The Hindu Business Line : Fielding farm challenges

Agricultural subsidies have baffled the collective wisdom of the international community for well over five decades now. Every time multilateral trade negotiations decided to reduce agricultural subsidies, some nation or group of nations invariably raised them instead, citing internal exigencies that were often backed by compulsive economic logic.

Despite the contrarian view points, there can be little doubt that surging agricultural subsidies have staved off price rise in food grains and commodities as governments volunteered to shoulder a part of the burden, ensuring food grains at affordable prices to the consumer.

This eminently suited the developed countries where economic development was primarily driven by the industry and services sector and where agricultural growth was controlled by major stakeholders with large holdings, backed by the latest technology and mechanisation. In contrast, close to 70 per cent of the population of developing countries depended on and barely made a living from agriculture and subsidies went a long way to bridge the gap between food demands and the limited purchasing power of the poor.

However, the low prices and poorer returns from the land meant there was no sufficient surplus to meet the huge investments required to bring technology, mechanisation and modernisation, and take developing countries’ agriculture on a par with those of the developed world. The subsidies often helped them to survive from one year to the next, unable to generate the capital required to propel agriculture into the next growth cycle.

Price rise here to stay

Citing empirical evidence, The Economist has pointed out that there has been a major spurt in international food and commodity prices across the world, and more importantly, that the price rise is here to stay. The Prime Minister, Dr Manmohan Singh, has cautioned that the availability of basic food items and their prices could come under increasing pressure and India could be affected by the clouds hovering over global markets. In his opening remarks at the National Development Council meeting, he warned: “Global trends in food production and prices, and our pattern of consumption are going to put increasing pressure on both the availability and prices of basic food items.”

Seize the moment

However, the current price surge could prove to be both a challenge as well as opportunity for India. Unlike several sub-Saharan countries, India is no longer the basket case in food production that it was over 40 years ago. A surge in international prices could be translated into greater returns and savings to the farmer. Once price gains are sustained, these increased savings could trigger greater investments and catapult Indian agriculture into the next phase of development. And the timing is also proving to be just right.

As the 9 per cent growth momentum spurs the economy to greater heights, the industry and services sector is providing greater employment opportunities, even as dependence on agriculture is just beginning to wane. This would reduce the number of people dependant on agriculture and provide greater returns to those still dependant on it. Only when the number of people dependant on agriculture for survival is brought down substantially can there be growth in returns to the farmer.

Despite the concerns over global food prices, it can prove to be a tool to tackle global agriculture subsidies, at the least from the producer, the farmers’ side. But some amount of balance has to be maintained.

Though agricultural subsidies might seem huge, at first glance, in India, they fade into insignificance when viewed in the backdrop of the vast land and huge population that they support — over 60 per cent of the population.

Comparative figures from the Department of Agriculture and Cooperation, Government of India, for OECD countries and India reveal that the level of per farmer and per hectare subsidies is startlingly divergent.

Despite the large holdings, higher production and productivity, an average farmer in an OECD country receives over 150 times the subsidy offered to an Indian farmer. This is despite the far lower holdings and returns that an Indian farmer receives from his land. The story may not be as stark but is equally startling when compared to the subsidy extended per hectare between the two regions.

Despite the higher production and productivity, the average subsidy extended to a hectare of agricultural land in OECD countries is four times that available in India. This is despite the fact that agricultural land in India is very often in rain fed and agro-climatically harsh conditions and without sufficient fertilisers, pesticides and mechanisation.

Time to tackle issue

The current spurt in prices gives a momentous opportunity for the nations of the world to address agricultural subsidies. As returns from the land increase, they pave the way for governments of rich countries to increasingly step back from subsidising agriculture. And the average consumer in rich countries is sufficiently inured to rising food prices since decades of consistent growth has generated substantial purchasing power in his/her hands.

The situation in a developing country such as India is strikingly different. Any sudden price rise in food grains will create a crisis. This might be an opportune time to further identify the poor and needy and extend greater focus to the Targeted Public Distribution System.

The government should take the initiative to ensurethat the growth in returns from the land is recycled back as investments in technology and mechanisation of agriculture.