the poor, the better option would have been to withdraw the tax concessions of Rs 5.73 lakh crore that were given to corporate Indian in the 2013-14 financial budget.  This alone could have wiped out the fiscal deficit thereby enabling the poor to escape the bolt of price hike.

In Madhya Pradesh and Chhatisgarh, what made people vote back the BJP into power was simply because the governments had very systematically launched social security measures that benefitted various sections of the society reducing the killing impact of the market economy. For instance, Chhatisgarh had laid out a very effective and well-maintained food security system that had insulated the bottom of the pyramid from food shocks. Chief Minister Raman Singh had ensured that it worked. In Madhya Pradesh, I must say that Shivraj Singh Chauhan had for some years now seen the writing on the wall and shifted the focus to agriculture. He provided an additional bonus to farmers providing more income into their hands, which in turn catapulted the State to emerge second on the agriculture map of India.

There is more to be done if the BJP has to sustain the momentum. At the same time, let’s be very clear. Following the same flawed growth-centric economic model will not take the BJP far. People have voted for BJP for two reasons: one, they didn’t have any other alternative (except for Delhi) and secondly, the anger is against the unjust economic policies. If the party fails to read the widespread discontent that prevails, visible more through the anger and frustration against corruption and inflation, the aam aadmi now knows there is a political alternative on the horizon. The emergence of AAP clearly shows that the vote is for sensible economics that benefits larger section of the public.

The continuing loot of resources – natural, social and human – in the name of growth must stop. This is the strong underlying message.  People are no longer impressed with high GDP figures anymore. They want food for all, health for all and education for all. 

Why food prices go up before the elections?

Sudden spike in onion prices for no apparent reason? 

It has come as a rude shock. After the unimaginable drubbing in the State elections, Congress party now realizes the folly it made in not controlling food inflation. Sonia Gandhi has admitted that rising inflation has been instrumental in building peoples’ anger against the ruling party.

They had taken it rather casually. Remember Agriculture Minister Sharad Pawar expressing his helplessness at rising prices. He said he didn’t know why the onion prices were rising. Instead of initiating tough measures, Delhi Chief Minister Sheila Dixit had pleaded with folded hands before hoarders and black marketeers not to raise the prices at the time of elections. Prime Minister Manmohan Singh had very conveniently blamed the global economic for the spirally prices in India. 

Onion prices were on boil. So were the prices of other seasonal vegetables. Ginger and Garlic selling for Rs 100 per kg, Peas at Rs 120/kg, Cauliflower at Rs 80/kg and even spinach sold at Rs 60 per kg. In fact, no other vegetable was available in the market for less than Rs 40/kg. Such high price prevailed when the monsoon rains had been more than bountiful, and there was no shortfall in production, defied all economic logic.

Let us not forget, prior to elections onion prices had remained abnormally high for several months – from July to mid-November, and had started receding just when the election process had begun. The question that needs to be therefore asked is that why inflation invariably spikes before elections? 

In early December, onion prices had crashed. According to a report in Economic Times (Dec 13, 2013) prices had halved to Rs 13/kg in three weeks in western markets. The report says that prices had stubbornly refused to come down before the assembly elections even when the supply was marginally low. If you have followed my earlier blogs, I had been saying that production fell by only 4 per cent whereas prices had gone up by 600 per cent in various markets. 

Well, the answer is not difficult to find. Over the years, the wholesale and retail trade in fruits and vegetables has monopolized the entire supply chain. Right from procuring vegetables from the farmers to making it available at your doorsteps through a network of hawkers is now an organized business. As I have been saying, these traders or arhtiyas have now turned into money bags for the political parties. No wonder, these wholesale and retail traders are affiliated to one political party or the other. For instance, the Azadpur mandi traders association in Delhi is aligned to the ruling Congress party. In Punjab, on the other hand the traders associations predominantly back the ruling SAD-BJP combine.

It is primarily for this reason that the major political parties had opposed bringing the parties under the Right to Information (RTI) Act. It is therefore a matter of convenience for both the political parties as well as the traders association. While the government remains conspicuously indifferent by not initiating any strong action against hoarding and manipulative trade practices, the trade goes for a killing. This understanding helps the political parties to meet a considerable part of the heavy electoral expenses.

Otherwise I see no reason why the vegetable prices should zoom prior to every elections. Onion prices were no exception. An investigation by a newspaper showed how the trade made a neat Rs 150-crore in just four days when prices peaked at Rs 4,500/quintal on Aug 13.  A sting operation by another TV channel exposed traders hoarding huge stocks in Madhya Pradesh. Even when the prices were touching the sky, the Agriculture Produce Marketing Committee (APMC) in Nasik had acknowledged that more than 2.5 lakh tonnes of onion were available with farmers in 66 villages of Lasalgaon. 

Subsequently, another expose by NewsX TV channel had shown that farmers had got as low as 0.50 paise per kg in Maharashtra while the price consumer paid was Rs 100/kg. Who benefited from such a massive manipulation? Your guess is as good as mine. 

Read it's Hindi version in Rajasthan Patrika, Dec 14, 2013.
http://epaper.patrika.com/c/2064129

Are sugarcane farmers at the mercy of sugar mills ?

For the time being, it seems the continuing impasse over sugarcane prices is over. With Uttar Pradesh government agreeing to dole out a financial package to the private sugar industry, and the Maharashtra government reaching out an agreement over the prices to be paid to protesting farmers, the already delayed crushing season is beginning to start.

But with two farmers committing suicide, one in Lakhimpur in Uttar Pradesh and another in Belgaum in Karnataka in the past few days, and farmers still protesting in several parts of the country, it is not all that sweet on the sugar front. A high price for sugarcane last year had brought in more area under the crop, and with a bumper harvest expected this year, the farmers feel let down for not being paid an adequately remunerative price. The sugar mills, sitting on a very comfortable buffer stock of sugar this year, found it the right time to form a cartel seeking more financial support as well as increasing its bottom line by refusing to pay a higher price to growers.

The threat paid. 

The Indian Sugar Mills Association has first declined the Uttar Pradesh government’s offer to set-up a high level panel to look into linking cane and sugar prices. But eventually walked away with a Rs 800-crore plus package. Aware of the face-off, the UPA Govt has finally asked Agriculture Minister Sharad Pawar to resolve the stalemate by inviting all stake holders as well as the Chief Minister of Uttar Pradesh and Maharashtra on Dec 6.  With Sharad Pawar’s interest in sugar well-known I don’t know how a meaningful solution is expected. In fact, it is because of the faulty government interventions all these years that the crisis has taken a cyclic route, emerging once in every four to five years. 

The question that I am being repeatedly asked is whether farmers are justified in demanding a higher price. Yes, farmers are within their legitimate rights to ask for a higher price for their produce. After all, if Government employees can get DA linked to inflation every six months, and after every few years get the benefit of another pay commission, the farmers too deserve to get an assured economic price linked to inflation for their crops. Farmers alone cannot be expected to carry on with the burden of providing cheaper sugar to the consumers.

Sugar mills on the other hand are defiant. 76 of the 99 private sugar mills in Uttar Pradesh had given a suspension notice to the State Government. Private sugar mills in Maharashtra and Karnataka too had refused to operate. The mills stand is that they are not in a position to pay more than Rs 225 per quintal as the cane price, which is Rs 55 less than the State Advised Price in Uttar Pradesh. Agitating farmers are demanding Rs 300 per quintal. In Maharashtra, sugar mills had first offered to pay only Rs 240 per quintal against the demand of Rs 300. But finally, as part of the agreement reached with farmers mills accepted Rs 265 per quintal as the price to be paid in two installments.

Before we go into the specific case of sugarcane prices, let us first look at the economics of agriculture in general. Several studies have shown that farmers as a class fall in the lowest category of income slab in the country. The Ministry of Agriculture has acknowledged in Parliament that the average monthly income of a farming family is less than Rs 2,400 per month. This is less than what we in the cities pay to our maid servants. Isn't it a travesty of justice to know that the person who produces food for the country -- annadata -- himself lives in poverty and hunger?

It shouldn’t shock people to know that roughly about 60 per cent of the daily wage workers under MNREGA are actually land owners.  

Sugarcane farmers are no exception. Except for some big farmers, most of the cane growers are small farmers whose livelihood depends upon sugarcane alone. Let's not forget that unlike wheat and paddy, sugarcane is an annual crop. Farmers wait for a year to get a remunerative price. The one-time payment they receive for the sugarcane crop runs their families expenses throughout the year. Often they are not paid for months if not years. In Uttar Pradesh alone, cane arrears stand at Rs 2,400-crores. And when sugar mills across the country form a cartel and refuse to pay a remunerative price, what do you expect the farmers to do? 

Sugar industry cites the crumbling economics. Many believe that it is high time that the book-keeping by the industry is brought under a scanner. I am not saying that the sugar mills are indulging in unfair practices but it is certainly important to find out how come the mills are paying dividends when they claim to be running in losses? How come the personal assets of the owners are growing while the mills are sliding into red? How come the sugar mills, which I consider to be amongst the most pampered of the Indian industry, should be showing losses despite receiving inter-free loans, export subsidies and generous financial packages and exemptions?  

In March, when the Central Government had partially decontrolled sugar, which means the mills are no longer forced to sell 10 per cent of their produce at low prices to meet the requirement of the public distribution system, in an article in Tehelka (Bitter Politics of Sugar, April 20, 2013) I had said that the stocks of “cash-starved” sugar mills like Shree Renuka Sugars, Balrampur Chini Mills, Dhampur Sugar mills, Sakthi Sugars, Bajaj Hindustan and others had rallied high. In any case, the sugar mills benefitted to the tune of Rs 2,700-crore from the abolition of levy sugar quota. All that the government had done was to free the sugar mills of the burden, and taken the liability on itself. With an additional bounty of Rs 2,700-crore, I see no reason why the mills were unable to pay a better price to cane growers. 

The fault lies in the reluctance of mills in not modernizing and diversifying. Not only sugar that each mill produces, there are more than 24 byproducts which can be produced commercially, including ethanol and methanol. Why haven’t the private mills been able to make adequate investments into utilizing the byproducts? You can’t blame the farmers for that. Former Agriculture Minister Som Pal says each mill with a minimum crushing capacity of 2,500 tonnes should be able to generate 12 MW power. Using 3 MW for own consumption, at least a sugar mill should be able to sell 9MW to the grid.

Now take a look at an exhaustive study done by Dr T N Prakash of the University of Agricultural Sciences in Bangalore. His analysis shows how the contribution of farmers in the sugar economy is being deliberately underplayed. On an average, one tonne of sugarcane produces 100 kg sugar, 150 units of electricity and about 35 litres of alcohol (and I am not including other byproducts). Market values of these manufactured products exceed Rs 40,000. Aren't the farmers therefore justified in demanding even 10 per cent of the market value of what they produce? At Rs 280 per quintal that has been promised in Uttar Pradesh, are the farmers not being underpaid?  In any case, 85 per cent of the price they get has already been incurred on growing sugarcane. Where is the farmers fault if the sugar mills are not running efficiently? 

The mills can certainly pay. They have only formed a cartel to pressurize the state governments to pay a lower price to farmers. This will be suicidal for the sugarcane farmers’ as well as for the long-term viability of the mills itself. Leaving it to mills to determine the cane prices will lead to exploitation and further reduction in farmers’ income. The option before the Central government therefore is to reject the recommendations of the Rangarajan committee, and continue with the practice of fixing sugar cane prices for farmers.