When will Indian agriculture become economically viable?

Speaking after inaugurating the 166-km-long four-lane-road project at Kaithal in Haryana the other day, Prime Minister Narendra Modi promised to turn farming profitable ushering in prosperity for farmers and at the same time result in overflowing foodgrain godowns.

Coming at a time when agriculture continues to reel under a terrible agrarian crisis, when an estimated 60 per cent farmers go to bed hungry, and at a time when close to 10-lakh farmers abandon agriculture and trudge into the cities looking for menial jobs every year, the promise to make farming economically viable is like a blessing from the heavens. For the 600 million farmers, somehow surviving against all odds, there can be nothing more cheerful. But will this really happen? 

Successive governments have only added on to the farm woes by continuous neglect and apathy. Going by the mainline economic prescription of cutting down drastically the population engaged in agriculture to boost economic growth, the policy thrust has been to push farmers out of agriculture. Creating economic despair, and hand over precious natural resources, including fertile land, for non-farming purposes therefore became an easy route. Perhaps the Prime Minister will see through the folly, and reverse the trend to ensure that the benefits of economic growth are judiciously and equitably distributed. India has the ability to chart out an economic development model that does not add to global warming as well as rampant destruction of natural resources.

This is possible if the policy thrust shifts to encourage sustainable agriculture and thereby in the process gainfully employ 600 million people. I don’t understand the economic rationale of displacing farmers from their meager land holding, and forcing them into the cities to work as daily wager workers or drive auto-rickshaws. Displacing people from their stable jobs in agriculture and re-locating them to the cities to work as labourers in infrastructure projects is no job creation. The challenge is to make agriculture more profitable, and ensure that improved skills are provided to farmers. An economically viable agriculture not only boosts economic growth, removes economic disparities, but also ensures food security. Let’s be very clear: a food importing country can never be economically powerful.

It is in this connection that the Prime Minister deserves all the applause for taking a bold stand by not succumbing to international pressure at the World Trade Organisation (WTO). By refusing to sign on the protocol of amendments to the Trade Facilitation Treaty unless a permanent solution to the vexed problem of providing minimum support price to Indian farmers is resolved, Narendra Modi has sent a strong message. After all, if Japan can impose 738 per cent import tariffs on rice and 328 per cent on sugar – so as to protect its domestic farmers and industry, why can’t India stand firm to protect its farmers as well as its hard-earned food self-sufficiency.

This has to be now translated into policies and actions that can revive domestic agriculture. To understand the political implications of neglecting agriculture let’s revert back to the days when Lal Bahadur Shashtri was the Prime Minister. The year was 1965 when India was hit by a devastating drought. India had imported 10 million tonnes of foodgrains under the PL-480 from North America. But later in the year, in an interview with an American journalist Shashtri was asked: “What did he think about the war in Vietnam?” To which Shashtri replied: “It is an act of aggression.” This small sentence annoyed the then US President Lyndon Johnson.

It is very easy to teach a lesson to a hungry nation. US stopped food exports to India under what is called a ‘stop-go’ policy. So much so that at one stage only food stocks for another week was left. This prompted the then Food Minister C Subramaniam to send an SOS to US president requesting him to divert the ships carrying foodgrains to India otherwise millions would die of hunger. The UN FAO had also appealed to the US President. India thus had rightly earned the epitaph as a country living in a ‘ship-to-mouth’ existence.

Mrs Indira Gandhi too had faced the brunt of food diplomacy. Soon after she took over as Prime Minister, at a time when the drought had continued for the 2^nd year in 1966, Mrs Gandhi had allowed the import of high-yielding seeds of wheat from Mexico to usher in what is now called as Green Revolution. Agriculture scientist Dr M S Swaminathan, who is hailed as the father of India’s Green Revolution, once told me that the seeds of Green Revolution were actually sown in a car journey that he took with the Prime Minister. During the short car journey Dr Swaminathan recalls Mrs Gandhi had sought a commitment from him if he could provide an assurance that “India will have a surplus of 10 million tonnes or so in a couple of years because I want the bloody Americans off my back.”

Dr Swaminathan made the commitment. The rest is history.

But a couple of decades after India become self-sufficient in foodgrains, a dangerous complacency has set in. In 2013-14, farmers produced a record harvest of 264.4 million tonnes of foodgrains. Production of oilseeds has reached a record high of 34.5 million tonnes, a jump of 4.8 per cent. Maize production increased by 8.52 per cent to reach a level of 24.2 million tones. Pulses production reached an all-time high of 19.6 million tones, an increase of 7.10 per cent over the previous year. Cotton production too touched a record high.

With such record production, the nation should be indebted to its virile and hardworking farmers. But they are not only being ignored, but penalized. Last year, in 2013-14, when farm production recorded a quantum jump, agriculture received 19,307-crore from the annual budget kitty, which is less than 1 per cent of the total budget outlay.  For 60 per cent population less than 1 per cent of is the resource allocation. In 2014-15, only Rs 22,652-crore has been given to agriculture and cooperation departments. In fact, if you look at the 11^th Plan period, the total outlay for agriculture was Rs 1-lakh crore. For the 12^thPlan period it was raised to Rs 1.5 lakh crore. Now what miracle can you expect when the governments deliberately starve the most efficient sector of the economy, which incidentally is also the biggest employer?

Just before Mr Atal Bihar Vajpayee took over as Prime Minister for the first time, a closed door meeting was held with some economists to work out the economic pathway for the new NDA government. I remember insisting that NDA would never faces anti-incumbency if it devoted 60 per cent of the annual budget to agriculture, which employs 60 per cent population. This was agreed upon, and was also talked about but in reality agriculture did not even receive 6 per cent of the annual budget. Agriculture in reality is faced with negative terms of trade meaning more money is being taken out from the rural economy than what is being invested.

It is primarily for this reason that the average income of a farming family in India, comprising five persons, has been computed to be less than Rs 2,400 a month. This is less than what a household help receives in a city. No amount of efforts to raise productivity or leaving farmers to face the vagaries of the market economy can help farmers realize a better income. Let’s be very clear, neither future trading nor by allowing big retail like Wal-Mart and Tesco to purchase directly from farmers has helped raise farm incomes even in US and European Union. It is direct income support that has made farming a profitable venture in the developed countries.

I am therefore hoping that the Prime Minister too would spearhead an economic renaissance in Indian agriculture. Mr Modi has a number of times talked of raising the procurement prices. But since procurement prices only benefit 30 per cent farmers, any tinkering in the form of ‘cost plus 50 per cent profit’ will only benefit a section of farmers. It is therefore time to set up a National Farmers Income Commission that aims at providing a monthly guaranteed take-home income package to farmers. This must be linked to production and the location of the farm.

If in the past nine years, the government has shelled out Rs 1,100-crore every day as tax concessions to India Inc, totaling Rs 36-lakh crores, which did not result in increased industrial production nor created additional jobs, I see no reason why even a quarter of it cannot be given to farmers. When I say this I am not being against industry, but at the same time I see no economic justification in why industry should be allowed to replace agriculture. It should in fact be supportive of agriculture. India needs agro-based industries.

Imagine a scenario wherein farming becomes a profitable enterprise, as the Prime Minister said, the boost it will give to the Indian economy would be unprecedented. I only hope the Prime Minister lives his dream. #

Source: The Organiser, Aug 24, 2014

From Pepsico to Wal-mart: Selling a fake dream

In the mid-1980s, Pepsico came up with a proposal to bring in a 2^nd horticultural revolution in Punjab. It was hailed as a path-breaking initiative that would put an end to the continuing distress on the farm. It was expected to usher in the latest technology, improve farm research and extension, create supply-chain infrastructure, and provide marketing linkages from farm to the fork. I remember the kind of excitement that prevailed all around. Politicians, bureaucrats, economists, agricultural scientists and even the Bhartiya Kisan Union (BKU) joined the chorus. All my efforts to reason out the hollowness of the claims, based on Pepsico’s own studies, were simply lost in the din and noise created by the drum-beaters. 

Some 15 years after the project was approved, Pepsico’s horticultural revolution is all but forgotten. Agriculture has gone from bad to worse.  The food bowl of the country has also become a major hot spot for farmer suicides. While the soft drink giant remains busy marketing its colas, Pepsico has not been held accountable for its failed promises. It will never be punished for selling a fake dream to the beleaguered farming community. 

It is now the turn of Wal-Mart and other big retail giants. FDI in retail is once again being projected as a panacea for all the ills plaguing Indian agriculture. FDI in retail will lay out backend infrastructure, bring in a chain of cold storages and improved transportation thereby reducing crop losses; remove middlemen which rob the farmers of profits, and thereby provide him higher prices; bring in improved technology to help in crop diversification; and of course create millions of jobs. The cheerleaders are once again on the road. This time, it is the corporate controlled electronic media that is drumming up the hype.

Having spent Rs 52-crore in two years for lobbying alone, and after the recent New York Times exposure showing how Wal-Mart bribed its way to control 50 per cent of the retail market in Mexico, the Union Cabinet finally allowed big retail to set shop. If Wal-mart could bribe its way in Mexico, what makes us think they have not been able to do so in India?  

We are being told that Wal-Mart, Tesco, Sainsbury, Carrefour and a host of other big retail players are expected to increase farm income. In the US, where Wal-Mart has completed 50 years, if farmers were getting a better income, there was no reason why the farming population should plummet to less than one per cent of the population. Farmers in US survive on the farm not because of Wal-Mart but the massive subsidy support, which includes direct farm income. Between 1997 and 2008, Rs 12.60 lakh crore was provided as income support to farmers. A UNCTAD-India study shows that if these subsidies, classified as Green Box in WTO parlance, are removed, the American agriculture collapses.

In Europe, despite the dominance of big retail, every minute one farmer quits agriculture. Europe provides the highest amount of subsidies, including direct income support. But because 74 per cent of these subsidies are cornered by Corporations and big farmers, small farmers are quitting farming. In France, farm income has come down by 39 per cent in 2009, down from 22 per cent in 2008. In OECD, the richest trading block comprising 30 countries, Rs 14 lakh crore was the farm subsidy support in 2009 alone. It is not big retail, but direct income support that keeps farmers in agriculture.

These subsidies also bring down the domestic and international prices as a result of which big retail sells cheap. Empirical studies show big retail charging 20-30 per cent higher than open market in Latin America and Southeast Asia. In India, organised domestic retail has not been able to sell cheaper. A NABARD study for Hyderabad shows Reliance Fresh and other charging 15-20 per cent higher prices. Even at the peak of inflation in India, these domestic organised retailers did not reduce prices. So where is the advantage to consumers? 

Studies show in America, before 1950, when farmers would sell their produce for one dollar, 70 cents was his income. In 2005, it had fallen to 4 per cent. With the middlemen wiped out, I thought the farmer’s income should have gone up. No, it is the new battery of middlemen – quality controller, standardiser, certification agency, processor et c—who walk away with farmer’s profits. Number of middlemen, operating under the same hub, actually increases. Let us not forget, Wal-mart is a big middleman, it eats away the smaller middlemen.

There is no evidence that big retail creates backend infrastructure. In US and Europe, rural infrastructure has been created through government support which came in the form of agricultural subsidies. To say that 40 per cent agricultural food that goes waste in India will be drastically reduced is also an illusion. In US also, 40 per cent food is wasted and much of it is after processing where Wal-Mart’s should have played a much important role. 

Regarding employment generation and poverty alleviation, lessons need to be drawn from a 2004 study of Pennsylvania State University by Stephen  Goetz and Hema Swaminathan, which showed how higher poverty prevailed in areas where Wal-Mart stores had come up compared to those states where big retail was absent. In any case, for a $450 billion turnover, Wal-Mart employs only 2.1 million people. Whereas for an estimated $460 billion market, Indian retail employs 44 million people. Let us not forget, Pepsico had also promised to create 50,000 jobs. As per a question in Parliament, it became known that Pepsico had created less than 500 jobs, including 250 unskilled workers. Moreover, last month, massive demonstrations rocked US by Wal-Mart workers complaining of poor working conditions and exploitative salaries. Who creates employment, and also provides better working conditions, therefore is all evident.

Yes, there is a need to improve rural infrastructure, provide a sophisticated supply chain, and provide better income to farmers. The milkman of India, late Dr Verghese Kurien, had shown us the way. The cooperative dairy structure, which led to the evolution of the Amul brand, is the right approach. If he could do it for milk, which is a highly perishable commodity, there is no reason why it can’t be replicated in fruits, vegetables and other agricultural commodities. From a milk importer, India has now become world's biggest producer of milk. It is therefore obvious that solutions to the plethora of problems on Indian farms does not lie in the west, but in our own backyard. We need to look inwards. Otherwise we will go on committing the same mistakes, and in the process turn farms into killing fields.

Allowing Retail FDI in India: lies, lies and damn lies

At a time when Prime Minister Manmohan Singh is refusing to rollback the decision to open the retail sector to foreign direct investment saying it will benefit our country, the American President Obama thinks otherwise. In a tweet on Saturday (Nov 26), President Obama wrote: “support small businesses in your community by shopping at your favourite local store.”

While President Obama is talking of what is good for America, Manmohan Singh too is adamant on protecting American interests. It is primarily for this reason that Manmohan Singh’s assertion that retail FDI will benefit our country and ‘improve rural infrastructure, reduce wastage of agricultural produce and enable our farmers to get better prices for their crops’ is not borne on facts. In the midst of the rhetorical contests in the TV studios, the real facts have been sacrificed for the sake of political partisanship.

A lot has been said and written about the virtues of allowing FDI in retail into India. Let me make an attempt to answer some of the bigger claims that Commerce Minister Anand Sharma as well as the Prime Minister have repeatedly made. Frankly, their arguments seem to be driven more by political expediency rather than any economic understanding, and that is more worrying. It only shows how economic facts can be twisted, tailored and manipulated to justify the political agenda of the ruling party. There can be nothing more damaging for the future of a country.

First, the biggest argument in favour of multi-brand retail is that it will create 10 million jobs by the year 2010. There is no justification for this claim. In the United States, Wal-Mart dominates big retail. It has a turnover of US $ 400 billion, and employs 2.1 million people. Ironically, the Indian retail sector too has a turnover of US $ 400 billion, but has 12 million shops and employs 44 million people. It is the Indian retail which is a much-bigger employer, and any effort to allow retail FDI will only destroy millions of livelihoods.

Take the case of England. The two big retail giants are Tesco and Sainsbury. Both had committed to create 24,000 jobs between them, in the past two years. A British government enquiry found out that instead of creating any additional job, these two big retail companies had actually thrown out 850 people from existing jobs. The big retail units which failed to create jobs in their own countries cannot be expected to create additional employment in India.

Second, Anand Sharma says that retail FDI will provide 30 per cent more income to farmers. There can be no bigger lie than this. In the US, for instance, if Wal-Mart was able to enhance farm incomes there was no reason why the America government would dole out a massive subsidy of US $ 307 billion under the US Farm Bill 2008, which basically makes a budgetary subsidy provision for the next five years. Most of these subsidies are clubbed in the category of Green Box under the WTO. And as per an UNCTAD-India study, if the Green Box subsidies are withdrawn, American agriculture faces a collapse.

Agriculture in America is therefore sustained with agricultural subsidies. In OECD countries, a group comprising 30 riches countries, the situation is no different. A latest 2010 report states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008. In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. Despite this, every minute one farmer quits agriculture in Europe. This is happening at a time when farmer’s incomes are dwindling. In France alone, farmer’s income has fallen by 39 per cent in 2009.

Third, big retail helps remove the middlemen and therefore provides a better price to farmers. Again, it is a flawed argument and is not borne on any evidence. Studies show that in Americain the first half of 20^th century, for every dollar worth of produce a farmer sold, 70 cents was his income. In 2005, farmer’s income had fallen to 4 per cent. This is despite the presence of Wal-mart and other big retailers in America.

In other words, the middlemen are not squeezed out as is the general understanding but in reality their number actually increases. A new battery of middlemen – quality controller, standardiser, certification agency, processor, packaging consultant etc – now operate under the same retail hub and have been walking away with farmer’s income. Moreover, due to the sheer size and buying power, big retail generally depresses producer prices. In England, Tesco for example paid 4 per cent less to producers. Low supermarket prices in Scotland have forced irate farmers to form a coalition called ‘Fair Deal Food’ to seek better price for their farm produce.

Fourth, retail FDI will source 30 per cent from the small and medium enterprises and therefore will benefit Indian manufacturers. This is an afterthought, especially after a section of the media highlighted the discrepancy. Even though Anand Sharma says 30 per cent products would be sources from within the country, the facts remains that under the WTO agreements, India cannot limit the big retail from outsourcing its products from anywhere in the world. This is against the WTO norms, wherein no member country can apply any investment restriction that is inconsistent with the provisions of Article III or Article XI of GATT 1994.

Using the WTO provisions, multi-brand retail will flood the Indian market with cheaper Chinese manufactured goods thereby wiping out the domestic SME sector. At the same time, the ‘Indian Stamp’ on multi-brand retail that Anand Sharma claims will have at least 60 per cent investment on ‘back end’ systems is also not based on facts. As per the definition of ‘back-end’, anything that is not ‘front-end’ becomes ‘back-end’ and has to be self-certified. Which means even the expenses on the corporate headquarter becomes ‘back-end’ investment. In any case, 51 per cent FDI in cold storages etc is already provided and yet no investment has come. Let us be very clear, big retail is not coming to Indiato provide a network of food storage silos and cold chains.  

Fifth, more importantly, in an eye-opening study entitled “Wal-Mart and Poverty”, Pennsylvania StateUniversity in the United Stateshas clearly brought out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up. This is something that the government is not talking about but should ring an alarm bell for a country which is reeling in poverty, hunger and squalor.