Aspects of India's Economy No. 42

Wheat Imports – A Tool for Re-shaping India’s Agriculture
VI. The Wheat Production Crisis

As a result of the pressure of mass discontent, and anxieties about state elections, the Government has also been forced to take a few hurried steps to increase production of wheat in 2006-07 (to be marketed in April-May 2007). It has increased the procurement price to Rs 750, and announced the price early, to encourage additional sowing of wheat. It has also announced a Rs 8.41 billion action plan over the next three years to boost wheat productivity in a selected 138 districts of nine states. This would include restoring the micronutrients and minerals in the soil, introducing improved techniques, supplying improved seeds, and subsidising diesel for irrigation. It is reported that, attracted by higher prices, peasants have sown a much larger area under wheat this year, which should result in higher production.

However, given the depth of the wheat production crisis, these measures are at most palliatives and at worst are meant to mislead the public. The “action plan” amounts to a mere Rs 2.6 billion a year, for one of the two staple crops of the country. And a larger area sown to wheat means land has been diverted from another crop, which in turn might necessitate imports of that crop.

The underlying problem is of the stagnant yields of wheat. Table 7 is a striking illustration of what the current economic policies have done to Indian agriculture.

		Yield growth rate
State	*Avge yield 2004-05, kg per hectare**	1985-86 to 1995-96	1995-96 to 2004-05	Percentage share in acreage 2004-05*
Punjab	4209	2.07	0.76	13.18
Haryana	3963	2.70	0.74	8.83
U.P.	2601	2.41	0.43	36.39
M.P.	1659	4.04	-0.46	15.23
Rajasthan	2783	1.49	1.20	7.56
Bihar	1765	3.07	-2.61	8.23
All India	2642	2.61	0.56	100.00
* for the three-year period ending 2004-05 Source: CACP, Profile of Rabi Crops under Price Support of 2006

As can be seen from col. 2 of Table 7, the range of yields is very wide. Yields range from 1,659 and 1,765 kg per hectare in M.P. and Bihar to 3,963 and 4,209 kg per hectare in Haryana and Punjab. Uttar Pradesh, which accounts for more than one-third the all-India area under wheat, has an average yield of just 2,601 kg per hectare. Had all-India yields averaged even 3,000 kg per hectare, production would have been 78 to 81 million tonnes (from 26 to 27 million hectares). Whereas the actual production in 2005-06 was 69.5 million tonnes or less.

As can be seen from col.s 3 and 4, there was a dramatic slowdown in yield growth during the last decade. Yields grew at an annual rate of 2.61 per cent from the mid-1980s to the mid-1990s; then growth slowed sharply, to 0.56 per cent, from the mid-1990s to the present, this being the period of the World Trade Organisation (WTO) and agricultural ‘liberalisation’.

The picture is even starker in the case of Madhya Pradesh and Bihar, where yields fell at annual rates of 0.46 and 2.61 per cent respectively. These were the very states which saw rapid yield growth in the previous decade, at 4.04 and 3.07 per cent a year respectively. The slowdown in U.P. yield growth too was sharp, from 2.41 per cent in the first period to 0.43 per cent in the second. These three states account for almost 60 per cent of the area under wheat all-India. The gap between these states and Punjab-Haryana has widened instead of narrowing.

Had yield growth continued in these three states during the “WTO decade” at the same rate as in the previous period, production would have been much higher, and there would have been no excuse for imports. Instead, during this period investment in agriculture continued to fall; state governments, in the grips of a fiscal crisis created by the Centre, wound up their meagre agricultural extension activities; bank credit to agriculture slid to low levels; and agricultural prices fell to unremunerative levels. Production of cereals in most of eastern India declined. Noting that the rate of yield growth of the 1980s was not sustained in the 1990s, the Committee on Long Term Grain Policy (CLTGP) said: “Although reduced public investment and setbacks in technology extension are causes, the behaviour of producer prices is also important.... In this context, it should be emphasised that producer prices in many parts of Bihar, Orissa, Uttar Pradesh and West Bengal are currently below full costs of production.” (pp. 17-18)

In fact, as can be seen from Table 8 and Chart 2 below, wheat production has actually been falling in absolute terms. After reaching a peak of over 76 million tonnes in 1999-2000, it has never matched that figure in subsequent years.

1996-97	69.35
1997-98	66.35
1998-99	71.29
1999-2000	76.37
2000-01	69.68
2001-02	72.77
2002-03	65.76
2003-04	72.15
2004-05	68.64
2005-06	69.48

It is true that, for environmental reasons, it may be advisable to reduce the area under wheat and paddy in Punjab and Haryana, and replace it with other crops. However, if this is done along the lines of neo-liberal policy, it can lead to disaster. (i) If the Government attempts to shift Punjab-Haryana to other crops without providing a guarantee of public procurement for those other crops, peasants will not willingly shift to growing them, for they know that they will suffer instability and declining incomes. (ii) Secondly, if the Government attempts to bring about this shift of crops in Punjab and Haryana without in advance increasing yields in the other wheat-growing areas to much higher levels, national food security will be shattered. As the CLTGP points out, overall national food security “still depends very largely on FCI moving about 80 per cent of the surplus grain of this region [Punjab and Haryana] to meet 25 per cent of consumption in deficit regions.” (p. 18)

Government policy to strengthen private corporate control of agriculture
However, no such rational shift in grain crops is on the cards. Rather, the Government’s plan is to bring about the shift by, on the one hand, reducing procurement operations of FCI and all other public sector activities related to agriculture, and, on the other, promoting the entry of the corporate sector in all these activities. This will undermine, even wreck, the present peasant economy of Punjab-Haryana without spurring cereal production in other states. This is what is being done under the heading of ‘diversification’.³²

Meanwhile, to encourage corporate control of agriculture and all related activities, the Centre is in the process of changing a number of legislations.

(i) The Essential Commodities Act (ECA) of 1955 restricts trade in food products to licensed traders. Also under the ECA limits can be set on stock holding. Since 2002, however, the ECA has been diluted and its scope narrowed.

(ii) Food processing was earlier reserved for the small-scale sector, at least on paper. Now all such reservations are being scrapped. The new Value-Added Tax (VAT) too will consolidate corporate control: Since small units do not pay VAT, retailers will be unable to claim tax credit on their purchases from small units, and so such small units will no longer be able to compete with large firms.³³

(iii) Step by step, foreign direct investment (FDI) is being permitted into the retail sector. Foreign firms such as Wal-Mart will tie peasants into contract farming according to their requirements. Wal-Mart has already begun procuring substantial supplies from India of November 2006, it announced its entry under a joint venture with the Indian corporation Bharti. For the time being, Bharti is to own the chain of front-end retail stores, while the two firms will have an equal share in a firm that will engage in wholesale, logistics, supply chain and sourcing activities.³⁴

(iv) A proposed Warehouse Receipt Act will make warehouse receipts a negotiable instrument, against which banks can lend. Although this is being introduced in the name of facilitating bank credit to peasants, the real beneficiaries are to be speculators on the commodities futures market. For once warehouse receipts are negotiable instruments, speculators can more easily get bank credit against them to gamble on the commodities futures markets. In October 2006, the Planning Commission proposed that the Banking Regulation Act, 1949, be amended so that banks can lend money to speculators in the commodities and futures markets. The Planning Commission also wants amendments to the SEBI Act to enable mutual funds to invest in commodity markets.

(v) Most importantly, the Agricultural Produce Marketing Committee (APMC) Act, which required that farm produce be sold only at the designated marketplace through registered intermediaries, is being replaced. The Centre has drafted a model APMC Act (since this falls in the sphere of state legislation), which some states have already adopted, and most are in the process of adopting. The new Acts permit “private yards/private markets not regulated by the market committee.” Further, “it will not be necessary to bring agricultural produce covered under contract farming to the market yard/private yard and it may be directly sold to contract farming sponsor from farmers’ fields.” Under the “model contract farming” corporations appear as “contract farming sponsors”. There is no provision compelling these “sponsors” from buying the entire output of those producing on contract. In case of a dispute regarding such contracts, the farmer is barred from filing civil suits except on a complaint made by collector or office-bearer of the market committee.³⁵

Along these lines, ITC, the Indian subsidiary of the multinational British American Tobacco (BAT), has over the last several years set up a network of what they call “e-choupals” to procure agricultural products directly from peasants, as well as sell them inputs. According to the chief executive of ITC Foods, the company was not worried about the rise in wheat prices, as direct purchases through its e-choupal network had “proved handy”; these, presumably, were at lower prices.³⁶

Reliance Retail has signed a Memorandum of Understanding with the Punjab government to build and operate a chain of “rural hubs” across the state; it has similar plans for Haryana, U.P., Uttaranchal, Himachal Pradesh, and West Bengal. These “hubs” would serve as procurement areas for a chain of giant retail malls (“hyper” and “super” malls) it proposes to open across the country. Other activities of the “hubs” would include farm extension services (that is, guidance and assistance to farmers), warehousing and processing points, and veterinary services.³⁷ These are precisely the activities hitherto carried out by the public sector.

What often seems mere bureaucratic stupidity turns out, on examination, to be part of a systematic policy. Take the abysmal state of the Indian Council for Agricultural Research (ICAR), which is meant to be the key all-India institution in agricultural research, education, demonstration of new technologies, and consultancies: In 2005, it had 1,970 vacancies for scientists and 762 vacancies in technical posts. Another 156 posts for scientists were abolished as part of the Government directive to reduce manpower by 10 per cent.³⁸

The public sector in agricultural R & D is to be dismantled in this way so that the peasant has no choice but to depend on the private sector. This strategy is ringingly endorsed by the Prime Minister himself. Inaugurating a research and development (R & D) centre of Fieldfresh, a joint venture between the Bharti group and the global financial services company Rothschild, at Ladhowal, Punjab, Manmohan Singh “called upon the corporate sector to play a key role in enhancing productivity and in the diversification of the farm sector”. The corporate sector’s involvement would usher in “a new era of green revolution”, and the Fieldfresh R& D “could go a long way in banishing poverty from the countryside”.

Both peasants and consumers will suffer as FCI recedes
The Agriculture Minister, as we saw earlier, defended wheat imports on the ground of protecting consumers from price rise. But he also defended the fact that private traders bought up the wheat, exacerbating the price rise, on the ground of benefiting farmers: “We are happy that this has helped farmers get better prices for their produce”.

However, just as import dependence does not help consumers, the retreat of public procurement and greater freedom for private trade, do not help the peasants. This is because, in the absence of a guarantee of procurement at a minimum support price, peasants get left to the mercy of private trade. As the CACP itself points out, both peasants and consumers would suffer: “In periods of plentiful supplies, the market may tend to depress resulting into low prices realisation by the farmers. When demand oversteps supplies, the private trade may attempt to control supplies, as witnessed during the 2006-07 marketing season.”³⁹

As the Government retreats completely from procurement, peasants would suffer huge financial losses. The CLTGP estimated in 2002, when minimum support prices were Rs 610 for wheat and Rs 510-540 for paddy, “without price support, farm level prices are unlikely to exceed Rs 350 per quintal for either paddy or wheat, much less than what almost all farmers actually received last year and also less than full production cost (including imputed costs for family labour, land and capital) in most states”. According to the CLTGP, the immediate loss to wheat and rice farmers in 2001 would have been over Rs 300 billion, and as much as Rs 400 billion.

As we noted above, producer prices are now below the cost of production in many parts of Eastern India where price support operations are absent, and this is one of the important reasons why grain output in Eastern India shrank in per capita terms during the period of “reform”. If prices were similarly depressed in the main grain surplus states, output too, which is already stagnating, would fall. A giant market would be created for the imperialist countries’ grain. At the same time, with the Government out of the market, consumers would be left to the monopolistic manipulations of the foreign firms, and would wind up paying much more, or reducing their consumption.

The fact is, it is dishonest to counterpose peasants and consumers. First, peasants are also consumers, and indeed the bulk of the grain is consumed in the rural areas. A reduction in prices brought about by a reduction in peasant income, in a country where the majority of the population are peasants, is retrogressive. Secondly, as shown by the experience of other third world countries, once large private firms control the grain trade, even if the peasant gets lower prices for his/her grain, the consumer winds up paying much higher prices than before. (See Appendix) As the CLTGP notes, in 1999 Indian farmers received about 30 per cent more for wheat than US farmers while Indian urban consumers paid only a fourth for a loaf of bread as their US counterparts.

In this entire chain of events, the country’s rulers depict each development separately, as it were a series of accidents: the adoption of policies which stifle agricultural investment and growth; the liberalisation of agricultural trade which permits hoarding and price rise; the squandering of the large grain stocks; the under-procurement in 2005, and again in 2006.

In line with this, this year’s massive imports are depicted as merely a short-term measure taken to meet a temporary shortage. Whereas this is a standard method used in other third world countries too to push through the creation of import dependence, as illustrated by the cases of Mexico and the Philippines. (See Appendix).

As these imports enter the market, large numbers of peasants would lose their livelihood. Many, bankrupted, would be forced to part with their land at low rates. Sections of peasants might seek to hang on to their land by signing long-term contracts for farming under foreign and domestic corporations, which could then dictate terms. Either way, the terms on which the peasantry would labour would worsen.

The existing unevenness and distortions in India’s agricultural development are likely to worsen with the entry of private corporations, as we plan to elaborate in a future issue. Foreign and domestic corporations dealing in agricultural output would concentrate on islands of capital-intensive agriculture. This is for two reasons. (i) Most of Indian agriculture has low returns, and improving returns would require substantial investments with long gestation periods⁴⁰; whereas corporate investors, and in particular foreign investors, require high returns – indeed, they seek to recover their capital within a few years at most. (ii) The markets for corporate agriculture – foreign markets, and India’s urban areas – are limited. Importers in imperialist countries develop a number of suppliers, in order to ensure a permanent state of over-supply and thus keep down prices. And in the Indian cities, only the middle and upper classes constitute an attractive market for the corporate sector.

Hence only a portion of Indian agriculture can be oriented to cater to these markets. The bulk of the cropped area and agricultural workforce will remain outside such investment as the corporate sector makes in agriculture. As the State leaves agricultural investment and development of agricultural market infrastructure to private investors, the bulk of agriculture would continue to stagnate or retrogress.

32. Agriculture Secretary Radha Singh recently celebrated the fact that “efforts for diversification had paid off”: upto three million hectares had been disengaged from rice and had gone into commercial crops, including “horticulture – the sunrise sector”. (Hindu, 16/9/06) (back)

33. See N.K. Chandra, “VAT is a Neo-Liberal ‘Stealth Tax’ That Must Be Scrapped”, Frontier, 2/10/05. (back)

40. And even after such investment the returns may not be attractive to the corporate sector. (back)


No. 42, December 2006