Proposed reforms in Indian agro sector have serious risks

AGRICULTURE ministers from different states met last week to discuss some of the new reform proposals initiated by the central government. Most states, of course, refused to share the centre's enthusiasm. But, agriculture is on the concurrent list of the Indian constitution, and the centre is empowered to override states if and when it wants to, even if all the states oppose a certain reform action. Whether the central government will ultimately take such drastic action will depend largely upon the numerical strength of the ruling coalition at the centre, and the number of states where coalition partners are ruling.

By From Kumaresh Chakravarty In New Delhi

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Published: Mon 12 Jan 2004, 12:22 PM

Last updated: Thu 2 Apr 2015, 12:05 AM

The two important pillars of the proposed reforms are: abolition of the existing law which fixes the maximum land a family can own; and introduction of contract farming. The present ceiling law in states fixes the maximum at 25 to 50 acres, depending upon.the productivity and irrigation status of the land. Karnataka amended the ceiling law sometime in the nineties and raised the ceiling to 250 acres in case of unirrigated land. That does not seem to have yet led to large-scale transfer of land from small or middle peasants to companies or larger landholders. But, corporate leaders and their organisations like the Confederation of Indian Industries (CII) have been repeating their suggestion that land laws should be amended for providing enough incentive to large firms so that they come forward to invest in agriculture and allied activities in a big way.

Easy access to contract farming, of course, makes it easier for big corporations to make good profit here without investing much on purchase of land. They will only have to enter into a contract with the peasant and ensure that the latter grows the particular crop which the contracting company wants, and sells it to the company at a price fixed before the crop season. This is what Pepsi has been doing in some districts of Punjab. It contracts for production of some fruits like peers and vegetables like tomato and potato. A few other multinationals like India Tobacco Company (ITC) operates a similar type of contract farming of prawns in some fisheries. Pepsi uses the Punjab products for manufacturing processed food like jams, or potato chips. And ITC makes a heavy profit from export of prawns.

Use of land by corporate firms for agro-based business has come to be known as corporatisation of agriculture. Its advocates argue that this is the best way of attracting large-scale private investment for a faster development of agriculture. Especially because the state has virtually withdrawn from its commitment to investment in agriculture or related infrastructure and farmers themselves have not been making any substantial investment. Besides, some three years ago, a large multinational consultancy firm had shown how India's agricultural income can be multiplied manifold by proper investment and restructuring of organisation. Only the corporate sector can do that.

Nobody of course, has so far shown how exactly the new system will boost income or take care of other problems related to or arising from a low agricultural growth rate. Food security, for example, is the first important issue here. One way of looking at it is to examine whether the country provides enough foodgrain for its own consumption. The other, and a more meaningful way is to see whether this self-sufficiency also means that no one goes hungry. The second criterion implies that over and above a stable level of foodgrains production, the poor should have the necessary purchasing power to buy what is available from domestic production.

Both the criteria require a stable growth rate of foodgrain output at a rate equal to or higher than the population growth rate. The second criterion exclusively requires that every household has a certain minimum level of income that is necessary for consuming food according to need. But, that cannot be ensured only by self-sufficiency. A high employment growth along with a minimum income from it is essential. That is too complex a problem to be gone into here.

Experience gives the impression that India has the much-sought-for self-sufficiency in food. How else to explain the fact that a huge unsold stock continued for nearly two years and that it started coming down only after a rather long period of distribution of foodgrains to people below the poverty level at half the usual price? Also, the fact that India has been exporting foodgrain would normally imply that it has a surplus after sufficient domestic consumption. What is overlooked is that, the average rate of foodgrain output during the last ten years has been smaller than the rate of population growth. Which means that, per capita food availability has a tendency to decline. The only way it can be reversed is to raise land productivity and increase the area under crops by way of multiple-cropping. Both require good investment in infrastructure and proper incentive to a substantial section of agricultural households for combining food and non-food crop cultivation.

Corporations, as seekers of profit, are not likely to make such investments, since in their contract farming operation, they will only prefer crops which give them a ready market for processed food at prices that suit them. Since India's domestic market for such products is largely restricted to the urban affluent, the contract-farming companies will depend mainly on exports. Foodgrains will not be preferred since international food prices are significantly lower than those in India.

Proper lessons about the impact of large-scale contract farming can be obtained from the experience of Thai farmers in the sixties and seventies of the past century. Dale Corporation, a multinational, had initially offered good prices to induce peasants to switch over from rice to pineapples. Then after some time, pineapple prices crashed, and peasants became highly indebted. Some were ruined. The country took some years to revert to rice, but after paying a heavy cost. Barring a few banana republics, no country has provided any contrary experience.

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