Pricing food in poor India

December 22, 2009

The government is being severely criticised for the wheat it is now planning to import. Rightly so. India’s season for wheat ended a few months ago. When the crop was being harvested the government dithered on the price it would pay farmers; it floated tenders for import of wheat; it insisted on taxing the purchased wheat. At the end, farmers were paid Rs 850 per quintal, a price which included a ‘bonus’ of Rs 100. This was when the open market price was over Rs 950 per quintal and the international price—quoted in various tenders—was Rs 1,050 per quintal and above. This meant that farmers preferred not to sell to the government. They sold to private wheat traders, including multinationals like Cargill. Now, in the new purchase order for 0.5 million tonnes of wheat, we will pay a high us$325 per quintal (around Rs 1,400). This is also being paid to Cargill and company. The bottomline is that the Indian government, to maintain its food stock, will pay higher prices to farmers abroad than it is prepared to pay its own.

This can be dismissed as yet another case of government incompetence. But there are lessons that we cannot afford to miss. First, it explodes some half-truths and myths that surround Indian farmers and farming policy. Second, it exposes the problem of selling a commodity in a country which is too poor to pay for it. Finally, it suggests what we must not do, and conversely what we must do to deal with food and farmers.

It has been widely said in policy circles that we give up our aversion to import food. In fact, Indian farming is not viable and productive. Contrast this to the present situation—Indian wheat is cheaper than the foreign grown wheat. And add in this sum, the fact that this is not the ‘real’ price of growing foreign wheat.

Between 1995 and 2005, the us spent over us$20 billion in subsidies to its wheat farmers. Its 2002 farm bill guarantees wheat farmers a specific price. eu too provides huge subsidies. In other words, Indian farmers are more than competitive, even in this highly skewed and unfair market.

The next oft-quoted half-truth is that the Indian government provides massive agricultural and food subsidies. It is true that the mother of all ‘fertiliser subsidies’ has reached grotesque levels, increasing in the past few years from Rs 6,000 crore to Rs 22,000 crore. The estimation for the current year is Rs 50,000 crore and above. But this ‘subsidy’ does not go to the farmer, but to the industry. Everybody, except the fertiliser industry, agrees that this is not working. The benefits are not reaching farmers and Indian soils are more depleted than before. But nobody bells the cat.

And it is travesty to say farmers get food subsidy. What the government does is to set a ‘minimum’ price for the procurement of some foodgrains. The problem is it wants to keep the price low, so that it is affordable in its public distribution system. It also wants to contain inflation by keeping food prices low. The minimum support works to depress the prices and not to pay farmers their full rates. As it turns out, this is a food subsidy for consumers—for you and me, not for farmers.

The problem also is that the agricultural market itself is a sham. On the one hand, it is a market full of poor (or relatively poor) people, who cannot afford high food prices. Or is about people who increasingly find that their budget for food needs to be thinned so that they can spend more on processed food or consumer items (as the market demands) or on essentials like water or health or education (as the market fails). On the other hand, international agricultural commodity markets ensure that prices are kept low. This is not because their people are poor, but because they are rich and can spend on keeping their farmers viable. In all this, the Indian farmer, who ironically is also the poor consumer, is the worst impacted because he or she does not get the price of their labour or capital, and does not get the food as the delivery system is riddled with holes.

A careful look at the trends in prices tells us more. Input costs are increasing for all crops—from seeds which are substandard and are peddled by private companies interested in short-term profit, to water which is increasingly unavailable so that farmers have to invest to dig wells and then, as water levels drop, to buy diesel to pay for pumps. But these costs are rarely captured in the computations made by the Commission for Agricultural Costs and Prices which then sets the base price for our food. In these prices farmers have to work at no profits, only their bare minimum cost of labour and inputs are paid for. Would any industry be willing to talk about a zero or negligible rate of return?

In this situation, the environment is the ultimate loser: where prices are depressed, natural resources are discounted. The subsidies given by the rich countries are a reminder that it will cost to grow food—not just because it requires investment to increase productivity, but because it requires continuous investment to sustain that productivity. It requires money to invest in micro-irrigation management, in soil fertility inputs, in land management and managing safety standards. We should be amazed that our farmers manage to invest, within their limited resources, with no external assistance. We should not dismiss this ‘art’ of agriculture. We must learn from it, improve it and build on it.

But then, we would not go looking to the us for advice on agriculture (as the Planning Commission is doing). We would understand that the us is a country, which has to pay its farmers to grow wheat and even then its wheat is full of weeds.

Sunita Narain