Financial Daily from THE HINDU group of publications
Friday, Aug 16, 2002
Agri-Biz & Commodities - Trends
Agri-business: Not India's business
K. P. Prabhakaran Nair
A WHILE ago, the US Ambassador to India, Mr Robert D. Blackwill, suggested that to put US-India trade in agriculture on "an even keel", all tariff and non-tariff barriers on agricultural trade be dismantled in India and American products allowed a free access to the huge Indian market. The suggestion and probably its implication now that tariff walls have been slowly but definitely coming down has far reaching consequences.
The US-India trade in agriculture can never be on an even keel because, for the former it is no more agriculture with just 3 per cent of the population dependent on agriculture but agri-business, while for India it is still a livelihood for the majority of its population.
So, how can the comparison be even? Even within the US, there is a great divide between the farmer and the agri-business lobby as the following example would clearly illustrate.
In 1999, American consumers spent $618.4 billion on food, which did not include import and sea food consumption; the percentage jump in food expenditure was 37 per cent compared to that spent in 1990.
In the last decade (1990-99) marketing cost rose 45 per cent and this ate into much of the increase in consumer food expenditure.
However, during the same period, farmgate price increased only 13 per cent.
On a comparative basis, while marketing accounted for 76 per cent in 1990 and farmgate value 24 per cent of the total consumer food expenditure, by 1999 the respective figures were 80 per cent and 20 per cent.
In other words, in just one decade while marketing cost rose more than 5 per cent, farm gateprice declined 17 per cent, that is, the per annum marketing cost accounted for more than three-fold increase in the total quantum of food expenditure.
This, indeed, is the corporate signal the American agri-business is sending, which its Indian counterpart is busy picking up. The following example clearly substantiates this.
Not long ago, the head of a corporate giant, which is deep into the food industry, pleaded for a "food revolution", now that the so-called Green Revolution has come full circle.
The basic thrust was to "finetune" the consumptive pattern through what is called as "the challenge cost" route.
For instance, a company will first determine what the consumer is willing to pay for the benefits a product offers. It then determines an "appropriate" margin.
The target consumer price less the target margin gives what is known the "challenge cost", which the company will achieve through its expertise in R&D, manufacturing and supply chain.
In other words, between the farmgate and the consumer link, private enterprise steps in with predatory impulses.
It is most likely that new forces will be unleashed that will convert agriculture into agribusiness. Until now, agriculture operated on the basic tenet of production and marketing, primarily through the Food Corporation of India (FCI).
The experience of the recent past, ever since a new political dispensation took the reins of governance in New Delhi, proved that a horrendous horde of foodstock could be built up in the FCI godowns throwing to winds financial prudence.
The relentless jacking up of the procurement price of both wheat and rice, in the form of the Minimum Support Price (MSP), even against the recommendations of the Commission on Agricultural Costs and Prices (CACP), through political jockeying to pamper the farm lobby, has certainly done great harm to the nation by locking up an enormous sum of money, close to Rs 50,000 crore, by way of what is deviously named as "food subsidy", while in fact, it is a producer subsidy computed by taking into account not only cost of agricultural inputs, but, even the cost of land which will clearly be to the advantage of farmers in the north Indian belt.
But the Government is grievously erring by taking recourse to private trade to dispense with the food stocks.
By the end of the fiscal, the wheat buffer is expected to swell to 27 million tonnes (mt), which is nearly seven times the Government norm, and the rice buffer is expected to grow to 30 mt, nearly five times that mandated.
If the Government goes ahead with its proposal to channel the food trade through private capital with an assured return of 15 per cent on investment it would end up spending more than twice than what FCI spends now.
A substantial portion of this excess expense will enrich only the middlemen the food trader and not the farmer as the US example clearly shows.
The agriculture sector is starved of investments, not in the grain-rich states of Punjab and Haryana, from where the bulk (more than 80 per cent) of wheat procurement begins, but, in the dry tracts Maharashtra, Madhya Pradesh, Rajasthan, Karnataka, Orissa.
The only way agriculture can move to better times is by concentrating on the 5 acre-and-less farmer and not on the 500-acre ones.
And for this, the MSP syndrome has to go, putting a cap on procurement and prices. This will release substantial resources for investments where needed most.
The so-called Green Revolution has happened only in the wheat and rice fields of Punjab, Haryana, Western Uttar Pradesh and Andhra and to some extent on large farms of Tamil Nadu and Karnataka.
If this should turn into an `ever green revolution', it should begin in the Bimaru Bihar, Madhya Pradesh, Orissa, Rajasthan States.
On the other hand, if corporates are invited into the sector, it will be the turn of small and marginal farmers to get out of farming and join the swelling masses of landless labourers.
(The author is a senior fellow of the Alexander von Humboldt Foundation.)
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