A policy for unfreedom

The U.P. governments Agriculture Infrastructure and Investment Policy is no solution to the current agrarian crisis; instead, it is likely to intensify the crisis.

In New Delhi

THE Mayawati government in Uttar Pradesh has just announced the Agriculture Infrastructure and Investment Policy, which seeks to bring about radical changes in the structure of trading of agricultural produce. It has been described as a measure that would provide more freedom to the farmer, by allowing him to sell his produce to any trader he wishes to and at a price mutually settled between him and the buyer. As it happens, this was always the case the difference now is that large firms are being let into the picture. The new policy opens up agricultural marketing to large corporate entities that can now buy directly from farmers, sell them seeds and other inputs, and provide credit and crop insurance as well.

The policy is being described as one that will supposedly eliminate middlemen by getting rid of the small traders who have traditionally dominated village markets and formed the larger part of the supply chain for agricultural goods. This is a rather nonsensical idea, since corporates are as much middlemen as small traders and, indeed, are more likely to generate higher margins for themselves because of greater market power.

In fact, there are only two organisational forms that actually eliminate middlemen: cooperatives and state trading corporations. Large corporates are simply private middlemen with greater clout, greater potential for monopolistic practices and greater ability to impose conditions upon the small farmers with whom they deal. So the new policy, far from providing greater freedom and therefore better conditions, is actually likely to decrease competition over time and cause farmers to deal with a few large players who have substantial bargaining power. Therefore, it is fraught with risks and potential problems for farmers.

According to the U.P. governments press release, the option for purchasing goods directly from farmers will be open only to large companies with a net worth of at least Rs.500 crore and with a concrete plan of investing a minimum of Rs.2,500 crore over a period of three years. It is envisaged that these large private players will provide better seeds, fertilizers and pesticides as well as arrange for finance and crop insurance for farmers to overcome the hazards of crop loss. Private investors will be encouraged to invest in food processing, storage, packaging, transportation, distribution and export. The policy also clearly advocates contract farming, though this is apparently to be monitored by the State government.

This policy requires amendment of the Krishi Utpadan Mandi Samiti Act of 1964. It will now allow private investors to set up private mandis and to purchase crops directly from the farmers. Further, large private investors will also be allowed to set up retail commercial centres in places of their choice. There is some attempt to recognise smaller players; thus, small entrepreneurs are also to be allowed to set up kisan bazaars in the joint sector. Farmers will al so have the right to sell their produce directly to consumers although of course it could be argued that they have always had this right the difficulty has been that they have not been able to do so in practice.

The most fundamental problem with this strategy is that it does not realise that the entry of big, private players typically means more concentration in agribusiness generally, and it can also lead to higher margins thereby generating worse conditions for both farmers and consumers. The most widely discussed dangers of corporate-dependent agriculture include speculative activity that can affect prices for consumers; dangers of monopoly or monopsony and anti-competitive practices emerging especially in particular areas and with respect to certain commodities; denial of the full benefits of price revisions to farmers; and so on.

The classic example of this is recent experience in the country that is frequently cited as the ideal to aim for: the United States. Processes in the period between the early 1970s and the 1990s, when U.S. agribusiness became much more concentrated and vertically integrated, are especially instructive. Large companies had a growing pricing advantage over farmers and livestock breeders, and this was expressed in rising spreads between the prices received by farmers and livestock breeders and retail prices.

Thus, while total food spending in the U.S. increased dramatically by more than 600 per cent over this period, farm receipts barely increased even in current price terms. In constant price terms (that is, calculated at 1982-1984 real U.S. dollars) between 1970 and 1999, consumer food spending increased by 30 per cent and the marketing bill rose by 54 per cent but farm value actually declined by 21 per cent.

This process accelerated in the 1990s. Between 1990 and 1999, marketing costs of food rose by 45 per cent, while the farm value of food purchases dropped by 11 per cent. As a result, by 1999, marketing costs accounted for 80 percent of total consumer food spending, with farm value accounting for only 20 per cent.

This entire process has been dramatically described as follows: Farmers can see themselves being reduced from their mythological status as independent producers to a subservient and vulnerable role as sharecroppers or franchisees. The control of food production, both livestock and crops, is being consolidated not by the government but by a handful of giant corporations. While farmers and ranchers suffered three years of severely depressed prices at the close of the 1990s, the corporations enjoyed soaring profits from the same line of goods. Growers are surrounded now on both sides facing concentrated market power not only from the companies that buy their crops and animals but also from the firms that sell them essential inputs like seeds and fertilizer. In the final act of unfettered capitalism, the free market itself is destroyed. (William Grieder, The last farm crisis, The Nation, November 20, 2000.)

It is extraordinary that this model of growing corporatisation of agricultural and agro-processed commodity production is being upheld as an example for other countries and is being advanced as a solution for Indian agriculture, particularly now in U.P. The adverse effects of such a policy on U.S. farmers, who are already quite well off, and financially and politically strong, are now apparent. But this process is likely to be much more devastating in terms of its impact on Indian cultivators, a majority of whom are already operating at the margin of subsistence. Further, such a policy will also lead to tremendous job loss in the retail sector, as small traders (the apparently offensive middlemen) are pushed out by large companies using more capital-intensive techniques.

The case for corporate agriculture and contract farming has emerged only because public institutions have failed to provide farmers with the essential protection and support required for viability on a sustained basis. What cultivators in rural India need most of all today is the following combination: a basic price support mechanism that ensures that costs are covered; efficient extension services that provide information about possible crops, new inputs and their implications and new agricultural practices relevant for the particular area; and the availability of reliable and assured credit at reasonable rates of interest.

There is no reason to expect that private corporate firms will deliver these requirements since their interest would be to maximise profits in the short term, and they are not necessarily interested in the long-term sustainability of cultivation. Indeed, the experience thus far suggests that private corporate involvement in agriculture tends to be unstable and damaging to small interests. Internationally and in India as well this has led to demands for the revival of cooperatives and renewed involvement of the public institutions that had earlier reneged on their responsibility.

The argument is often made that the combination of price support, credit provision and extension services is no longer possible for State governments to deliver because of their current fiscal crunch and that is why they are being forced to encourage contract farming. This argument is specious at best. If private corporates can borrow to undertake these activities, there should be no reason why governments and cooperative societies cannot do the same, especially when public involvement is likely to take a more socially desirable form.

This means that in U.P. and elsewhere in the country, this new strategy is no solution to the current agrarian crisis; instead, it is likely to intensify such a crisis.