People's Democracy

IT is now beyond question that the process of the economic reforms of the 1990s has proved to be quite disastrous for Indian agriculture. Aggregate output growth rates have stagnated if not fallen, while the rate of growth of foodgrain production fell below that of population growth for the first time in all such periods since Independence. Meanwhile, the latter part of the decade has seen cultivators across the country in crisis. They have been faced with falling market prices and competition from imports even as their own costs have increased, rendering their activities economically unviable.

There are many reasons for the current state of affairs. They range from the fiscal cutbacks which reduced real public investment in infrastructure in the rural areas to the ham-handed manner in which subsidy cuts were sought to be implemented. The closer integration of India’s rural economy with international markets at a time when world agricultural prices have been falling has not helped either, although it can be argued that here also, government policy has actually contributed to making matters substantially worse. The mess in food procurement and distribution, which means that 60 million tonnes of foodgrain are now rotting and being wasted in government godowns despite widespread drought and unemployment in many parts of the country, is also directly a result of government policy.

Even supporters of the reform process agree with the broad assessment of the current reality, although the excuses that they offer are very different. They argue that the problem is that the reform process did not "pay enough attention to agriculture", that is, that it has not gone far enough in terms of liberalising agriculture.

It may be hard for most people to imagine how agriculture could be further liberalised, given that all cultivation is by private operators, most export restrictions have been lifted and imports fully freed, inter-state movements of grain are no longer controlled, and role of the Public Distribution System severely curtailed by increasing issue prices of food. But the argument being advocated not just by rightwing economists but also by the government, is that fresh reforms in agriculture would require encouraging large private corporations to step in and take over the marketing, processing, and distribution of agricultural commodities. Extreme versions of this even suggest that the Food Corporation of India should be dismantled and its place should be taken by private traders, including large multinational companies like Cargill.

This idea is so outrageous that even a few years ago, it would be almost unthinkable to state it publicly. But such is the confusion of our times, that when liberalisation and reducing the role of the state are clearly shown to have failed, the remedy is declared to be further liberalisation and further privatisation ! And even when private corporations across the world are known to be simultaneously exploiting consumers and depriving farmers of their just dues, the Indian government has provided further incentives to strengthen the process of corporatisation in the recent Annual Central Government Budget as well as in the latest Exim Policy.

The example of agricultural corporatisation which is upheld as a model for others to follow is that of the United States. That is why it is instructive to consider how American farmers and consumers have fared through this process over the 1990s. In fact, recent trends in US agriculture provide a dramatic illustration of how farmers can be worse off even as society pays more for the food it consumes.

It is well known that the United States, like most other developed economies, provides large subsidies to its farming sector. It is also no secret that these subsidies have not really been reduced after WTO was formed, and that farm subsidies are now back to the earlier very high levels. What has been a relatively well-kept secret, however, is that these subsidies have not really benefited farmers so much as they have contributed to greater profits of the giant corporations that now control the distribution and marketing of food products.

Much of this process was due to specific trends of the 1990s. Between 1990 and 1999, marketing costs rose 14 per cent, while consumer food expenditure climbed 8 per cent. Meanwhile, the prices received by farmers dropped by 11 per cent.

Most mainstream analysts have attributed this to shifting tastes and patterns of demand. Thus, consumers bought a larger volume of food, value-added processing and packaging of at-home foods increased, spending at restaurants and fast food outlets grew, and prices for marketing inputs rose. A changing workforce — comprising more working women and more two-income households — meant that busy consumers of the 1990s wanted quick convenience foods.

While these may have been factors, the most important cause for the rise of marketing margins, which has affected both producers and consumers adversely, is the increasing role of large companies in food procurement and distribution. In the US, where the process of corporatisation of agriculture is not only well advanced but has accelerated over the 1990s, a handful of large companies now handle, control or are involved in some way in almost all aspects of production and distribution of food.

Consider the companies that now control certain important food sectors in the US economy :

* in grain trade and processing: Cargill (which swallowed Continental, the second-largest grain trader), Archer Daniels Midland (ADM), ConAgra.

* in beef packing and distribution : IBP, ConAgra, Cargill (as owner of Excel).

* in cattle feed : Cargill, Cactus Feeders, ConAgra.

* in pork processing : Smithfield, IBP, ConAgra, Cargill.

* in biotech and seeds: Monsanto, Cargill, DuPont/Pioneer, Novartis, Aventis.

So a few diversified firms are positioned on many sides of the market at once. Increasingly, the process of mergers and acquisitions means that apparently separate firms are connected through a complicated system of "strategic alliances" and cross-ownership. It is this kind of market leverage that has given the large companies a pricing advantage over farmers and livestock breeders. And it is this which explains the rising spread between the prices received by farmers, and the prices paid by consumers.

This entire process has been dramatically described as follows : "Farmers can see themselves being reduced from their mythological status as independent producers to a subservient and vulnerable role as sharecroppers or franchisees. The control of food production, both livestock and crops, is being consolidated not by the government but by a handful of giant corporations. While farmers and ranchers suffered three years of severely depressed prices at the close of the 1990s, the corporations enjoyed soaring profits from the same line of goods. Growers are surrounded now on both sides - facing concentrated market power not only from the companies that buy their crops and animals, but also from the firms that sell them essential inputs like seeds and fertiliser. In the final act of unfettered capitalism, the free market itself is destroyed." (William Grieder, "The last farm crisis", The Nation, November 20, 2000)

The effects of such a policy on American farmers, who were already quite well off and financially and politically strong, are now becoming apparent in a spate of bankruptcies and farm collapses. Imagine how much more devastating would be the impact on Indian cultivators, most of whom are already operating at the margin of subsistence.