A crisis in the rice economy

West Bengal's rice producers are fast becoming victims of State-level differences in the political control of agricultural cost structures and of coercive relations of exchange involving even more victimised producers elsewhere in India.

OVER the centuries, the flood plains and low valleys of West Bengal have been engineered for the cultivation of rice. Over the last two decades, a combination of structural, political and market factors together with the products of second generation technologies for the production, processing and preservation of the staple food has turned the State from being deep in deficit to well into surplus. West Bengal now produces 15.3 million tonnes of rice, 2.3 million of which is thought to be marketable surplus. Yet a deep crisis is emerging from this success, one owing as much to politics and policies as to technologies and markets. This year, farmers are facing ruin, being chopped to pieces in a price scissors. How can this be? Our explanation is the preliminary result of fieldwork on the system of markets for rice in Birbhum and Bardhaman districts, conducted in April to June this year.

On the one hand, the reduction of subsidies on fertilizer, pesticides and electricity has raised the costs of production to Rs.3,000 to Rs.3,100 a bigha (roughly a third of an acre here). The cost of labour is also increasing by the year. These costs mean that for the main aman season, the value of total output is equal to or slightly less than the cost of production, while in the boro season, whose growth has been the massive success story in West Bengal's agricultural development, the additional cost of irrigation means that producers face heavy losses.

The other arm of the scissors is the price received for paddy. Prices for the paddy varieties - (other than superfine), which make up most of the marketed surplus - have slumped dramatically from Rs.640 to Rs.790 a quintal in 1999 through Rs.450 to Rs.550 in 2000-01 to a range of Rs.320 to Rs.515 over the post-harvest period during this agricultural year. Even the price of superfine paddy has collapsed from a post-harvest average of Rs.1,700 a quintal in 1999 to Rs.690 in the first six months of this year, a drop of 60 per cent.

Many forces contrive to produce this agricultural crisis. Let us look at supply first. Two sets of factors matter, first those which are market-induced. Farm gate prices are now influenced by prices in other States. Since the reforms of 1998-99, supply in one State can affect supply in another: grain can flow unimpeded between States. But States themselves have control over certain of the costs of production, can give limited subsidies to the cost structure and therefore crucially affect 'open market' competition. Currently there are State-level differences in the prices of fertilizers, pesticides, electricity and transport. As a result, unmilled paddy is flowing into West Bengal from Bihar at prices which are Rs.20 to Rs.30 lower. Furthermore, debt and distress sales in the nearby States of Jharkhand and Orissa mean that impoverished producers are parting company with their paddy at prices as low as Rs.250 a quintal, which then finds its way to West Bengal through the system of markets.

The second set of factors affecting supply are the price forces resulting from the way the procurement policy is managed. The Food Corporation of India (FCI), which supplied some rice to West Bengal's public distribution system (PDS), does not itself purchase in West Bengal; procurement is controlled by the State government's Food Department. This year's support price for paddy, which is calculated each year in relation to the costs of production, is unusual in being above, not below, the open market prices. Farmers wanted to sell to the Food Department at Rs.685 a quintal (rising to Rs.900 with transport and packing premia), but until June it was not allowed the funds it needed to intervene. In the past, when the procurement price was well below the market price, rice millers (from whom the State procured rather than farmers - because the transaction costs of procurement were greatly reduced by keeping the number of procurement sites to a minimum) used every means at their disposal, from political patronage to the courts, to delay their compliance with procurement targets. (They would also hoist their open market sales to compensate for their procurement losses.) This year the very mediocre achievement of targets (down to 10 to 12 per cent in 2001) is the result of the altogether inappropriate timing of the release of funds and a tight, politically directed, lid on their quantity. Stores full to capacity are yet another serious constraint on procurement - which leads us to the forces acting on demand.

Again we can examine market forces and political forces. As West Bengal achieved surplus, traders were able to export rice legally and illegally to adjacent countries; most of it going to Bangladesh, but some to Nepal and Bhutan. While domestic liberalisation has freed up supply, global-regional liberalisation freezes demand. Bangladesh has found cheaper supplies from Myanmar to the south and has succeeded in imposing a 40 per cent tax on rice imports from India. Other adjacent countries are also importing better quality rice at lower prices from elsewhere in Asia - Myanmar, Thailand and even Taiwan. These latter countries have not yet started exporting rice to West Bengal. However, mill owners and traders are right in assuming that more problems will be created if rice is imported from countries where its production, processing and storage are subsidised to a greater degree than it is in West Bengal.

The Food Department does not buy rice from producers but from a small set of large-scale rice millers who until recently had localised monopolies through webs of licensed moneylending and paddy-buying agents. In the first half of 2002, the price of the very small amount of rice that had been locally procured by the Food Department at prices well above those in the open market for coarse parboiled rice did not percolate back to producers. The system of fair price shops, which is fed by Food Department rice and also by rice procured by the FCI in other States (5.4 million tonnes in 2001-02), operates a well known bifurcated price policy in which the price for ration card holders above the poverty line is above the open market price while that for those below the poverty line (BPL) is heavily subsidised. States like West Bengal, however, are under very heavy pressure to reduce subsidies. Hence the apparently generous increase in the BPL ration quota from 10 kg to 35 kg, but not allowing people to buy in quantities less than this effectively debars the poor from their subsidised food. To prevent the consequence of ever increasing stock inventory, much of this rice is alleged to be sold on the open market instead, enabling fair price shop retailers to reap the rent.

Since 1999, when hitherto unlicensed small rice mills and traders, all previously vulnerable to harassment for their illegal operations and unable to get bank credit for lack of a licence, were at long last allowed licences, the old, highly concentrated, state-backed system of rice mills and paddy agents has been threatened by a proliferation of intermediaries. This year, however, the old commercial elite has the chance to demonstrate its economic power. Some producers have been trapped by low returns into credit relations which make them, to all intents and purposes, in thrall to the rice millers and paddy traders who lend money before the harvest and expect repayment in kind. These are the exchange relations of an earlier era. Traders are also paying producers in instalments and tying them down by these means.

Many producers in West Bengal have not taken this lying down. Refusing to sell at uneconomical prices, they are storing at home and playing a waiting game. But when local traders know that the producers' physical capacity has been reached and that they can store no more, they buy the unstorable paddy at prices that give the producers negative returns. The Forward Bloc's Farmers' Association has mobilised extensive political protests through Block Development Officers (BDOs) all over the State. Expressed at the local level, these messages have been hard to coordinate, but BDOs are relaying demands to the Chief Minister. The bandh called by the Trinamul Congress in June also featured the paddy price crisis on its agenda. Perhaps as a result, in June the Reserve Bank of India sanctioned Rs.181 crores for West Bengal's Food Department to step up the purchase of paddy. Of this, only Rs.50 crores has been released to agricultural cooperatives. At the time of writing, paddy purchasing operations had started in Birbhum. But the funding of procurement amounted to an inadequate token - unable to support more than an estimated 1 per cent of production.

There is no doubt that the politically protected oligopoly through which coarse rice has been supplied for decades to West Bengal's consumers is threatened as never before - not only by the atrophy of local procurement (for which they acted as agents) and by new forms of competition (from the recent proliferation of traders), but also from the transformation of the margins between paddy and rice caused by the change in the political regulation of regional markets.

This turn of events is at the expense of West Bengal's producers. They are fast becoming victims of State-level differences in the political control of agricultural cost structures - not just within India but also elsewhere in Asia - and of coercive relations of exchange involving even more victimised producers elsewhere in India. What might be done about this? Clearly, uneven domestic liberalisation is to blame for prices that undercut costs of production. This is a matter for the coordination of State governments and nation-states in the region. Forms of liberalisation ignorant of agrarian structure and inattentive to the havoc wrought on producers by depriving them of options for credit are also to blame. Local States have failed to anticipate such outcomes. They are also not planning for rural economic diversification, either in agriculture itself or in livelihoods in the non-farm economy. Much of the physical environment is not suitable for crops other than rice. It is not simply 'the market' that is to blame for this kind of destructive development, it is also the state. Ultimately it is not Kolkata but New Delhi that must coordinate the re-regulation of agricultural markets so that they do not ruin a home market that has taken decades to create.

P.K. Ghosh works at the National Council of Applied Economic Research, New Delhi. Professor Barbara Harriss-White is with Queen Elizabeth House, University of Oxford.