An open letter to the new Agriculture Minister
by K P Prabhakaran Nair on 02 Jun 2014 0 Comment
Honourable Minister,

You have taken charge of a portfolio which is most vital to the development of India because it is a sector that affects the livelihood, in one way or another, of close to 65 per cent of the population. The country experimented with a factory-type agriculture, modelled along the lines of American agriculture, and it was branded as “green revolution”. This happened in the early/mid 1960s and continued until about the beginning of the 1980s when it fell flat on its face.


Crop yields were either stagnating or declining, our once rich and fertile soil resources were all degraded, aquifers were fast drying out, bio-diversity was vanishing at break-neck speed due to monoculture (rice-wheat) farming, ground water became no more potable due to excess loading of fertiliser residues, primarily from unbridled application of urea. The cradle of the green revolution, Punjab, witnessed all these and even cancer was spreading like wildfire in Gurdaspur district, due to excessive and uncontrolled use of chemical pesticides. 


And then came the “reforms”.


One of the basic tenets of economic reforms of 1991 was to dismantle the ‘licence raj’ in manufacturing and services, forcing greater competition, higher efficiency and faster growth. Corruption raised its ugly head when discretion in grating licences was exercised. There is no need for me to dwell on the mammoth cases of corruption that followed. The nation knows it well and the election results are a fitting answer to this blackmail. But, did we hear at any time before that, that agriculture also needs freedom from myriad controls to prosper? Look around, one would see that agriculture continues to be under numerous controls despite being the biggest private sector enterprise, and nearly 55 per cent of the country’s workforce is engaged in this exercise.


The case of agricultural product exports is the most illustrious example of the governmental controls. Agricultural production, per se, is not under any control. Yet, controls abound in the marketing and post-harvest stages all along the value chain, which ultimately impacts farmers’ incentives to produce, and, therefore, has serious consequences on investments and growth in agriculture.


The most subtle way of ‘implicitly taxing’ an efficient and competitive sector is to put export controls on its products. The best example is that of rice and wheat, the two largest crops of Indian agriculture. Until 1994 no export of rice or what took place, because of the export ban. Then rice exports were opened towards the end of 1994, and India emerged as the second biggest exporter of rice in the world in 1995. This happened for the first time as Indian rice was globally price competitive. But as wheat exports were opened, in 1995, domestic prices started taking a lift, and controls on wheat and rice exports were brought back in 1996. That was the end of freedom for rice and wheat exports for the next four years, 1996-2000.


Only when domestic grain stocks started overflowing with state agencies, exports were opened again, but to be stopped yet again during 2007-11. The result of 2007-11 export controls was similar as that of 1996-2000: bulging stocks with the government that touched 80 million tonnes on July 1, 2012, leading to large wastages due to paucity of proper storage space with the government.


During the two years of 2012-13 and 2013-14, India has exported roughly 40 million tonnes of cereals (rice, wheat and corn, in total), which it has never done before. What would have happened to the domestic prices of these cereals if exports had been banned? The farmers would have been most severely affected, and, the Government would have been left with bulging food stocks in the Food Corporation of India’s godowns, and led to much wastage due to great paucity of good storage facilities.


Almost a similar story can be observed with regard to edible oils export in bulk, and also of pulses. An argument that is often dished out is that when free export is allowed, domestic prices escalate, leading to paucity of the produce in the country. Not many people understand that a better route would be to encourage the farmer to produce more through all possible incentives, or subsidies, if you wish to call it so. Look at France, which is at the forefront in European Union (EU) in agriculture. The farmers there are a greatly pampered lot. The 27-nation bloc of the EU has set aside a big chunk of its new 7-year budget to support agriculture, precisely Euro 363 billion. That works out to approximately Rs 26 lakh crores of the total Euro 900 billion (approximately Rs 69 lakh crores), a whopping sum, due to strong political pressure from France, the EU’s major agricultural partner. Can India think on those lines? Our agriculture will simply sky rocket!      


In the last decade or so, two agri-commodities, cotton and corn, have experienced technological breakthrough, doubling their production over a decade. Anywhere from 20-30 per cent of their production is being exported. If the government bans their export, it can play havoc with their domestic prices. The so-called revolution in cotton and corn can be wiped out within two to three years of export controls! The government’s answer is that putting controls is to protect the poor. But, why do it by suppressing the prices for peasantry? Why does the general exchequer not foot the bill to protect the poor? By suppressing farmers’ prices, the government will make them also join the ranks of poor. And that is precisely what has happened over many years.


The domestic agri-markets are strangulated through APMC (Agricultural Produce Marketing Committee) and ECA (Essential Commodities Act). It is not only exports, but domestic markets are also strangulated through monopoly of APMC and ACA. APMC is skewed in favour of commission agents, oligopolistic structures, and leads to rent seeking. Time has come to break its monopoly with a clean sweep to allow anyone to buy directly from farmers, allow private sector to establish their own mandis, electronic platforms for auctions, futures trading, and negotiable warehouse receipt system to help farmers, with due regulatory frameworks. These new marketing systems will help farmers to get the best possible price for their produce.


Further, ECA, which empowers state governments to put stocking limits on traders, levy on millers, restricts free movement of commodity across the country, is basically a draconian law of World War II. India is not in that situation and this law needs to be either abolished or amended drastically so that the private sector has a much bigger role to play in stocking and moving goods across the length and breadth of the country. Fears of ‘hoarding’ need to be tackled with an open import policy, at low duties. Similarly, restrictions on food processing and organised retailing need to go to give full benefits to agriculture. The agriculture of tomorrow has to be in sync with processing and retailing, to bring prosperity to farmers.  

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