Issue 62 Vol III, April 30, 2008

E D I T O R I A L

Rising prices drive power struggle

FOOD prices are rising across the world, we are told by the mighty prime minister and his equally powerful finance minister.  This means they could do little and at the same time, they are asking the state governments to help check prices and even evoke Essentials Commodities Act to provide relief to the people. One does not understand the half hearted measures being announced in a piecemeal manner daily to curb prices. Where was the government when the prices were rising? There is an apparent contradiction. When the prime minister tells the opposition parties, the Left and the BJP not make political capital out of the misery of the people, he is conveniently forgetting that government policies practiced for the past 15 years or so are the causes of this misery. And, why the opposition should let his government go off the hook. Would the Congress party behave differently?

Let us look at some facts. India like some other countries under pressure from the World Trade Organisation, International Monetary Fund and World Bank started discarding the concept of food security and a subsidised public distribution. Some countries that were food surplus became food deficient as they were forced to import cheaper food grains in order to get loans. Others were forced to cut down subsidies, public spending in agriculture sector and dismantle public distribution system. The roots of the present inflation do not lie in the global inflation as is being claimed. India is not witnessing a short-term phenomenon. If one looks at the question of food grains, the working of the PDS was made possible, between 1965 and 1990, by the phenomenal expansion of food grain production in the country. When India’s economic strategy began to be guided by the neo-liberal policies, major decisions like scaling down public spending in agriculture, cutting down subsidies and dismantling public distribution system were a natural outcome.

Food price rise is attributed to several factors. One major reason is the World Trade Organisation and its rules and regulations. Countries are not free to design their own farm policies and if these do, they are penalised. Powerful counties; America and Europe control WTO. India some years ago was forced to import American cotton and the result was increased indebtedness of cotton growers of Vidharbha, Andhra and Punjab and the consequent suicides. Now coconut farmers from Kerala are suffering because of cheap import of palm oil.

Recently a conglomeration of over 110 countries -- including the United States -- and key global institutions concluded a three-year study of world agriculture and found that many countries are increasingly dominated by a vertical agricultural structure.

According to the report, those who have principal influence over the production, processing and marketing of food have disconnected farmers from consumers. They have ensured that most profits are "captured by industries after the farm gate, not by farmers". In India every rupee that we spend on food, growers merely get 20 paisa.  The rest goes to marketing, processing, wholesaling, distribution and retailing. If anyone has doubt, he can ask the potato growers from Punjab and banana growers in Andhra and Maharashtra and apple growers in Himachal Pradesh.

In the early 1990s, subsidies were cut and the issue price of food grains from the PDS was almost doubled while the procurement price given to farmers rose very little. The poor were priced out and they were unable to buy the food grains. Per capita consumption of cereals fell. Stocks got piled up and the cost of holding increased the food subsidy. Then three years back, we exported wheat to import later, losing huge money. How wise indeed.

By the end of the 1980s, the Food Corporation of India [FCI] was intervening to a very significant extent; 45 per cent of all food grain sales. This helped minimum support price to farmers and the issue price could be effectively implemented. Private traders could not raise the prices too much above the rates at the fair price shops. Under new policies 8 million hectares of agricultural land have been shifted to horticultural crops, Cotton and sugarcane. Yet the farmers who sowed these crops did not benefit as there was no protection. The traders dictated the price. Right now huge stocks have been cornered by big corporations and they are dictating the prices by withholding the stocks. The government action is limited to small and medium traders.

The growth rate of food grain production has suffered since 1990s. It came down to 1.7 per cent a year as compared to 2.8 per cent a year in the 1980s and in the last six years it has fallen further to below half per cent per annum. All this resulted in a decline in per capita demand for food grain that has reached the level before WW II.

Government data show that the consumption of pulses by the poor is low; that the per capita cereal consumption has been declining for the last two or three decades; that only 28 per cent of the population was eligible for PDS at the all-India level in 2004-05. The Arjun Sengupta Committee report on the working and living conditions of workers in the unorganised sector states that 77 per cent of the population subsists on less than Rs.20 a day.

Some belated measures have been taken to revive agricultural production but that is insufficient. The government needs to revive the Commodity Boards and they need to do their job of procurement of commercial crops. State intervention in the market is very essential to protect both the consumer and producer from fluctuations. This is to ensure that farmers do not suffer from price falls and consumers do not suffer from price rise. If the procurement and distribution system had not been run down, we would not have been in a mess today. We ought to have mechanism to protect the poor from inflation.

The government has foolishly allowed speculators to enter and exploit the commodity market. There is a global excess of dollars, and holders are transferring them to markets and products wherever sustained price increases indicate good prospects for making profits. Agricultural prices rose between 2002 and 2006 due to entry of multinational corporations, higher food consumption in developing countries and due to crop losses, but since 2007 financial speculation has been responsible for most of the price inflation.

In India the food situation is improving as production of rice and wheat has set an all-time record at 95.68 lakh tonnes and 76.32 lakh tonnes, respectively. As on April 28 this year, domestic wheat procurement was 134 lakh tonnes as against 76.32 lakh tonnes last year. Can the government explain why it did not procure last year?  This year it could procure more wheat than the target of 150 lakh tonnes. Rice procurement this year has been 229 lakh tonnes as against 209 lakh tonnes last year; the procurement is expected to touch 270 lakh tonnes.

Yet the unanswered question remains how much the farmers will get. Traders and speculators make money out of the misery of the people thanks to the policies followed by the successive governments since 1990.

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