The Government announced a slew of reforms for the agriculture sector. But it will do well to learn from the example of the US, where similar initiatives after WW-II backfired
With a stimulus package of Rs 8.4 lakh crore for the agriculture sector, the Finance Minister sought to usher in an economic “green revolution” based on providing credit guarantee to MSMEs, stocking up capacity at the farm gate and opening this sector for business. In short, the Government aims to strengthen rural banking networks, provide additional loans and expedite the goal of doubling farmers’ incomes. A report by the Niti Aayog appears to be the lodestar for the Finance Minster’s presentation. It included suggestions on improving farm gate infrastructure, dismantling of APMC and even linking farmers to agri-business directly or through contract farming, among others.
Niti Aayog Vice Chairman Rajiv Kumar even said that “the Essential Commodities Act” is a hindrance to agri-exports and had called for its removal way back in 2017. With several States regulating the stock and supply and various food items being removed from purview, the said Act is vestigial. Even with the spread of the Coronavirus, this sector is functioning with a pre-Corona agenda. New steps though include the grant of additional funds to galvanise Niti Aayog’s vision of reforming the agri sector and Prime Minister Narendra Modi’s announcement of a New Property Card, which would stand as collateral for loans or advances from banks and financial institutions.
The Government was swift to link farmers’ lands to banking institutions in a bid to allow more credit flow into rural India. The Indian Government is unsure about farm statistics. Does it know how many destitute farmers are connected to the rural banking system? Even if incentives are there, can loan subversion help them? Can a boost in infrastructure or market liberalisation uplift our rural sector?
Maybe the US has an answer. Agriculture was a major industry in America in the era before World War-II. Overwhelmingly, small and medium family farms dominated the country. After a slight spike post-war, farms in America soon boomeranged to overproduction. Farm incomes were “low” compared to the “costs.” Sounds familiar?
With liberalisation, the US was quick to enact the Farmers Home Administration (FmHA) Act and the Disaster Loan Act of 1949 to ensure “loans” to farmers. Direct farm ownership loans were being provided to secure farmlands. Emergency crop and the “feed loan programme”, too, were launched to help the farmers with interim financing. Investments in rural infrastructure and easy loans were encouraged. All such measures are very much similar to the economic policy adopted by the Indian Government to tackle the ill effects of the Corona pandemic.
Given the extra flow of cash, stressed farmers were quick to buy more land, farm equipment and modernise infrastructure. In fact, for some years, the yearly land inflation price overtook bank investments. Overall, the business was running good but this ascent was artificially sustained by way of fiscal manipulation. Speculation was high and credit was being used to re-finance other mortgages. This caused a financial crash. Between 1950 and 1971, real farm income decreased from $18 billion to $13 billion. The number of farms, too, decreased by 50 per cent. But income per farm rose by 46 per cent as against a national average of 76 per cent. Meanwhile, the total mortgage debt on US farms rose from $8 billion in 1950 to $24 billion in 1971.
In former US Agriculture Secretary Earl Butz’s style, either “you got big” and doubled your income or “got out” of farming. Is India, too, aiming at doubling farm incomes the same way? Well, one sparrow does not make a summer. Consider this: The Committee on Economic Development (CED), in its “An Adaptive Programme for Agriculture of 1962 and Doubling Farmers Incomes” report of 2017 had presented an ably and carefully-prepared design, leading to the abandonment of all farm programmes at the end of five years. It proposed to “shift cultivators out of the farm to non-farm activities” as too many farmers were a problem.
Post the implementation of an adaptive land management programme, over one million small-medium family-size farms were lost. Farmer suicides along with small and medium farm foreclosures sky-rocketed as most farmers were unable to pay back their loans. The agrarian crisis worsened depression among farmers. They have vociferously been asking for loan waivers. A NABARD study pointed out that 52.5 per cent of the rural households had a debt of $1,470 (over Rs 1.11 lakh) each in 2018. Compare this to the average monthly rural household surplus of Rs 1,413.
Providing more credit (yes, more loan schemes are to follow) will put additional burden on the farmers and the entire rural economy will be in a spiral of huge debt. With contract farming, agri-commodity trading and agri-business among others, Indian farmers will have no other option than to be hired in their own farms as was seen in the US. History has a strange way of repeating itself.
The Government’s decision to open the farm gate and dismantle regulated APMC mandis will open the doors of agri-business to Indian farms. Farmers in the US are at the end of the tunnel. This is where the Indian Government aspires to be. In his book, Merchants of Grain, Dan Morgan describes the journey of how “market access for farmers” led to the consolidation of elevator shafts and storage by giant companies. This was followed by the takeover of farmers’ co-operatives. All of this culminated into a new grain monopoly in the US, which now controls 70 per cent of the world’s supply chain. Farmers in America have no market left, just the corporate markets of Cargill and the likes.
In 2006, the Bihar Government rescinded the APMC Act to attract private investment. What followed next is shocking. Farmers received even lower prices for their produce. Meanwhile, “traders” carted truckloads of produce to APMC mandis all the way to Punjab and Haryana to sell at Minimum Support Price (MSP). Private investment never came.
The human cost of “liberalisation” of farm gate has been huge. Violence, drug abuse and insanity encircle the American rural towns all along the “dust bowl.” Joel Dyer’s book, Harvest Of Rage: Why Oklahoma City Is Only The Beginning, acts as the dot-connector between the post-World War-II reforms and the current dismal state of American farmers. Home-grown militia movements had led to the Oklahoma City bombing in 1995. The US farm debt this year stood at $425 billion. Yet, mostly large and company farms get the benefits of relief packages.
Meanwhile, thousands of American farmers are waiting to be goaded out of farming again. What started out in the post-World War as a liberal reform, has completely changed American agriculture to become a farming system with minimal farmers.
Currently, India is trying to tread the same path. As an American playbook is applied to the Indian crisis, how soon before artificial fiscal measures fail, debt quadruples and foreclosures become the norm? As we come out of the war against Corona, the Government is only repackaging its agenda and opting for Cargillisation for a few agri-dollars more.
(The writer is Director, Policy and Outreach, National Seed Association of India)
