India’s agriculture scenario: The four-pronged contract

Last Updated: Dec 13, 2010, 00:08 AM IST

Rijo Jacob Abraham

Thomas Robert Malthus, a timid, cleft-lipped, British clergyman and economist said something in 18th century which is plain enough for modern ears. But it had ruffled feathers of intellectuals high on Enlightenment values that time.

“Population increases in a geometric ratio, while the means of survival increase in an arithmetic ratio,” he wrote in his Essay on Population. In plain words the world cannot produce enough food to keep pace with the growing population. But centuries down the line, the world has proved many times that he is wrong. At least the world wanted to believe so.

India on its part had the Green-Revolution, where there was a shift in focus to production increase from land under cultivation. For the first time the country learned it was not the amount of land that mattered but the technology – high yielding variety crops, irrigation, mechanisation and above all fertilisers. In a span of just six years (from 1965-66 to 1971-72) India witnessed 168 percent increase in agricultural production over the previous decade.

But four decades down the line, in the heartland of this revolution, Punjab consequences have started to take shape. Whereas continuous intensive irrigation has lowered the water-table drastically, excessive uses of fertilisers have poisoned its aquifers. Under that post green revolution challenges many of the ‘once prosperous farmers’ have been now taking a train – Passenger Express 339, often known by its sobriquet, Cancer Express – from Bhatinda to Bikaner to get treated for cancer.

For the people there they did not want any scientific study by a NGO or a government organisation to tell them that their malady was a result of pesticides. It is there everywhere – in the water, in the roti, in the vegetables, in their blood and in the breast milk. If cancer failed to catch up with some of them through the soil, they directly drank pesticides or hung themselves. Indebtness due to failure of agriculture also took a toll on the population.

But Malthus was proved wrong again. He couldn’t account for the fact that population growth corrects itself, in ways more stark than his essays. And in practical-terms, India has paid its price.

The decline

By 1990s when winds of liberalisation started blowing towards India, total agricultural production had already dropped by 0.1 percent to 3.1 percent in the period from 1976-77 to 1991-1992. The in-between period of 1980s was a period accompanied by increased government subsidies which meant increased real farm incomes. But lack of long term agriculture growth plan and confusion over policy had weighed on agriculture growth. In the era of Liberalisation public spending on agriculture also declined; a dangerous trend which continues even today.

After the 1990s, there was also a deceleration in production of “principal food crops” (like rice and wheat) from 3.19 percent during the 80s to 2.29 percent in the 90s. This was because the Indian soil was getting weary of the repeated cultivation of rice and wheat.

The question of decline in principal crop production has international echoes. Under the neo-liberal regime there was a global division of labour whereby tropical countries were made to cultivate for the international market, many to fatten beef, pork and poultry there. This high demand for fodder is responsible for price rise not only in India, but also globally.

Inflation amidst plenty

During the last decade when per capita food grain was dropping by 10% to 15%, India continued to export it. During 2007-08, when food prices soared in India and around the world, India had a record food grain production of over 227 million tonnes and a record wheat and rice production of more than 175 million tonnes.

The Economic Surveys of recent years show that per capita availability of pulses and cereals are typical of that seen during late 1970s and early 1980s. Keep in mind India’s population growing at the rate of around 2 percent annually.

The typical Western explanation for global inflation was a result of increase in per capita incomes of countries like India and China. Nothing could be further from the truth. In fact while per capita income increased in these countries, the income disparity between people also increased (Utsa Patnaik Origins of the Food Crisis in India and Developing Countries).

The Food Insecurity bill

The Food Security Bill as it exists now is very much a watered down version suggested by the NAC members. Now, the Bill has to be further disciplined through fiscal prudence, through a committee headed by C Rangarajan. After this fiscal pruning to the Bill, how effective this ambitious project would be needs to be seen.

The UN Food and Agricultural Organisation has long emphasised the need for investment and support. In the recently released The State of Food Insecurity in the World 2010, it recommends that an “improved food assistance, social protection and investments in agriculture as well as non-agricultural livelihoods”, could put an end to food insecurity. The key to long-term food security lies in boosting investment in agriculture, particularly in low-income food- deficit countries", FAO Director General Jacques Diouf said while addressing GCC late this November. Our own agriculture minister has also emphasised this for long.

The four pronged contract

Finance Minister announced a four pronged strategy for agriculture in his 2010 budget-speech while India has been wadding neck deep in agflation for a considerable period of time. The budget announced “increase in agricultural production; reduction in wastage of farm produce, credit support to farmers and thrust to food processing sector”. This implies a boost in production and agricultural infrastructure.

The first plan is to “extended green revolution” to eastern states of Bihar, Chhattisgarh, Jharkhand, Eastern Uttar Pradesh, West Bengal and Orissa. (The revolution in western and southern states is over, we must move on now.)

The rest of the prongs are hard to be distinguished. In practice, they are indeed one big prong aimed at the farmer. Since 1990s this has been practised in the country in the guise of contract farming. Under contract farming the farmers are to cultivate what the companies ask for. It can be anything like cultivating potatoes for McDonald’s French fries or tomatoes for Herschey’s ketchup.

Given the low government spending in agriculture a little help from the private sector was apparently a welcome sign. It is even more imperative because this could circumvent the Land Ceiling Act, which prevents agribusiness companies from owning and cultivating land for their own raw-materials.

Cold storage plays a crucial part in this agribusiness model. Indian cold storage was limited largely to that of ice-creams and milk products or for individual products like oranges, pomegranates, tomatoes or potatoes which lead to low capacity utilisation. We need more cold storage not just to aid public distribution of perishable goods but to support a privately funded agribusiness regime.

“External Commercial Borrowings will henceforth be available for cold storage or cold room facility…Changes in the definition of infrastructure under the ECB policy are being made,” Mukherjee said in his budget speech. Of course a local farmer does not come under the purview of ECB regulations. “Changes in definition” are only for corporations.

India had witnessed a credit growth to agriculture in the last decade. But the impressive credit growth is a result of indirect credit to export oriented businesses and raising of indirect credit limit of indirect financing. More importantly, the credit growth was also a result of credit growth of loans with a credit limit of 10 crore to 25 crore. (Revival of Agricultural Credit in the 2000s: An Explanation R Ramakumar, Pallavi Chavan, EPW)

If the story of credit growth is largely going to be scripted in crores, then marginal farmers are no where in the picture.

Principles over pragmatics

Put all these in context of contract farming, which these elements are supposed to serve. Contract farming so far it has been experimented has not been fully successful. The farmers face the issue of quality cuts besides the issue of high use of fertilisers and irrigation. An agribusiness company may not continue to stick to a particular area for produce and may move on to other crops and area as the market drives them. The example of Hindustan Lever and Pepsi has clearly demonstrated this fact in Punjab. The local firms (Niijer and Markfed) also had also fallen on hard-times. (Contract Farming for Agriculture Development in Punjab: Problems and Prospects, Sukhpal Singh)

The recent India-US Agricultural Dialogue is an extension of this process. India opened its market to facilitate US companies, Indian Agricultural Universities, shifted their focus from farmers to market. In return we got thoroughly flattered by President Obama. With a Food Security Bill caged in fiscal prudence, Food Security policy is almost non-existent. And the agriculture sustainability is impossible with high exposure to market vagaries and demand.

A complete aloofness to globalisation is utopian. But there can be guidelines that protect the interest of small and marginal farmers from unfair competition before rolling-out any major initiatives in agriculture. In contract farming, with private banks playing a crucial role, chances are, India could repeat its microfinance debacle in agriculture too. Doha Round sees a glimmer of hope after the recently concluded G-20 meet. In these negotiations it becomes incumbent for the government to keep its food-security a domestic priority.

India’s international diplomacy is not often a hot topic among farmers, except in a few states. It is a safe haven from the din and dust of vote-bank politics too. But it is definitely not an issue to be compromised for the sake of real politics in international roundtables.