The Hindu Business Line : Exit agriculture, enter services

With limited opportunities in agriculture, the country must focus on areas where demand is not limited — the services sector appears to be the best bet.

THE Government wants to open up the agriculture sector to big corporations to promote exports. And, under pressure from the World Trade Organisation, it is moving towards allowing imports of agricultural commodities. Though these moves will help ease product prices, the Left parties are opposed to them. They argue that corporate agriculture will not benefit the millions of small farmers even if it leads to higher exports. They also want rich countries to first reduce their subsidies before we open up the farm sector. These are valid objections.

Under corporate farming, a large number of small farmers may be reduced to wage labourers. If the commodities of the rich countries, produced with healthy doses of subsidy, are allowed to enter India, the fate of our farmers may well be sealed. Any reduction of subsidies later on may not undo the damage, as agriculture takes time to rebuild. The Government, therefore, should consider issues raised by the Left.

The fundamental problem, however, lies elsewhere. The fortunes of Indian agriculture have been on a decline well before the WTO came into existence. The share of agriculture in national income fell from 60 per cent in 1951 to 27 per cent in 2000. And the rural population declined from 72 per cent in 1972 to 55 per cent in 2000. Surely, the entry of corporate agriculture and imports will hasten the decline. But this would have continued even otherwise.

Though the policies advocated by the Left will slow the rate of decline, they are not a solution to the problem. A strategy to improve the lot of the farmers is essential. The fundamental problem is declining global prices of agricultural commodities. Wheat prices, which were about Rs 5 per kg in the 1980s, have only about doubled. On the other hand, the price of the Maruti 800 has increased from Rs 55,000 to Rs 2,20,000 in the same period — a fourfold rise. Relatively speaking, wheat has become cheaper than the car.

The slowdown in the growth of world population has led to the demand for agricultural commodities stabilising, even as production and supply continue to increase.

According to the World Bank's Global Economic Prospects , the real price of coffee today is about a third of what it was in 1960. Brazil and Vietnam have launched into coffee cultivation in a big way, leading to increased supplies. But the demand has remained flat. Coffee consumption in the rich countries has stabilised at about 4.5 kg per person per year. The increase in supply in the face of declining demand is leading to lower prices. Likewise, the real prices of tea, sugar, rubber and other agricultural commodities are declining.

The Indian farmer will not benefit much even if imports are not allowed, as the global prices of commodities will continue to decline. Our farmers will have to export at these lower prices. One way out would be to form commodity cartels along the lines of OPEC. For example, with world coffee production concentrated in Brazil, India and Vietnam, these countries can slap export duty and push up global prices. Similarly, India and Sri Lanka can jointly raise the global price of tea, India-Bangladesh of jute and India-Malaysia for rubber. The Government should make efforts in this direction.

There are limits to the benefits from this strategy, though. What has worked well for oil producers may not work that well for agricultural commodity producers. The production of oil is limited by its natural availability. Oil cannot be extracted in new areas even if the prices are high. But coffee, tea, sugar and rubber can be grown in many new areas. The climate in Brazil, India and Vietnam is favourable for coffee production and the production costs here are lower. But even countries with less favourable climate may not hesitate to grow these crops if the prices are high. Thus, there are limits to the benefits of commodity cartels.

The country must, therefore, focus on areas where demand is not limited. In this context, the services sector appears to be the best bet. Education, information, entertainment — there are no limits to the consumption of these services. But there can be considerable competition in the production of these services. While coffee can be grown only in warm and moist climes, music can be produced anywhere.

The Left has done well to resist the Government's proposed move on agriculture. But this is mere fire-fighting. This will only slow the decline. There are indications that developed countries will compromise on the issue of agriculture at the next WTO ministerial meeting in Hong Kong. Ultimately, they stand to benefit from dismantling agricultural subsidies — reduction of budget deficits being one.

Permitting agricultural imports should also be tied to rich countries allowing the services of our advocates, architects and musicians. Simultaneously, a strategy to get more rural population out of agriculture and into services must be devised.

(The author is a New Delhi-based freelance writer. He can be contacted at bharatj@nda.vsnl.net.in)

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