India needs a rethink on ‘free market’

Devinder Sharma

Food & Agriculture Specialist

ALL of us like chocolates. But the next time you bite into a chocolate bar, do remember that the average income a cocoa farmer earns a day is probably less than the price of a medium-sized bar that is in your hands. About Rs 100 ($1.3) a day is what a cocoa farmer in West Africa earns.

At a time when the $210-billion global confectionery industry has been growing by leaps and bounds, with chocolate taking the highest market share, the biennial Cocoa Barometer 2020 report illustrates how the prevailing market-driven business model leading to excessive profits for the chocolate industry is based on achieving higher productivity of cocoa that in turn has kept five to six million cocoa farmers perpetually in poverty. Discarding the dependence on markets, if only cocoa farmers had received a minimum support price (MSP) over the decades, it would have helped millions of them lift themselves out of poverty, hunger and malnutrition.

In Britain, after the Milk Marketing Board, which regulated milk prices and marketing, was dismantled, the number of dairy farms has come down drastically — from 40,000 in 1995 to an estimated 8,310 in 2020. Although milk producers had wanted price regulations to continue, market economists thought otherwise. Between 1994 and 2010, milk prices fell by 28 per cent and there came a time (in 2015) when prices slumped further by 40 per cent. Farmers were simply unable to even recover the cost of production. The plight caused by the destruction of farm livelihoods in the process was brushed under the carpet. As a British farmer said: “Every genuine farmer is now stuck unfairly on a treadmill with accumulating debts to meet unless he goes bankrupt, commits suicide or finds another source of income.”

What happened in Britain, or for that matter in Europe, was no exception. In America, at least 50 per cent of the dairy farms have disappeared in the past two decades. According to the US Department of Agriculture, the number of licensed dairy farms had come down from 70,000 in 2003 to 34,000 in 2019. While small farmers bowed out, mega-dairies have taken over. As a result, despite the closure of small dairy farms, milk production has further swelled. This is certainly not what India needs. In a country where roughly 50 per cent of the population remains engaged in agriculture, and which tops the global milk production chart, what India needs is a production system by the masses, where small farmers earn a decent livelihood from an assured price delivery mechanism.

As expected, a ‘free market’ in dairy benefited the milk processing companies, and pushed small dairy farmers out of business. Thus began a vicious cycle of over-production, bringing down the market prices. Instead of fundamentally addressing the flaws in supply chains, by ensuring assured prices to dairy farmers to begin with, Europe and America focused more on providing bailout packages to temporarily assuage the farmers’ ire. British farmers (and also in Ireland), therefore, continued to protest against the ‘unfair’ prices and have since been campaigning for a fair deal.

The tragedy on the dairy farm was further compounded by an unjust WTO’s Agreement on Agriculture, which allowed heavily subsidised milk from European countries to be dumped in developing countries. Breaching the five per cent product-specific subsidy support norms for developed countries, EU had actually subsidised skimmed milk powder by 67 per cent, thereby easily dumping cheaper milk in developing countries. In the process, small dairy farmers suffered at both ends — in developed as well as developing countries.

No wonder, at a time when mainline economists in India are excited at the possibility of ‘free markets’ enhancing farm incomes, Canadian farmers are seeking more protection to save their livelihoods. Three major farm unions in eastern Canada are demanding protection (by way of subsidy and import tariffs) against US President Donald Trump’s recent

$32-billion subsidy package to American farmers, which they say threatens their survival: “Farmers need to be able to cover the cost of production or many of them will not be able to survive much longer.”

Now let us look at America. The prosperity that we see on the farm is a reflection of the massive subsidy support. To ensure that small farmers are not wiped out, the US has been coming out with a Farm Bill every five years. In the 2018 Farm Bill, the US expanded the safety net for farmers, making a provision for $867 billion for the next 10 years in commodity support, several measures to enhance farm incomes as well as for nutrition schemes.

Instead of leaving farmers to face the volatility of markets, the US introduced the Agricultural Risk Campaign (ARC) and Price Loss Coverage (PLC) programmes in the 2018 Farm Bill. Both programmes are aimed at covering losses a farmer suffers when crop prices or revenue drop, and cover 24 commodities, including wheat, oats, barley, corn, grain sorghum, rice, soyabean, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, seed cotton, dry peas, lentils, small chickpeas, large chickpeas, and peanuts. In addition, there are numerous other programmes for relief from natural disasters, crop insurance, structural adjustment and environment.

Even in China, markets have failed to help increase farm incomes. According to a report in Washington Post, “China’s agriculture support includes government purchases at above-market prices, as well as market price support programmes, where farmers receive a direct payment from the government if market prices fall below a minimum set price.” This has helped raise farm incomes by 38 per cent for wheat, 32 per cent for rice and 29 per cent for corn. China provided a farm subsidy support of $212 billion in 2016, the highest in the world.

Well, if the two biggest agricultural giants realise the inability of markets to help raise farm incomes, India too must rethink its approach. There are significant lessons here. 

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