Public Distribution System, Minimum Support Price, and Agri -Tech
With reference to the latest meeting on VELUGU on April 11, and the AP government’s Poverty Eradication Strategy, I forward for discussion the following very brief Concept Note, on the roles of PDS; food procurement and Minimum Support Price; and selection of Agricultural technologies; and the impact of these factors on each other.
Mr. K.S. Gopal, CEO, CEC, has suggested a very innovative way of tackling the mounting food storage burden with government. He has suggested that since a poor family consumes rice of around 60 kg/month, and their PDS entitlement is only 20 kg/month, 40 kg of rice may be released to them per month at an attractive price. Prof. CH Hanumantha Rao correctly said the price should be no more than the post-harvest price, to make it attractive for ‘white-card’ holding BPL families to draw down from government stocks, rather than buy from the market. Mr. Yugandhar has suggested that a loan may be provided to such BPL families, at a differential rate of interest, to enable them to buy an extra 40 kg of rice at a post harvest price; the loan being repaid by them during the agricultural working season.
The government, despite acute financial embarrassment, seems to pride itself on the growing food-grain mountains, which this year is expected to top 50 million tons. Why have we created these food mountains in the first place? In the sixties, prior to the Green Revolution, there was acute shortage of grain, creating near famine conditions, and leading to food-grain imports of around 10 million tonnes/year, which in itself was a powerful political weapon in the hands of the West. Hence it was important to create sufficient buffer stocks to feed poor people at affordable prices in years of agricultural failure and food-gain scarcity. If this is the only viable reason for incurring the financial costs of maintain large buffer stocks – which also involves farmer-attractive procurement prices, transport costs, an unwieldy bureaucracy, and appreciable grain spoilage – we must ask ourselves what can be considered sufficient buffer stocks under today’s conditions of stabilized agricultural production of key cereals.
Hypothesis 1:One could safely assert that no more than half a year’s reserves to feed BPL families need be stored. Basis for hypothesis:(Only one in four years is a bad year. If kharif crops fail, rabi crops do not. If one part of the country is hit, another agricultural part produces good crops)
If we have roughly 30% of the population below the poverty line, we have roughly 60 million BPL families. If they consume an average of 60 kg of grain/month, the total needed to be kept in storage at any time is around 20 million tonnes. Hence all efforts should be made to rapidly dissolve the food-grain mountain till it reaches this working level.
There are costs involved to government if it releases an extra 40 kg/month of grain to BPL families at the marker level of post-harvest price. The difference between this figure and say the issue price could be counted as a ‘loss.’
Hypothesis 2: But the ‘losses’ involved would be recovered in the longer-term through lessened management and storage costs, and reduced spoilage. Basis for hypothesis ( I have no figures available; but clearly there would be a halving of management and storage costs, and saving up to 10% of grain spoilage)
The next question that naturally arises is whether such extra food-grain release would be ‘socially useful.’ Several micro-level studies, sample surveys, research papers have all established that the poor in India, particularly the women and children suffer unacceptably low levels of nutrition. As has been pointed out by some scholars, increased consumption of food in itself would be the most important factor for lifting the poor above the poverty line, since on an average a major part of their incomes go to buying food. Market research has also shown that Indian families, including the poor, are buying larger shares of ‘non-essential,’ consumer goods, such as ‘soaps and toileteries,’ which have made big inroads in the rural markets . But in analyzing ‘basic needs’ we must also consider the ‘psychic basic needs’ of people, not only ‘physical basic needs.’ This is particularly relevant in a highly stratified caste-ridden society, where possession of TV sets, polyester clothing, and watches may help enhance self-images of the poor.
Hypothesis 3: Consumption of ‘non-essential’ goods, or ‘non-essential’ expenditure by the poor in no way reduce the social imperative to make available essential food items to them at affordable prices. Basis for hypothesis ( Discussions with dalit and other disadvantaged groups as to the meaning of basic needs)
Another important administrative concern would be that this policy should not lead to further corruption and profiteering. No amount of checks can prevent this from happening in some scale. What must be weighed in the balance is the lasting long-term damage caused to the nation and society by preventing cheap grain from reaching women and children, and perpetuating mal-nutrition. Some computation can be arrived at in terms of health related expenditures, and man-hours lost due to ill health consequent on poor nutrition.
Hypothesis 4:The simplest safeguard might be to allow DWACRA and SHGs groups only to draw down the extra 40 kg/month per family member; and such groups can also provide the loans to members for buying the grain. Basis for hypothesis( Management and repayment record of women run DWACRA and SHGs, almost all of which are composed of women from dalit or other poor families. If some resale is indulged in by them, after meeting family needs, the ‘profit’ will only go to increasing the incomes/purchasing power of the poor)
There is of course the conjoint fear that releases of food grain by government at less than prevailing market prices ( which would be the case if grain is sold in the lean season at post-harvest prices) would bring market prices crashing down, hurting agriculturists.
Hypothesis 5: But by releasing grain only to DWACRA and SHGs, such releases are insolated from disturbing the market. Basis for hypothesis (The poor who compose such groups will first want to ensure food security, rather than indulge in market speculation, so whatever re-sales occur will not distort the market)
The mounting food-grain stocks are somehow taken by government as a positive indicator of performance. I would suggest that this is the worst negative indicator of good governance. The primary purpose was to feed poor people. That is achieved by fast movement of grain, through some government intervention, to poor households. Holding huge stocks at great public expense is failure of policy, needing immediate rectification The main reason for the existence of the mechanism today is to offer another route for subsidizing agriculturists.
Western countries provide huge subsidies to their agriculture sector, and high minimum support prices, for a number of reasons: Most importantly, it is a mechanism for coping with the crisis of agricultural over production. Then, the farming population is very small; and the economic strength of the other sectors can afford such subsidies. A similar coping mechanism for preventing industrial inventory buildup cannot be applied for precisely the same reason that we find our food procurement system to be unwieldy. Again, despite globalization, perceived national interests require that an important percentage of food is produced within national borders. In a country such as England, a huge importer of food, the conflict between economic sense and the national interest goes back to the Corn Laws riots of the 19th century. Then there is also the question of national sentiment, of protecting a way of life found romantic in an industrialized world, and this has prevented the dissolution of small farms, say, in France and Switzerland. Even Japan pays a high price for growing rice.
There is no question that India will ever be a large importer of food, or our agriculturists challenged in the area of essential food products. India affords a natural and huge market for local agricultural produce. Indian agriculture has also not reached levels of over-producing for the national market. Per capita availability of food-grains in, say, China is several times higher than in India. Hence it isirrational to maintain a policy of a mounting Minimum Support Price structure, unless this is done for political reasons of maintaining rural vote banks. Further, higher and higher minimum support prices militate against making grain available cheaply to the poor, an avowed policy of government.
The farm lobbies threaten that any dismantling of the system will ruin agriculture. But if Minimum Support Prices are brought down, would that drastically affect the agricultural economy? My guess is that this will not happen. In India as elsewhere, farming is a way of life that farmers will not readily exchange for another, or not do everything in their power to sustain. Most Indian farmers, that is small farmers, do not calculate the great value of farm family labour involved in agricultural production. There are no opportunity costs to be taken into account. The emphasis on a remunerative price for a crop, implies a price based on a cost structure which could be inflated due to long-term ruinous practices involving high-cost chemical inputs, or imprudent land-water use. Focus on remunerative farm incomes would imply ensuring improvement of farming livelihoods.
Hypothesis 6: Natural sustained demand will be sufficient to maintain remunerative farm incomes without the prop of Minimum Support Prices. Basis for hypothesis( Farming systems distorted by the subsidy culture would be rationalized, as I shall try to argue later)
Then, what role do subsidies play? Mostly benefiting the rich farmers, the support price structure and procurement, and subsidies on agricultural power use, surface irrigation, and fertilisers, all help produce profits that are not being ploughed back in agriculture. Gradual cut-backs on subsidies may hurt speculative investment in other sectors, but not agriculture.
Hypothesis 7:There is capital flight from the agricultural sector to the tertiary sector, and into speculative areas, such as real estate development and the film industry. Basis for hypothesis(Rich farmers find the marginal returns from extensive agriculture unattractive. Capital costs for intensive, or corporate agriculture, are as of now too high even for rich farmers since the technology base and the marketing infrastructure is lacking)
The Green Revolution produced a sharp, impressive increase in production of two cereals, especially wheat, in a short space of time, which also enabled reasonable increases in cultivator and agricultural labour incomes. But the high cost technology prevented an appreciable drop in price. By the same token, in the decades that followed the initial break-through in Green Revolution production, gradual increases in over-all production in agriculture, necessarily at ‘the Hindu rate of growth,’ have seen a cost push occasioned by the pressure of gradually increasing labour wages to maintain access to basic needs, both physical and psychical.
Despite being a great agricultural country, Indian productivity levels are among the lowest in the world, superior only to those of Russia and Nigeria. To enlarge the agricultural market dramatically and meet the nutritional needs of people, not only must overall agricultural production double, and while ensuring an equally dramatic improvement in cultivator and farm labour incomes, farming technologies must bring about a sharp fall in the unit costs of production. Neither a high-cost ‘GM-type’ technology, nor a return to labour-intensive ‘ITK-type’ practices can by themselves lead us to such possibilities, since both are cost-push options. The only other technology option available is to enlarge the possibilities of Nature derived ‘free inputs’ for agricultural production, combined sensibly with modern scientific and traditional knowledge inputs.
Hypothesis 8: The farming technologies adopted today effectively prevent a dramatic improvement in production and farm incomes, and make impossible a fall in costs. Nor do ready-made alternative options exist. They have to be created in the fields. Basis for hypothesis ( High tech agri-biz in this country and elsewhere has had destructive environmental impacts, reducing carrying capacity potential of the region. Agricultural research and extension is today based on homogenizing options, ease of administration, simplicity of prescription, and adoption of packages for ‘universal’ application. This process is the very reverse of what may be needed)
The creation of alternative agricultural technology options may incorporate the following elements:
A basis in regional environmental regeneration and conservation of soil and water resources and biodiversity
Strengthening of diverse farming systems
Creation of farmer community associations for localized management
Farmer ‘field schools,’ and group learning, research, and participative technology development
Decentralizing agricultural research to the local level
A watershed based approach for technology extension
Convergence of departments of agriculture, rural development, forestry in service of farming community interests; and strong linkages between development programmes, Panchayati Raj institutions, and peoples organizations
Re-training of officials for attitudinal change
Creation of a marketing network, including communication, transportation and storage linking rural and urban areas
Creation of timely ‘just-in-time’ credit lines, and financial infrastructure
Establishment of parallel social development programmes with specific emphasis on empowerment of disadvantaged communities, and gender equity
Re-structuring of educational pedagogy and relevance
Establishing community-based health services
Development of micro-enterprises, linked to Mutually Aided Cooperatives and micro credit institutions; and other off-farm and rural area based wealth producing activities
Etc…
In short, nothing less than an all round social transformation strategy is needed to create a strong and sustainable agricultural sector; and equally no such strategy will ever succeed that does not place agriculture at the centre of its concerns.
Traditionally, the great Indian textile industry was mostly located in rural areas; and most of our artisanal base was also rural. The great karkhanas of the emperors and nawabs essentially produced for the palace, and not for the masses or for exports. The majority of rural people were not directly employed in agriculture. The colonial period ruined this rural industrial base. The restarting of rural micro-enterprises is not an impractical or romantic idea derived from the Swadeshi movement or Mahatma Gandhi’s ideas. It becomes a practical necessity to absorb labour and rural enterprise in step with increasing agricultural production and productivity, and rural savings. This was the route followed by Japan, China and South Korea in their development.
Hence it is a progressive step that some Karimnagar DWACRA groups are being linked to Hindustan Lever by government. However, in the beginning, it is a boon offered to the MNC. It opens up a rural market and a distribution network which usually costs the MNC millions in advertising, management and distributor costs. Today Hindustan Lever derives a quarter of its profits from rural sales of soaps and toileteries. This percentage is bound to go up with this new initiative. What the DWACRA groups get in return is only the chance to produce for the MNC at low rural wages. To create countervailing market power, DWACRA and other rural groups need to compete and capture rural markets in product lines where they have a unique advantage. For example, soaps made by Hindustan Lever and other corporate houses have high chemical content and are branded in the West as only ‘washing bars.’ DWACRA groups can produce soaps with very high natural oil content and make inroads not only in local but maybe even in urban or export markets. Once such federated rural groups have a piece of the market, they would be in a position to negotiate with corporate giants. Unless this big vital step is taken, rural areas are left with low wages, and profits are exported out, perhaps, even out of the country.
A discussion Concept Note by Vithal Rajan Good Friday, 2001
Please reply email to: vithal2@hd1.vsnl.net.in
