Farm crisis in India

Louis Proyect lnp3 at
Wed Sep 11 07:13:19 MDT 2002

Le Monde diplomatique, September 2002


India: free markets, empty bellies


The outgoing World Trade Organisation director-general, Mike Moore, said
the WTO's greatest motivation was the people it served. India's small
farmers do not see it that way. The nation's agricultural policy has long
been geared to meeting its own needs and being self-sufficient in food. But
the WTO is pressing India to open its markets, and so agriculture is being
destroyed as big foreign producers flood in. And people stay hungry.  by
our special correspondent ROLAND-PIERRE PARINGAUX *


"IT'S too hard being a farmer here. I've tried everything, but I always
lose." BT Gangappa, 33, farms at the village of Kalmala, 20 km from
Raichur, Karnataka state, in southern India. His only resource is three
hectares of land on which he grows rice and peppers. But for several years
this has not been enough to feed his wife and four children. Like many
others in this corner of the Deccan plateau, he made a profit growing
cotton for a long time. In 1996 he made 130,000 rupees ($2,600) on an
investment of 35,000 ($745). Everything was cheaper then. Seed, pesticides,
water, electricity, fuel and even credit were subsidised by the state. A
kilo of cotton cost seven rupees to produce and fetched 26 rupees. Now the
situation is reversed: production costs 25 rupees a kilo, but the market
price is only 17. The Raichur spinning mill has closed down, victim of bad
management, competition and the quality of local cotton. In 1998 violence
followed attempts to introduce transgenic cotton in the region (1).

Many farmers fell back on growing rice and peppers. But last year the
market offered only 350 rupees ($7) for a quintal of paddy rice that had
cost 400 rupees ($8) to produce. That was half the price paid for the same
quality the year before. Some stored their crops, hoping for better days
when prices would recover or the government intervene. Pressed by
creditors, others sold at a loss. Gangappa sold to a moneylender who paid
him 10% less than the market rate. The price of peppers fell last year.
Gangappa made a loss of 10,000 rupees ($200), putting him even more at the
moneylender's mercy.

For his neighbour, MB Yellapa, things were better before too. He used to
grow sunflowers and groundnuts, but two years ago falling subsidies,
competition from imports and rising production costs defeated him. The
prices of certain seeds sold by an Indo-American multinational increased
almost tenfold, from 25 rupees to more than 200 a kilo in a few years.
"Except for rice, we have to buy seed every year because it produces little
in the second year," he explains. Last year he invested in rice and peppers
and fell heavily into debt.

The situation is the same in nearby hamlets bordering an irrigation canal.
One major rice grower there refused to sell, blaming imports of cheap rice
for the low prices. Another left his land fallow and is hiring himself out
by the day as a labourer; he says it is not enough to live on. The
villagers speak of a man called Satiah who did not have the strength to
carry on. Trapped between market forces and the moneylender, he swallowed
pesticides and killed himself. Sometimes the state compensates the family
for low prices. The money is used to repay the moneylender; otherwise he
takes the land and the family ends in a shantytown.

A few thousand kilometres to the north, the desert state of Rajasthan is
the victim of a good harvest. Here, too, farmers' organisations and
opposition movements accuse the World Trade Organisation (WTO) and its
liberal creed. They believe the agreement that forced India to throw open
its borders to international trade to be responsible for the crisis in
agriculture. More than 700m Indians who eke out a living in the countryside
are affected.

Over the last few years opponents of Atal Vajpayee's government and its
neo-liberal policies have demonstrated against the WTO, World Bank and
Western transnationals, accusing them of pushing for an industrialised
agriculture totally unsuited to Indian reality. Their policy plays into the
hands of the rich countries and agri-business giants, and it is ruining the
subsistence economy and systems of food security which until now enabled
tens of millions of small farmers and workers to survive. The consequences
for a country of a billion people are all too evident.

The WTO does not have sole responsibility for the difficulties agriculture
is experiencing. In January 2001 an official report on the application of
the WTO agreement in Karnataka state underlined the deficiencies in
infrastructure, training, technology, quality, competitiveness, education,
and information (2). It is a mess, but not an exceptional mess. WTO
precepts have not been the panacea that some promised to persuade the
Indian government to open India's markets.

India joined the Uruguay round of multilateral trade negotiations in 1994.
The agreement, which created the WTO, for the first time required trade in
agricultural products to be liberalised by lowering tariffs and non-tariff
barriers. Those who signed were to open their doors to imports, cut support
measures and abolish export subsidies. Like other developing countries,
India was allowed time to adjust. But the course was set.

In theory, the law of the market and fair prices ought to make Indian
agriculture more competitive internationally while reducing public sector
involvement. That was said to be the best way to revitalise a sector that
had remained insular, overprotected, undercapitalised and uncompetitive.
But Indian farming had remarkable success; in a few decades it had moved
from food dependency to self-sufficiency and even exported.

With India's many small farms, averaging one hectare, high production costs
and poor yields, agricultural performance lags far behind industry and
services, driven by a communications boom and a high-spending urban middle

With a supposed comparative advantage, agriculture was to have been the
first to benefit from the post-WTO opening-up. But plummeting world prices
caused a crisis, and the measures imposed by the WTO made matters worse.
Growth slowed in the 1990s, and farming fell behind in infrastructure and
credit. The gap between urban and rural incomes widened. Absolute poverty,
which had fallen from 55% to 35% of the population in the 1970s and 1980s,
began to increase again.

In 2000 an Indian ministry of agriculture booklet summed up the situation:
"The growth in agriculture has slackened during the 1990s. Agriculture has
become a relatively unrewarding profession due to an unfavourable price
regime and low value addition, causing abandoning of farming and migration
from rural areas. The situation is likely to be exacerbated in the wake of
integration of agricultural trade in the global system, unless immediate
corrective measures are taken" (3). RC Jain, additional secretary at the
Department of Agriculture, says there was a 15% erosion in farmers' incomes
last year. Many now barely earn a dollar a day and most are in debt.

Little benefit

Farmers have seen little benefit from the 1994 agreement. Between 1999 and
2001 import restrictions were lifted on more than 2,700 products. The
latest list took effect in 2001, two years ahead of the deadline. Some
commentators saw such haste as a gesture to the US to get it to lift the
embargo on technology transfers. The embargo was imposed on India after its
1998 nuclear tests.

This is worrying. The first major test on imports did not reassure. In the
years after WTO accession, the government cut customs tariffs on vegetable
oils, commodities much in demand by industry and households. The Indian
market was almost self-sufficient and world prices high. But world prices
fell and local producers were disadvantaged. They were too expensive to
export and they lost part of the home market. Within a few years, cheap oil
from Malaysia, Indonesia, the US and Brazil took 40% of the market. For
some that was a blessing. But for millions of farmers and local processing
industries it was a disaster. More than 100 out of 115 oil works have
closed down in Karnataka (4).

The government is trying minimise things. According to Jain, "apart from
oil there have been no massive imports in recent years and no negative
effects of imports on agriculture". He claims the WTO agreement allows the
government to reimpose duties and tariffs on about 800 products. But GM
Nagara, a trade union official in Bangalore points out the government has
not done so for vegetable oils. He fears the same will happen with sugar
and dairy products. India is self-sufficient in these but external pressure
is strong.

Liberalisation is damaging the system of subsidies, price guarantees and
food aid that much of the population has long enjoyed. It is considered too
complex and expensive. Cuts in public sector support for production,
marketing and incomes are planned. As is the gradual dismantling of the
Public Distribution System (PDS), the national network of state shops that
provide low price food aid to tens of millions of Indians. The government
decided to increase the price of cereals supplied by the PDS to make it
profitable. Many people below the poverty line (less than a dollar a day)
could no longer afford them. Others found cheaper food on the market. The
system lost customers. Shops closed. Subsidies were cut, putting millions
of people in a precarious position.

For the first time in many years food consumption is declining while cereal
stocks are piling up. "It makes you wonder whether the lives of millions of
people are valued or whether they are considered insignificant when
productivity is the issue," says Professor Kamal M Chenoy of Nehru
University, New Delhi; he is critical of "policies imposed by a minority of
citizens" ignorant of the reality of the countryside or indifferent to its
fate. But it is impossible to understate the responsibility of Indian
governments; they have been unable or unwilling to create the environment
and infrastructure for developing a sector on which almost three quarters
of the population depend.

The state still has protection measures. But they violate the spirit of the
WTO, and they are often costly and difficult to deploy. Some 20
agricultural products are covered by a minimum support price, but it is
often below the market price and the government cannot afford to buy every
unsold crop. "Indian farmers have been more affected than ever by the drop
in world prices, despite price guarantees on 23 agricultural products.
Before the market opened, this price support system operated in a closed
circuit and international prices have hit it hard," explains Abhijit Sen,
professor of economics and former chairman of the Agricultural Prices
Commission. He also says that these support measures are "far below what
the WTO allows".

Jain points out: "India can't afford to give more than 1% of its GDP in
support, while the WTO agreement allows up to 10%". He is referring to the
third component of the WTO agreement, the elimination of export subsidies.

India is under pressure from the WTO to reduce aids and subsidies and lower
tariff barriers. But the industrialised countries are constantly raising
theirs and access to their markets is still difficult. Figures published by
the Organisation for Economic Cooperation and Development (OECD) show that
in 1999 its members spent $283bn on agricultural subsidies (European Union
$114bn, US $54bn and Japan $58bn), while India spent only $7bn. That
represents 65% of agricultural GNP for Japan, 49% for the EU, 24% for the
US and 6.5% for India. When it comes to tariff barriers, India often cites
the 2,000% duty Japan imposes on foreign rice. India is a major rice producer.

Many feel they have been drawn into a system of double standards that
increases the inequalities between nations instead of correcting them. Poor
countries are forced to cut vital subsidies while the rich are allowed to
increase theirs. With WTO blessing they use liberalisation to take control
of markets and destroy commercial activity by dominating them. This causes
a sense that there has been profound injustice, if not deceit. "The West is
making the rules and cheating as well," a senior official says. Jain puts
it more diplomatically: "The WTO still has serious shortcomings that work
in favour of the developed countries." A very experienced negotiator, he
believes that "Indian agriculture would become competitive if subsidies
were abolished the world over".

There are regular calls for the WTO agreement to be abandoned or revised.
Some believe its effect on food security has been devastating. Former prime
minister Haradanahalli Dodde Deve Gowda considers it impracticable in the
light of Indian reality, especially the many small marginal farmers. SM
Krishna, chief minister of Karnataka state, calls for it to be renegotiated
and for better consultation with central government. Caught between WTO
restrictions and its obligation to assist rural areas, the government would
very much like to renegotiate. "We keep telling the WTO that you can't put
Indian agriculture on the same plane as that of the developed countries
geared to export. We need to be treated differently with special exemptions
to protect our farmers."

Jain explains that India is trying to get more advantageous protection
measures. It wants countries where much of the population is living in
absolute poverty to be allowed to support agriculture. That is the only way
to meet the challenge of food security, safeguard the environment and
protect rural jobs.

This is not about taking decisions that will distort trade but about
survival. The conventional approach of market rules needs to be made more
flexible. Money spent in these areas should not therefore be included in
aggregate measures of support (AMS). The WTO agreement on agriculture
states that AMS must not exceed 10% of the total value of agricultural
production in developing countries and 5% in developed countries.

More aid to the rural sector is essential. Millions of lives are at stake.
It is also important to prevent a mass exodus to the towns by people with
few other prospects of employment. It is an explosive issue and the
authorities are doing all they can to get people to stay in the countryside.

Dr S Swaminathan, an agricultural expert, is not against a modest dose of
WTO. But he believes quantitative restrictions on imports should be
restored when they are obviously having a detrimental effect, very much the
case with vegetable oils. "Jobs and livelihood security for all Indians
must be the bottom line of all public policy, national and global" (5), he
says, implying that such priorities have not always been the case.


* Journalist

See also: When even too much is not enough

(1) In 1998 farmers in the Rashur region destroyed crops of Bt Cotton, an
insect-resistant transgenic variety created by US multinational Monsanto.
They said there had been insufficient investigation of the risk of
contamination from a genetically modified organism (GMO). Since then,
experimental crops have been grown in several states. Last year trafficking
in seed resulted in an illegal but substantial harvest of Bt Cotton in
Gujarat state.

(2) "Report on WTO and Related Issues in Agriculture and Food", Government
of Karnataka, January 2001.

(3) National Agriculture Policy, Ministry of Agriculture, New Delhi, July

(4) "The farming crisis", Frontline magazine, Chennai, 2 February 2001.

(5) "The farming crisis", op cit.

Louis Proyect

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