The easy way to destroy India's food self-sufficiency: Open up procurement to private sector.

Food procurement and assured prices to farmers through the MSP regime is what has turned India food 'self-sufficient'.

Finance Minister P Chidambaram has called for bringing in private players to participate in foodgrain procurement. “The government is the largest and in many ways the only bulk buyer of cereal crops. The discovery of market prices is affected by minimum support price.” By opening to the private sector, the Finance Minister thinks procurement will improve as it will benefit both the consumers as well as the farmers.

This has serious implications for not only country’s food security but also will impinge upon food self-sufficiency so assiduously built over the past four decades.

For farmers, such a policy change will mean an end of an era where wherein they were getting a minimum assured price for at least wheat and paddy. Although the Commission for Costs and Prices (CACP) announces the minimum support price for nearly 24 crops every year, it is only in case of wheat and rice that farmers get the benefit of minimum support price since the Food Corporation of India (FCI) as well as some State agencies steps in to buy it from the markets. In others words, the minimum support price for wheat and rice becomes an assured price for farmers.

Mr Chidambaram gives an impression as if the procurement of wheat and rice by the government agencies crowds out the private players, who would have paid a better price to farmers. This is not true. In reality, the procurement system nowhere says that it is only the government agencies that have to buy foodgrains from the mandis. Private players too can come and make purchases from the mandis. Only when there are no buyers for wheat, for instance, at the procurement price of Rs 1350 per quintal that it becomes mandatory for the FCI to purchase the produce.

Every procurement season, some of the wheat and paddy is certainly purchased by the private players at a relatively higher price than the procurement price announced by the government. Bulk of the purchase is however made by FCI and State agencies. The stability in wheat and paddy prices is what has sustained farmers in the Green Revolution belt of Punjab, Haryana, western Uttar Pradesh all these years.

What Mr Chidambaram is therefore very cleverly suggesting is to dismantle the existing procurement system that will allow the private sector to make purchases at the prevailing market prices. If the private sector is so keen, I don’t understand why does it not buy wheat and rice from farmers in Bihar, eastern Uttar Pradesh, Odisha and West Bengal where the mandi network doesn’t exist? In any case, private players, including arhtiyas, dominate bulk buying of wheat and rice in all these States. Invariably, at all these places farmers have to resort to a distress sale getting not more than Rs 900 to Rs 1000 per quintal as the wheat price. Unless Mr Chidambaram wants Punjab and Haryana farmers to also go in for distress sale, I don’t understand his logic of price discovery.

In addition, if the private players are so keen to help the farmers as well as the consumers why can’t they demonstrate their willingness to do so in the remaining 22 crops for which there is no reliable procurement system. After all, pulses are an important part of the average Indian diet. Yet, its production is not picking up because there is no marketing system that provides an assured price to farmers. Farmers do not have the ability to bear the shocks of the volatility of the markets, and therefore opt to cultivate wheat and paddy offering an assured price. The private sector can easily provide the benefit of what it calls as price realisation offering a higher price to growers.

Take the case of sugarcane. Over the years, it has turned out to be the most important cash crop for farmers. This is primarily because of the State Advised price of cane, which the State government decides and which the sugar mills have to pay. Withdraw the State Advised price and I am sure many sugarcane farmers will be forced to commit suicide. And what about crops like potato and tomato? Don’t we see farmers throwing potato and tomato onto the streets at the time of a glut when prices fall? Why the private players can’t rescues farmers with a higher price at times of glut?

The point I am trying to make is left to private players farmers would be exploited to the hilt. This is exactly the reason why the government had constituted the Agricultural Prices Commission soon after Green Revolution was ushered in 1966. At the same time it set up the Food Corporation of India. Both these were excellent initiatives and what needs to be understood is that if the country has stopped food imports and turned food self-sufficient it is primarily for the role played by these two organisation in providing an assured price and an assured market to farmers. Any attempt to tinker with the procurement system therefore is wrought with grave implications for the farming population as well as the country’s food security. 

Did you notice? How India is being asked to discard food self-sufficiency?

For some weeks now, I am observing a concerted effort (or should I say a campaign) being launched through the media by the Commission for Costs and Prices (CACP) about the need to increase agricultural exports so as to reduce the current accounts deficit, and also to limit distribution of grain through the public distribution system in order to bring down the fiscal deficit. Simply put, CACP has been advocating removing safety nets in agriculture production and marketing, and letting the markets rule the game.

CACP flawed view is increasingly being lapped up by the media. I find several English language newspapers parroting the viewpoint, and this is terribly dangerous to only the national sovereignty but also to the future of this country. The Hindustan Times echoed this argument in the form of a lead editorial, captioned: Think beyond self-sufficiency (HT Jan 7, 2013, http://bit.ly/TUNPBf). In the editorial, the newspaper argued for a change in the mindset, stating: "Food security today is not about self-sufficiency, it is about recognising that food is a global commodity and being a major force in that market." To build up the argument it suggests that production of pulses, for instance, can be left to the vast stretches of Canada and Australia.

I have never understood the economic logic of letting farmers in Canada or Australia or for that matter in Myanmar produce pulses that India should import. Why can't we provide an assured price along with an assured procurement for pulses within the country? Instead of wasting resources on another illogical suggestion that was backed by Budget provisions -- setting up pulse villages, the effort should have been to procure pulses on a regular basis, the way wheat and rice is procured. Such an initiative would have turned India self-sufficient in pulses thereby reducing imports and in the bargain reducing the current account deficit. More importantly, it would have brought down the domestic prices and also given more income into the hands of farmers who farm in harsh drylands.

As I said earlier, the editorial draws heavily from the articles of being circulated by CACP. It says that in a globalised world, even food prices are determined by global benchmarks. And, then it makes a ridiculous suggestion: When India exports rice or sugar, it helps depress the world price, which, in turn, keeps down domestic inflation. This is completely a flawed hypothesis. It has seemingly dangerous for the food security of any nation, including India. Let us not forget, India has the largest population of hungry in the world, and even the Prime Minister has gone on record saying that he is ashamed of the extent of child malnutrition that prevails. Several studies have pointed to 47 per cent of children below 5 yrs being acutely malnourished.

I wonder why does the United States and for that matter Europe doesn't free its agriculture the way India is being asked to? Why isn't it profitable for farmers in US/EU despite the presence of big retail and futures trading? If freeing farmers from government-controlled procurement prices is the way forward, why does OECD provide US$ 374 billion as farm subsidy, including direct income support, to farmers every year? Well, you guessed it right. The basic idea behind such hidden lobbying efforts is to destroy the fundamentals of food self-sufficiency that India built so assiduously over the decades. By doing so, we are actually removing all hurdles in the spread of corporate control of agriculture in India. What happens to country's food security in the process is not the concern of lobbyists. By the time India turns into a Haiti (or Ethiopia), these economists would have retired and probably been inducted into the board of an agribusiness company.

Read also: A hungry nation exports food. it can happen only in a democracy.
http://devinder-sharma.blogspot.in/2012/05/hungry-nation-exports-food-it-can.html 

India: Direct cash transfers is aimed at dismantling food procurement, and moving away from food self-sufficiency.

Some weeks back, I was participating in a panel discussion on cash transfers on a national TV channel. While the discussion wheeled around the merits and demerits of cash transfer, I think the anchor was taken by surprise when I said that cash transfers is in effect a ‘cash-for-vote’ programme. Supporting my argument with a World Bank study for Latin America, I found the entire focus of the discussion thereafter shifting to whether the real intention behind the aggressive push for cash transfers is aimed at the 2014 elections.

While the media as well as most panellists who frequent the TV channels, for some strange reasons, were and are still reluctant to talk about the political ramifications of cash transfers, it was Rahul Gandhi who made it abundantly clear when he told his party men that cash transfer could win them not only 2014 but also the 2019 general elections. The entire academic euphoria over the proposed aggressive roll out of Aadhar-based (UID-lined) cash therefore is simply overbearing and needs to be seen in the light of political bias. In fact, the visible trend in the ongoing national debate is more towards being seen as politically correct.

A World Bank working paper, entitled: “Conditional Cash Transfers, Political Participation and Voting Behaviour,” studied the voting behaviour for a conditional cash transfer programme launched in Colombia just before the 2010 elections. Subsequently, a 2011 study of an unconditional cash transfer programme in Uruguay clearly established that cash transfers did help the ruling party get a large share of the votes, and thereby helped the party to romp home at the back of cash transfers. In India, the political urgency and the aggressiveness with which the massive cash transfers are expected to cover the entire country by April 2014 is therefore quite obviously aimed at bringing electoral benefit to the ruling party.

The unconditional direct cash transfer programme that is proposed to be launched from Jan 1 in three phases will start with 43 districts involving a cash provision of Rs 20,000-crore. Eventually, all forms of subsidies to the poor, including food and fertiliser, will be in the form of cash flow, and would add up to Rs 3 lakh crore annually. I fail to understand how and why such a massive cash outflow pipeline will reach the beneficiaries without first putting up a fool-proof delivery system in place. The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) too was envisioned with a lot of expectations but has failed miserably to deliver. Several studies have pointed to nearly 70-80 per cent leakages, and yet somehow the impression is that MNREGA has transformed the rural economics.

With only 40 per cent of the population having access to banks, and with an over ambitious target of reaching the remaining population through banking correspondents – who will be operating like the village postmen except they will now be equipped with portable handheld machines acting like micro-ATMs – we are perhaps expecting too much from the most important human link between the technology and the money delivery. So far, there are only 70,000 banking correspondents and the experience has not been very encouraging. In the next one year, the number of banking correspondents will have to increase ten-fold to reach a staggering figure of 7 lakh.

Knowing that the entire rural and agricultural banking operations are rooted in corruption, I wonder how we have accepted that the banking correspondents will not be swayed by corrupt practices. If 60 per cent of the beneficiaries have to be reached through an army of banking correspondent, who will be handling over Rs 1.5 lakh crore by any conservative estimate, the delivery mechanism is certainly fraught with over-confidence stemming from political urgency. This is where I think the policy makers and bureaucrats have failed to rise above assumptions. This is where I think the aadhar-based cash-for-vote will end up being no different than the hype generated at the time of launching MNREGA.

Nevertheless, what worries me more is when cash transfers move to the next phase, and that means meeting food entitlements directly with cash. Thanks to the concerns raised by the civil society, the government has deferred cash-for-food for the time being. It was more because of the fear that the cash-for-food programme could go completely out of control, and therefore could negate the political advantage that the ruling party is hoping to garner, that it has been kept in abeyance. At a time when the proposed National Food Security bill is pending introduction before the 2014 elections, any tampering without a proper evaluation could backfire.

It is true that close to 60 per cent of the food that is channelized through the public distribution system is either wasted or siphoned off in transit, and that the entire system is mired in corruption. What reaches the poor beneficiaries is often not even fit for consumption. The answer however does not lie in dismantling the PDS system, but reforming the world-largest food delivery system to riddle it of corruption, and make it more effective. This is certainly possible, but given the extent of political meddling in the allotment of ration shops to transportation of grains, it has never been attempted in right earnest.

For several decades now, the international emphasis has been to force India to dismantle the PDS. The first attempt was made at the time of the infamous Dunkel draft during the primitive years of world trade negotiations. WTO aimed at curtailing the PDS role, and wanted markets to ensure food security. Strong opposition from India, cutting across political lines, forced the WTO to eventually withdraw that clause.Subsequently, in the name of decentralisation of food procurement and storage system, an attempt was made during the tenure of Atal Bihari Vajpayee to divest the Centre of its onerous responsibility of procuring foods for the central pool, and leave it to the States to manage grain procurement, storage and distribution.

Several chief ministers had opposed the decentralisation move thereby forcing the government to retreat. 

For several years now, the emphasis has once again been on discarding food procurement. Allowing Food Corporation of India (FCI) to increasingly take on a commercial role by shifting focus from its sovereign role of ensuring domestic food security to looking for opportunities for grain exports, and finally to engage in future trading in wheat so as to offload and earn profits from the mounting surplus it carries. This has also to be seen in conjunction with the proposal to cap food procurement to the country’s buffer stock needs, and thereby deprive farmers of getting benefit of the assured price of wheat and rice. At present, FCI is under an obligation to purchase the surplus grains flowing in to the mandisat the Minimum Support Price. Once this role is withdrawn, farmers would be left at the mercy of trade.

Providing cash in the hands of poor beneficiaries means less emphasis on the PDS ration shops. The idea is to provide coupons or provide food entitlements in the form of cash, and leaving it to the people to buy their quota from the market. Whether the money provided would be used primarily to buy liquor, junk foods or other consumer goods is an important issue, but what is more important is to understand how it is aimed at dismantling the food procurement system. This subtle way, very cleverly designed, would undo the gains of food self-sufficiency so assiduously achieved after the advent of Green Revolution.

The underlying objective is very clear. Once the direct cash transfers begin, the ration shops would be gradually phased out. Once the PDS shops are removed, the cap in food procurement that is being suggested for FCI will come into play. With food procurement limited to meet the buffer requirements, which is somewhere between 14 to 22 million tonnes a year (against 82.3 million tonnes stocked with the FCI in June 2012), wheat and rice farmers would no longer get the benefit of the minimum support price. Farmers would be left to face the vagaries of the trade, and as has been the experience in those States which do not have a robust system of mandisand thereby unable to provide farmers with assured prices, distress sale will become a norm. 

Withdrawal of food procurement system will have an impact on food production. This would help farmers to abandon farming, and migrate to the urban centres. This is exactly what the World Bank has been proposing for several years now. The 2008 World Development Report had called for land rentals and providing farmers with training opportunities so that they can be absorbed in the industry. The government, as directed, made budgetary provisions for setting up 1000 industrial training institutes across the country. It is therefore obvious that the government had wanted to withdraw from food procurement and distribution for quite long now, following the dictates of the World Bank/IMF. Cash-for-food will facilitate the process and make it easy. Food requirement will then have to be met from imports, and there is already a dominant thinking within the government which advocates importing subsidised food off-the-shelf from the western countries rather than spending more on growing food within the country.

FDI in retail comes at a time when contract farming is receiving greater attention. The idea is to link the farmers growing cash crops with the supermarkets. This will help the government from doing away with the system of announcing the minimum support price and thereby reduce the subsidy outgo. This is exactly what the World Trade Organisation (WTO) had wanted several decades ago. The process to dismantle food procurement, a highly emotive issue in India, actually began in mid 1990s. It is now receiving the final touches.

Prime Minister Manmohan Singh had repeatedly said that the country has 70 per cent more farmers than what is required. Cash-for-food will provide the smokescreen needed to accomplish what the WTO/World Bank/IMF have been telling India for long. It is only when of the farming population is moved out of the villages that the agribusiness can find a stronghold in India. The predominant economic thinking is that the population in agriculture has to be cut back drastically for any country to grow economically. Cash transfers will then be part of the bigger promise of igniting country’s economic growth. #