When dairy farming becomes unprofitable.

A typical dairy farm in India

Dairy farmers in India are in crisis. High input prices and declining milk prices have pushed them to the wall. But the consumer prices remain firm, showing no signs of declining. 

When NCP leader Praful Patel said in Parliament during the debate on FDI in retail how in Baramati in Maharashtra, agriculture minister Sharad Pawar had ensured that dairy farmers got a minimum prices of Rs 20 per litre for milk, I was amused. This is not a fair price, but a depressed price being paid to farmers. All cooperatives and private plants are paying around the same to mil producers. 

Saddled with huge stocks of skimmed milk powder, and with a weak export demand, the dairy industry is trying to minimise its losses. It is therefore passing on the losses to primary producers. Now such a situation is not peculiar only to India. Let us therefore try to understand how the international community reacted to a dip in prices. 

In 2009, about 20 per cent of 1,800 dairy farms in California, for instance, had shut down unable to survive at times of higher feed and transportation costs. Similarly, in 2009, when international milk prices had dipped to a low, the European Union defied the World Trade Organisation (WTO) and reintroduced milk subsidies. It provided Rs 3,600 crore in subsidies to its dairy farmers to offset the losses incurred. 

While US/EU have always made efforts to rescue their dairy farmers,  I have never understood the rationale of letting domestic dairy farmers shut down when farm prices fall for no fault of theirs. With private and cooperative dairy industry reducing the milk prices to Rs 20.50 a litre, it is certainly uneconomical to maintain a dairy herd. In Punjab, Gujarat, Maharashtra and Rajasthan, quite a large number of dairy farmers have opted out. 

Let us see how Europe coped up with the crisis. In European Union, there are 10 lakh dairy farmers.Collectively, they produce more milk than what is produced in India or for that matter in America. As per WTO norms, EU was supposed to have phased out its burgeoning dairy subsidies. But who cares when it comes to domestic interests. EU reinstated subsidies to support milk production as well as for export when it was hit by economic recession. By doing so it has been able to capture 32 per cent of the global market for dairy products by volume. 

According to the Dairy Farmers of Canada (DFA), EU dairy farmers receive subsidies to the tune of Rs 3.96 lakh crore every year. 

These massive subsidies insure dairy farmers against the volatility of the markets, and at the same time enable them to dump subsidised milk onto developing countries. Looking for an export market, EU is flexing its muscle and under the proposed EU-India Free Trade Agreement (FTA) it wants milk tariffs to be slashed by 90 per cent. EU is seeing India as a big market for its milk and milk products, and all indicators are that India will open up its domestic dairy market for EU imports. 

Lesser number of farms

In America, on the other hand, the number of dairy farms has come down by 61 per cent since 1992, and only 51,480 dairy farms now exist. These farms received subsidies worth Rs 27,500 crore since 2009, which in other words means a third of its milk price is subsidised. These subsidies come under several programmes: milk income loss contract payment; market loss assistance; milk income loss transitional payment; dairy economic loss assistance programme; milk marketing fees; dairy disaster assistance; and dairy indemnity. 

Interestingly, cash subsidies in the US are doled out under Dairy Export Incentive Programme. EU on the other hand subsidises nearly 50 per cent of its dairy exports.
 
Let me also dispel another commonly held notion. In an era of market economy, it is generally believed that American/European farmers are dependent entirely on the private supply chain. It’s not so. After March 2009, EU had restarted buying surplus butter and milk from dairy farmers at an intervention price of Euro 2,218 and Euro 1,698 per tonne, respectively. In America, milk price support programme ensures that the government buys any surplus amount of cheese, butter and non-fat dry milk at a minimum price. In addition, since 2002, it has introduced a programme to distribute cash subsidies to milk producers when prices fall below a set limit. I see no reason why state governments cannot provide such subsidy support to its dairy farmers when prices fall. 

It’s not as if state governments do not have resources. Punjab, for instance, had made available Rs 1250 crore in interest free loan spread over five years and on top of it gave a 15-year tax holiday to steel tycoon Laxmi Mittal for investing in the Bathinda refinery. I see no reason why it cannot rescue small dairy farmers who are gradually sinking. 

Therefore, to begin with, state governments should consider subsidising the cooperatives to raise the milk procurement price to at least Rs 25 per litre. Secondly, it should also reduce the bank interest on loans taken from existing 12.5 per cent to 7 per cent.

The Centre and the state government should consider measures to rescue milk producers before they start giving up the sector leading to serious shortages and forcing India to become an importer of this vital commodity.

Source: Milk crisis looming, Deccan Herald, Jan 5, 2013.
http://www.deccanherald.com/content/303002/milk-crisis-looming.html

Change that mindset.

A Warangal woman farmer who was an early adopter of Bt cotton hand-waters her recently planted seeds. Normally hand-watering is unheard of, but like most early adopters, she lavished extra-ordinary attention on the field with the expensive Bt cotton seed. Such field was then reported by economists as evidence that Bt cotton has an inherent "yield advantage" (Smale, et al. 2010; Smale, et al. 2006; Stone, 2011).

This is so true. But it didn't strike me till I read Prof Glenn Stone's blog Hold that Thought. Glenn Stone is a professor of sociocultural anthropology and environmental studies at Washington University in St. Louis. Reading him, I now realise how correct he is in his observation, and assessment. I have seen this happening around me. Farmers tend to take more than adequate care of anything that is expensive. Why only farmers, even at our homes, we tend to be more careful and protective of anything that comes from a distant land (and of course is more expensive). It deserves special attention. This is how it has been, and still continues to be.

I have often been asked as to why is that the Indian cattle breeds are less productive than the exotic breeds or crossbred. When desi breeds can be doing so well in Brazil (which is the biggest exporter of Indian breeds of cows), how come they are low producers in India? The answer is hidden in that mindset brought out to so clearly by Glenn Stone. I find farmers showering all the care on exotic breeds and neglecting the native cows. Just look around and observe silently, you will find the imported breeds being tended like a child while its poor cousin -- the desi breed -- is left to fend for itself. No wonder, I see native cows roaming on the streets in urban India.

For the same reason, the Brazilians accord utmost care to Indian breeds, which are exotic for them. Pure bred Gir cow from Gujarat has clocked 62.3 litres of milk yield in Brazil.

Food produced globally is enough to feed almost double the existing population, Mr Mark Lynas

Pardon my ignorance. After all the ruckus over the 'switching-over' of environmentalist Mark Lynas into the folds of GM industry, I had to make an effort to find who we are talking about. It took me some time to Google search. I now know what the fuss is all about.

I must acknowledge that I had never heard his name before nor have I ever read him. Likewise, I am sure he has never heard of me. That's fair enough.

What drew my attention was the heat generated at the Oxford Farming Conference. Speaking at the conference, Lynas was quoted as saying "research published in the Proceedings of the National Academy of Sciences suggested the World will require 100 per cent more food to feed the maximum projected population adequately.." This is a common argument that has been doing the rounds ever since the first GM tomato was released in the market.

Well, what population projections are we talking of? The planet today hosts 7 billion plus people, and all estimates point to a population of 9 billion in 2050.

Now, let us look at how much food is available. Only a day before I looked at the USDA calculations. It annually prepares what is called as World Agricultural Supply and Demand Estimates. If you read the 2012 estimates (here is the link: http://www.usda.gov/oce/commodity/wasde/latest.pdf) it tells us clearly that in 2012 the world harvested 2239.4 million metric tonnes, enough to feed 13 billion people at 1 pound per day. And what is the population projection for the year 2099 that the National Academy of Sciences made? I am not aware. But there is certainly no reason to worry about 2099, and instead let's look at the year 2050, which is much closer and realistic. In other words, even at present the world produces enough to meet the food demand that is expected in 2050 and I am sure has enough for the turn of the century (even if the global population touches 13 billion by 2099).

In other words, the world food production today is good enough for double the present population. So where is the crisis on the food front? Aren't we scaring people unnecessarily or with an ulterior motive?

The real problem no one wants to address is the problem associated with food management, its access and distribution. It is true that while the West is overfed (because of the conversion through animal protein), much of the developing world remains hungry. While one part of the world is eating more, the rest of the world is left to starve. What makes it still worse is that more than a third of the food that is produced every year goes waste. In United States, Canada and Europe, 40 per cent food is wasted. For example, Americans waste $ 165 billion worth of food every year. Food wasted in Italy, if saved, can feed the entire population of hungry in Ethiopia. (See my article: The wastage myth. http://www.deccanherald.com/content/289771/wastage-myth.html).

It doesn't require any 'discovery of science' to know where the real problem lies, Mr Mark Lynas. The problem is not with food production. The problem is, as I said earlier, on the distribution front. If the world were to save the food that is going waste, and distribute it judiciously, we would probably have enough food available every year to meet the needs of the population in the mid of the next century. The international leadership as well as the biotech industry should instead put all their efforts in cutting down on food wastage. And believe me, this will keep a cap on global warming, and also help in restricting any further damage to the soils, water and the environment.

Additional Reading: Do GM Crops Increase Yield? The Answer is No.
URL: http://bit.ly/r0Owbr

When human food is cheaper than cattle and poultry feed.

The clamour for freezing the wheat procurement price is not dying down. Ironically, it is being spearheaded by the same organisation that is supposed to economically work out the procurement price in the first place -- the Commission for Costs and Prices (CACP). In an editorial, The Economic Times (Wheat Mess, Jan 8, 2013) calls the decision to hike the wheat price by Rs 650 per tonne as 'ridiculous and inane'. It of course draws its opinion from the "wise men of the Commission for Costs and Prices", as it acknowledges.   

Wheat procurement price is Rs 1350 per quintal for the 2013 marketing season. Paddy procurement price is Rs 1250 per quintal for the ordinary varieties. 

While pro-market economists are aggressively pursuing for a policy shift that forces the government to withdraw the support prices, it is interesting to see prices of cattle feed going up through the roof of the cattle sheds in the past one year. Isn't it strange that while the price of foodgrains -- human food -- remains almost static (if you were to adjust for inflation), the price of cattle feed is skyrocketing? 

Cattle feed is in fact more expensive than human food ! 

The Progressive Dairy Farmers Association says: "prices of deoiled rice bran jumped from Rs 700 per quintal in June to Rs 1,050 a quintal; while price of mustard cake shot up from 1,500 per quintal to Rs 2,100 a quintal. Similarly, cost of  deoiled mustard cake and soybean jumped to Rs 1,800 and 4,200 per quintal in just one month, he added. Farmers even accused solvent plant owners and big hoarders of stocking cattle feed ingredients which fuelled the prices." The Tribune (Nov 24, 2012) quotes a dairy farmer Sukhdev Singh of Baroli in Punjab as saying: "The Milk cooperatives purchases milk at Rs 20.50 per litre and sells it for Rs 34 a litre. Feed alone costs Rs 21 per kg as against Rs 14 per kg last year. How will we survive?" 

Let us now look at the poultry industry. In a report in The Tribune (Cold conditions lead to increase in poultry prices, Jan 9, 2013), G S Bedi, President of Amritsar Poultry Industry Association, says because the price of maize (which constitutes 60 per cent of the feed) has gone up from Rs 1100 to Rs 1580 per quintal, and with the price of soya also increasing, the cost of production has gone up by 25 per cent. The news report states that the prices of poultry feed has risen by almost 50 per cent over the last year's price. 

This brings me to the basic question. Why is that the Commission for Costs and Prices has no problems with the rising cost of cattle and poultry feed? I am sure it will project the unexplained hike in cattle and poultry feed prices as a reflection of economic growth. But when it comes to the price for human food -- wheat and rice, farmers don't deserve any profit over the cost of production. A price incentive to farmer (forgetting that he also lives in times when inflation is soaring all around him), is something that is projected as anti-growth !

Punjab suicides: Those who are responsible for the agrarian crisis are being asked to provide solutions.

In a recent interview with this newspaper, agricultural scientist MS Swaminathan rightly warned,”If agriculture goes wrong, nothing else will go right.” With over 2.9 lakh farmers ending their lives across the country in the past 15 years, and now with reports of about two farmers committing suicide every day in Punjab, we are staring at a grave crisis on the farm front.

The problem has now extended its deadly reach to Punjab, India’s food bowl. Amid reports of a record harvest of wheat and rice, the state increasingly faces a terrible agrarian crisis. The paradoxical situation is reflected in an alarming rate of farm suicides. A study jointly conducted by Punjab Agricultural University, Ludhiana, Punjabi University, Patiala, and Guru Nanak Dev University, Amritsar, estimates that more than 7,000 farmers and farm workers have taken their lives in the past 10 years.

While farmers are being blamed for low crop productivity, which is leading to distress, in Punjab it is just the opposite. Despite high productivity, heavy mechanisation and a massive application of chemical fertilisers and pesticides, farmers are at the receiving end. Strangely, suicides are happening in a state which has more than 95% cultivable area under assured irrigation. There is something terribly wrong here.

Like elsewhere in the country, mounting indebtedness has been cited as the main reason. While input prices have risen tremendously over the past two decades, farm prices have more or less remained stagnant, if one were to adjust for inflation. The United Nation’s Food and Agriculture Organisation (FAO) data shows that farmgate prices internationally have remained frozen for the past decade. Under such harsh economic conditions, it is futile to expect intensive farming, based on high application of external inputs, to turn profitable for farmers.

Heavy mechanisation has remained the bane of Punjab’s agriculture. It crossed the threshold level long ago. Acute paucity of farm labour is visible but to promote sophisticated and expensive machinery to address the labour shortage problem has not paid off well. Take, for instance, the case of tractors. There was a time when the tractor was a symbol of pride. Today it has turned into a symbol for suicide. At a time when every second farmer household owns a tractor, about 20,000 big tractors, now of 60-90 horse power, are sold every year. Instead of setting up small farmers’ cooperatives and companies for custom hiring, the thrust is on subsidising expensive machines for individual farmers to buy.

Though now the focus is on shifting at least 12 lakh hectare land from paddy to maize and other cash crops in order to reduce pressure on groundwater, a ‘more of the same’ technological approach is unlikely to address the fundamental problem of growing unsustainability. It is well recognised that much of the crisis in sustainability is the outcome of excessive use and abuse of chemical fertilisers and pesticides, which cause irreparable damage to soil, water, the environment and human health. With the average consumption exceeding 6,900 tonnes per year, Punjab is the largest consumer of chemical pesticides in India. I have seen farmers growing crops without pesticides in a separate portion of their farms for personal consumption. But for the markets, they literally douse the crop in pesticides.

In a study, the International Rice Research Institute (IRRI) in the Philippines had sometime ago concluded that there was no need to spray pesticides in rice. Farmers in the Philippines, Vietnam, Bangladesh and India have produced better rice crops without using chemical pesticides. At least a beginning could have been made to reduce pesticide consumption in rice. Similarly, in the case of cotton, which consumes more than 50% of the total pesticides applied, the emphasis has remained on promoting the sale of genetically-modified Bt cotton seeds. Still, pesticide consumption is on the upswing.

Intensive farming has promoted excessive mining of groundwater. As a result, more than 4.5 lakh submersible pumps have been installed to pump out water from a depth below 300 ft. The alarm bells on drying aquifers have gone unheard. Till efforts are made to revisit the farming strategy and make corrective decisions based on the underlying promise of restoring sustainability and enhancing economic viability, I don’t see a bright future for farming in Punjab. The tragedy is that those who are responsible for the crisis are being asked to provide solutions.

Source: Sowing the seeds of an agrarian crisis, Hindustan Times, Jan 2, 2013. http://bit.ly/TIGNiZ

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 

Ground Reality to change with times.

As we enter 2013, you will see Ground Reality in a new format. Some of you have sent me suggestions or spoken to me on phone asking for short and immediate comments on topical issues. I have pondered over it, discussed it among my colleagues, and agree that it is time to make it more relevant and therefore bring in quick short notes on events and developments that need immediate response/reaction/analysis. Usually I have been penning down longer essays and analytical articles, which also would continue but in addition you will have shorter notes/comments. Sometimes, it could also be more than one short comment in a day.

The idea of course is to make it more relevant and newsworthy. It would also provide an immediate reaction to some major developments which will have bearing on hunger and food security. For the journalists I am sure this will come in handy as a reaction, and also help remove doubts and confusions, if any. For the policy makers, academicians, economists, scientists and members of civil society the new format will hopefully be more informative and in many cases help clear the mist over the real intention behind the move.

This also draws inspiration from the blog Nobel laureate Paul Krugman writes. Sometimes he writes just two paras, but that is what is immediately needed. I am not trying to ape him, but feel motivated to make this blog more interactive and useful.

Happy reading.