Treating agriculture as a business – analysis
Entrepreneurs around the world will be delighted to run a business where raw material and inputs to the business are subsidised and the output price for specific quantities of purchases is guaranteed by the government of the land. To make the deal sweeter, there is no tax to be paid on the value added between the input and output.
Indian agriculture has had all this and more — but there is a problem. It has not been seen as a business at all. As successive governments after Independence constantly battled food security challenges, the humble farmer got elevated to the hallowed ranks of the soldier guarding the border. But when food security was achieved and stocks of wheat and rice started rotting in the warehouses of the Food Corporation of India, there was no political will to nudge farmers towards rethinking their occupation as a business.
This June, the Narendra Modi government finally acted to free Indian agriculture from a regime of State-endorsed monopolised value chain intermediation. The government was not taking away intermediation — that’s an essential part of any value chain in all businesses. It was only breaking the monopoly of the Agriculture Produce Marketing Committees (APMC) and their traders.
The government finally treating the largest occupational group in the country with the respect it deserves, by providing it choice and freedom, should have led to a cry of joy. Indeed, when these ordinances were brought in June, there was no widespread opposition. Ashok Gulati, eminent agriculture economist, called it a “1991 moment” for Indian agriculture. But winter is fast becoming the trimester for protesters to learn a new grammar of anarchy, and this year has turned out to be no different.
Farmers mainly from Punjab, with sporadic support from other states, learnt well from the winter of ‘19. To be sure, the protesters still constitute a fraction of the total population dependent on agrarian economy. Yet, they marched to Delhi and blocked several borders of the national capital restricting flow of goods and services. Their demand? Repeal the agriculture reforms in totality.
Punjab and Haryana were the earliest beneficiaries of the Green Revolution. Farmers in these states worked hard, and used the region’s natural abundance and the influx of new technology to soon become the grain bowl of India. The government would guarantee a Minimum Support Price (MSP) for their produce year after year; the APMC system worked well; and up to 70% of the central food grain procurement continued to happen from these two states.
But this monopoly on government procurement also eventually became their undoing. First, other states such as Uttar Pradesh and Madhya Pradesh caught up on food grain production. Second, as Punjab and Haryana got guaranteed prices year after year, there was no local innovation. Instead, more chemicals made their way to the fields, leading to the rise of cancer. The story of the Bhatinda-Bikaner daily cancer train is well-documented. Third, young people from rich rural families migrated overseas or were happy to do odd jobs on farms, with labour coming in from far-off Bihar and other states, leading to the erosion and exodus of local talent.
The problem of plenty has hit Punjab hard since the turn of the century. Since then, Haryana, Himachal Pradesh, Karnataka, Kerala, Gujarat, Maharashtra and Tamil Nadu have gone past Punjab on per capita net state domestic product calculated at constant prices with 2011-12 reference. This data point, brought out by economist Shamika Ravi on her Twitter feed, explains the decay the state has suffered in the last two decades.
Addicted to the allure of MSP, Punjab’s agriculture has become relatively uncompetitive. And its farmers are now up in arms, worried that the option of free market trade will expose that weakness. The MSP demand is simply a smokescreen — the government, to adhere to India’s food security act and to run a host of welfare programmes, will continue to procure on the basis of MSP.
The Punjab farmer protest has had little resonance in most parts of India. This is because other states are hardly a beneficiary of MSP, except where state governments procure directly from farmers. Also, the adoption of collective negotiation through Farmer Producer Organisations and involvement of private buyers has been growing faster in other states, even if this remains low in absolute terms.
These structural differences mean that farmers elsewhere are happier to experiment with a single national market, which is a new option available to them.
As negotiations between Punjab farmers and the central government continue, the “1991 moment” of Indian agriculture hangs in balance. Any backtracking on part of the government will create a template for narrow interest groups to oppose future reforms. Staying put in its position exposes the government to a battle of attrition involving the siege of Delhi.
Ronald Reagan once remarked that the government’s first duty is to protect the people, not run their lives. The farmers of Punjab clearly disagree.
Aashish Chandorkar is Director, Smahi Foundation, a public policy think tank. He is based in Pune
The views expressed are personal