Much of the discourse on the three farm laws are influenced by certain prevailing myths about Indian agriculture and the food situation in the country within the academic and policy-making circles. First, there is a common perception, propagated by the ruling establishment, that India is a ‘food surplus’ nation, particularly with respect to cereals. Our farmers have allegedly over-produced cereals due to the MSP-based government support system. Secondly, any removal of government control and regulations necessarily provide better prices for crop producers and therefore only reforms which facilitate the market are desirable. Third and finally, even if India is not flush with grains, the world is overflowing with grains and cheap food imports using the large, accumulated foreign exchange reserves can easily ensure food security for Indian masses.
The above three myths having nearly turned into popular opinion, baffles the lay observer as why large number of farmers, carrying rations and provisions for a few months, have encircled the capital city. Similarly, any concern raised regarding adverse food security impacts due to the undermining of crop procurement by the new Farm Laws is also brushed aside based on the same myths mentioned above. Let us look at each of these myths to comprehend the reality.
Myth #1: India is a ‘grain surplus’ economy
A ‘food-grain surplus’ nation cannot also rank as low as India manages in the ‘Global Hunger Index’. In the GHI 2020 report, India ranked 94 among 107 nations. The persistence and worsening of child stunting as shown by the recent NHFS-5 data, further points towards pervading child under-nutrition. One can be fairly sure that if the children are not eating enough, one parent (and probably both in many instances) is definitely going hungry. Earlier, the NSS Nutrition surveys have also revealed that nearly the bottom three-fourth of the population definitely suffers from inadequate energy and protein intakes[i]. Any authentic attainment of a ‘food surplus’ status would have implied the availability of plenty of cheap grains for domestic consumption that would have prevented all the above observations regarding hunger and nutrition in the country. Rather the simultaneous existence of deep-seated hunger among the population and enormous grain-stocks in the government godowns point towards a policy-induced artificial creation of grain-surpluses.
For the common observer, it is easy to be convinced by the ‘food-surplus’ argument, given that the FCI stocks were at an all-time high of 97 million tons in June, 2020. The food stocks with the government continue to remain high at around 75 million tons by the end of 2020, despite the additional food-grain distribution as part of the Covid relief[ii]. Similarly, more frequent and large exports of food-grains by India over this past decade give the impression that the country produces much excess grains than it consumes. The latter must be true if cereal exports are growing and stocks burgeoning. But is it because we are producing more grains or are we consuming less?
The per-capita domestic consumption of grains started declining in the 1990s and that trend continued for two clear decades. There has been some recovery in the last decade (2011-2020) but the consumptions levels continue to remain lower than what it was in 1990. This decline has not been taken seriously within the academia as well the policy establishment based on the argument that with increasing incomes, Indian middle classes were diversifying their diets. They were eating more animal products and hence the demand for grains was going down in the country. This had nothing to do with worsening nutritional status of the population.
Interestingly amid the global food crisis, the then US President George Bush Jr. made the same argument but there he was blaming Indian (and Chinese) middle classes for diversifying their diets, eating more animal products and thereby increasing the demand for food-grains (as food but more so indirectly as animal feed)[iii]. While his argument did not stand the test of facts as the per-capita domestic grain consumption in India had been declining all the while from early 1990s to the food crisis of 2006, the theoretical logic embedded in his argument was correct. Any shift to animal products due to rising middle class incomes do lead to increased demand for grains in an economy as the ‘indirect’ demand for animal feed (via livestock production and processing industries) increases much more than any stagnation/decline in the ‘direct’ demand for grains as food.
Thus, a decline in demand for food-grains indicates precisely the opposite of what Indian policy-makers have been arguing, diet-diversification is not happening for the Indian middle-classes. Or more realistically, while the thin Indian elites and upper middle classes have indeed diversified their diets and consume more grains (directly and indirectly) now, that additional demand is more than compensated by majority of the population (located in the bottom three-fourth) who are eating less grains (carbohydrates) and less animal products (proteins). In fact, the higher demand for grains by rich Indians are more than compensated as the declining per-capita consumption figures represent.
Let us examine the figures a little more closely to bust this first myth. In 1990, the per-year per-capita domestic consumption of cereals was 186 kg[iv]. For all subsequent years in the three decades from then, it has been lower than this figure. This is a level of consumption that is usually found along with widespread hunger in society. Nations where hunger has become a phenomenon of the past, the grains demand are much more than this. Now if we assume that the average Indian did not experience any further improvement but merely maintained her grain consumption at this low 186 kg for the next thirty years, India would have required a whopping additional 430 million tons of food-grains for the period 1991 to 2020! This only depicts to what extent structural adjustment policies driven by the neo-liberal economic philosophy have systematically caused a crisis for petty production in India, leading to an ‘income deflation’ for masses. This, in turn, caused a decline in food demand for the masses and consequent arrest/deterioration of their nutritional and health status.
So if this demand disappeared (or never got generated), where did the grains go? Over the last three decades and particularly in the last ten years, India has emerged as a major cereal exporter. This is an entirely new phenomenon for India since independence. The total grain exported in 1991-2020 is 216.5 million tons and this accounts for part of the disappearing demand. Some part of the grain for which there is no domestic demand accumulated in the FCI stocks (assuming private stocks are negligible). By December, 2020, the cereal stocks are 75 million tons as noted above. Therefore, the exports and the current stocks account for only 291.5 million tons of cereals out of the 430 million tons of grains for which demand was absent. Where are the remaining 138.5 million tons of grains?
The answer is that this missing grain was actually never produced! The per-capita domestic grain output was 190 kg in 1990 and had also started declining since then. By 2007, this had declined to around 169 kg after which there was a recovery. Since 1991, it is only in four years that the per-capita grain output touched or crossed the 190 kg mark, which was achieved way back in 1990. Three of these four years are after 2017, depicting a situation where food-producers in the country were struggling to keep their agricultural systems intact due to increasing pressure of commercialization, deregulation of inputs, ecological challenges and falling incomes from cultivation. It appears that the domestic cereal production has recovered to the 1990 levels of normative output only in the last three to four years after a long stagnation.
Clearly, there is no authentic surplus food-grain in the country. Any surplus visible in the forms of large exports and overflowing FCI stocks can be attributed to the fact that the average Indian was not able to maintain her already low level of grain consumption over the last thirty years. All euphoria regarding ‘food surpluses’ are really based on the dystopia of the endless pangs of hunger, under-nutrition and their consequences that the average Indian and her children have borne over the last thirty years. Needless to say, this ‘average Indian’ is located far away from the glittering lives of the metropolitan cities and invisibilized from the world of policy-makers.
Myth #2: Market-friendly reforms necessarily give better to farmers
Markets are complex institutions representing economic relationships embedded in the prevailing socio-political realities. The price formation in a particular market is dependent on the demand and supply dynamics as well as a myriad of structural factors. The balance of bargaining power between any two parties determines the price formation in a commodity market. Consequently, a buoyant demand does not necessarily guarantee a better price for the seller if the buyer is a monopolist. Similarly, the absence of a monopoly buyer does not guarantee high prices to the seller if the demand is sluggish or declining. The demand and supply itself is influenced by a number of factors that are often outside the realm of market transactions.
With globalization and a revolution in transportation, the dynamics of market demand and supply are influenced by an ever greater number of factors developing in very different and apparently unconnected far-away markets and also by factors that originate from geo-political developments or cultural changes. For agricultural commodities, natural and weather-related events further add to the complications of the demand-supply dynamics. This has meant far greater fluctuation in agricultural commodity prices after trade liberalization. There have been periods where prices have boomed but frequently followed by massive slumps wiping out past gains for small to big farmers. In light of this, any blanket claim that deregulating markets and allowing the free play of private players will improve crop prices for farmers appears to be on shaky grounds at best, and spurious at worst.
Interestingly in India, the arguments that emerged in the early 1990s favouring the opening up of agricultural commodity markets to global trade and joining a multi-lateral trade arrangement represented by the WTO were based on the same premise that removing government regulations like import tariffs will necessarily lead to better prices for farmers. In fact, a couple of scholars argued that by protecting India’s farmers from global competition through trade duties, the government was doing more harm to them[v]. They calculated that India had a negative Aggregate Measure of Support (AMS) for Indian farmers. This was so because while the government was extending various input subsidies (like on power, fertilizer, etc.) to farmers, by preventing them from selling at higher prices in the world agricultural commodity markets, the government was actually providing negative support to them.
They estimated that the total AMS for Indian farmers stood at (-)Rs. 341.4 billion in 1992-93. This was so even as the total subsidy based support amounted to Rs. 86.5 billion. It was estimated that the Indian farmers were getting a negative support of Rs. 427.9 billion because world market prices were higher than MSPs for various crops and the Indian government was not allowing the farmers to sell in export markets through various regulations. Quite a strong argument for liberalizing trade in agricultural commodities!
Except that this kind of argument is classic example of how not to understand markets and formulate policy based on myopic play with data. Immediately after a large number of developing countries signed the WTO agreement in 1995, agricultural prices collapsed in the global markets. This was imminent in the sense that when around 70 developing countries liberalized agricultural trade in the hope of capturing the same global market, there was a sudden excess supply of most agricultural commodities. Millions of farmers from various developing countries were made to compete with each other and supply their crops at substantially lower prices. Between 1995 and 2000, the prices of major crops declined in the range of 30 to 80 percent. This precipitated an agrarian distress in rural India and triggered farm suicides, particularly for commercial farmers, in the late nineties[vi].
Academic and policy-making integrity demanded that the AMS be recalculated for the year 2000 or 2001 and if found that the economic support had turned positive because the world prices have fallen substantially, India should have reconsidered her commitment to the WTO agreement. This might have prevented Indian agriculture from slipping into a long crisis. Unfortunately, often arguments are built up erroneously to push through certain reforms and hence they are seldom re-examined. The original negative AMS argument had no understanding of the fact that what they were calculating was only true for the given time and policy environment i.e. in a static sense. What can be the impact of the entire developing world opening up their trade simultaneously requires far greater foresight and imagination of market dynamics than was exercised.
Agricultural commodity prices did recover after 2002 and then went into a boom period led by food-grains. The conversion of a critical threshold of grains into ethanol in the US, high oil prices and speculative finance entering the commodity futures market all led to astronomical prices of food. While the ‘net food sellers’ (notably in the developed world but also thin sections of food-growers in the developing countries) benefitted, a majority of the farmers (and other poor non-agricultural population) in the developing world who are ‘net food buyers’ were again at the receiving end of the grain price boom, enduring massive onslaughts on their diets and nutrition directly and cut-back in education and health expenditures indirectly. Liberalized food markets which promised to augment farmers’ income through greater efficiency caused enormous insecurity and distress to most farmers with unmatched alacrity. Clearly, there is much more to markets than efficiency!
Post the financial crisis of 2008 and the beginning of the oil price slide in 2012 (which rendered corn-ethanol as unviable), the food prices started declining. This was hardly again an undisputed relief to petty commodity producers (most farmers in the developing world) given that 2012 marked the end of the commodity boom and prices of most agricultural commodities also turned downwards, often depleting the farm incomes in real terms. In India, the farmers were additionally hit by demonetization in 2016 and a general economic slowdown, keeping the crop output prices low. Globally, the prices of major crops have declined between 20 to 50 percent between 2012 and 2019 and are now made further sluggish due to the adverse economic consequences of the pandemic[vii].
The most important argument that is not considered when it is argued that removing the arhatiyas (middlemen) will benefit the farmers is the structure of global value chains in agricultural commodities. It is widely accepted now that agricultural value chains typically take the shape of an hour-glass, with large number of producers and consumers having negligible bargaining power at the two ends and a few wholesalers, processors and retailers (often global TNCs or conglomerates) which control all the levers in the commodity markets. The arhatiyas and the government supervision/regulation provide a reasonable bargaining power and call for accountability to the farmers, which global value-chains have systematically denied to farmers across the world. Thus, the arhatiyas and government fees and surcharges in the mandis can be identified as detrimental to surplus food-growers only in a make-believe world where global corporate agribusiness does not exist and is not continuously waiting eagerly to enter newer and newer agricultural markets in developing countries.
Myth #3: Food security can be achieved through food imports
The public procurement of food-grains from the surplus food-growers in North and Central India is the mainstay of the public distribution system in India. Given that private traders have been present in crop trading in Indian agricultural markets for decades now even without the new Farm laws, the latter is clearly aiming to open up agricultural markets where the mandi system is still functional. Post these Farm Laws, the major target of big private players, national and transnational, is clearly the grain markets of North India. There is a very real possibility of the government moving out of the grain market gradually as the big corporate capital enters, thereby undermining the public procurement and the public distribution system. In a country, where the challenge of pervading hunger is very much prominent, this ought to be a matter of concern for policymakers.
That this is not the case is due to the third mythical belief that food security can be attained importing cheap grains from the world markets. A large foreign exchange reserve like the near US$600 bn. that India has accumulated of late is further identified as a strong point in this strategy of importing large quantities of food as and when required. One needs to note that of the three myths discussed in this essay, this is in fact the weakest. The Global Food Crisis of 2006-12 has sufficiently demonstrated the vulnerability of developing nations dependent on food imports and how it is a risky strategy of development. However, as food prices have started keeping low in the global markets since 2012, the ‘cheap food import’ argument is again being propagated by the transnational grain corporations and big agribusiness.
The ‘cheap food imports’ argument originally gained ground in the 1980s and 1990s urging developing countries to dilute their commitment to food self-sufficiency and divert their land resources to commercial cultivation of tropical products that are demanded in developed countries and by the rich in developing countries. At the heart of the argument was the assertion that transnational corporations in agriculture that originated in the North in the 1960s have made adequate breakthrough in agricultural productivity over the subsequent decades and have achieved a permanent stability in grain and other food markets. This was the primary reason why global food prices were ‘low and stable’ since the oil shock of the 1970s and this would remain so in future. This euphoria was spectacularly shattered by the global food crisis in 2006 when food prices in real terms surpassed the earlier record food prices of the oil shock years.
However, even for the fairly long period of two decades when the food prices were indeed ‘low and stable’ in the global markets, it is doubtful whether this was because agribusiness corporations had revolutionized farming and solved the food question once and for all. The world per-capita grain output actually declined from 341.6 kg in 1985 to 290.2 kg in 2002. Despite this fall in supply of grains, the reason why prices remained low was the declining per-capita grain consumption during this period. Between 1985 and 2000, the latter had declined from 324.3 kg to 303.1 kg.
Disaggregation of data clearly shows that this decline was primarily in developing regions and there is no similar evidence from developed country grain consumption figures. Over the 1980s and 1990s, several developing regions experienced a decline in the grain consumption, starting with the Latin American countries and West Asia in the 1980s and then South Asia and Former Soviet Union (FSU) countries in the 1990s. The decline in grain demand in many developing regions was due to the neoliberal restructuring of economies causing various crisis for existing economic activities and a widespread income deflation.
The most remarkable geopolitical development though that influenced the global grain markets decisively was the break-up of the Soviet Union and the subsequent dismantling of food subsidies and other welfare measures. Between 1990 and 2000, the annual per-capita grain demand in FSU collapsed by a massive 380.5 kg. In absolute terms, the grain demand collapse was a gigantic 112.8 million tons. To put this in perspective, the total increase in the world’s food grain consumption during 1990-2000 was 148.5 million tons and the FSU demand collapse compensates for 76 percent of this[viii]. It was this disappearance of grain demand in the FSU countries that kept food prices ‘low and stable’ in the world markets. What was being celebrated as the ‘technical revolution’ of corporate agribusiness was in reality an ‘unspoken silent famine’ and the demographic disaster in the ex-socialist world, where the population declined by 10.2 million in a decade!
There is no clear evidence since the oil shock of 1970s till date that the global grain markets have overcome supply constraints decisively. Rather, the declining demand for grains due to economic distress/collapse in various developing/ex-socialist regions at different points of time have been repeatedly misinterpreted to attribute success to corporate farming and create an illusion that developing countries do not need to pursue the goal of self-sufficiency in food production (wherever possible given natural constraints) and can possibly depend on food imports whenever required.
The economic philosophy and arguments justifying the three farm laws passed recently clearly hinge very strongly on the three myths discussed in this piece. This is precisely the reason why they will worsen the price situation for farmers instead of improving them, decisively impair the food security of the country and intensify the scourge of hunger among the Indian population. While a section of the intelligentsia and policy-makers continue to believe and propagate these myths, the farmers whose lives will get directly affected by the Laws can clearly see through them and have undertaken a patient, diligent and non-violent protest. Any democratic dispensation that is accountable to the people should repeal these Farm laws and call for a fresh and truly participative consultation on what is best for Indian agriculture.
The author is Associate Professor of Economics at School of Liberal Studies, Ambedkar University, Delhi.
[i] See Patnaik, U. 2013. ‘Poverty Trends in India 2004-05 to 2009-10’, EPW, Vol. XLVIII No 40
[ii] based on data provided by FCI
[v] See Gulati, A and Sharma, A. 1995. ‘Subsidy Syndrome in Indian Agriculture’, EPW. Vol.XXX No 39
[vi] See Patnaik, U. 2003. ‘Global Capitalism, Deflation and Agrarian Crisis in Developing Countries’ Journal of Agrarian Change, Vol 3 No 1&2 for an elaboration of this argument
[vii] See Banerjee, A. 2020. ‘Saving the Rural Economy’, Financial Express, April 29, 2020 (can be accessed at https://www.financialexpress.com/opinion/saving-the-rural-economy-the-govt-will-have-to-deepen-its-procurement-operation/1942598/)
[viii] See Banerjee, A. 2020. ‘The ‘Longer Food Crisis’ and Consequences for Economic Theory and Policy in the South’ in Rethinking Social sciences with Sam Moyo ed. by Praveen jha, Paris Yeros and Walter Chambati, Tulika Books, India