Markets have failed to prop up farm incomes
April 16, 2021
The economic argument in support of market reforms, claiming that farm incomes go up when the number of farmers recedes, has turned out to be untrue. America has lost more than 5 million farms in less than 100 years, and Australia 25 per cent of its farms between 1980 and 2002. The speed at which farmers across the globe have got out of agriculture hasn’t increased farm incomes, but has only worsened the agrarian crisis. — Devinder Sharma
It’s difficult to imagine. At a time when free markets are generally believed to provide farmers with a higher price, thereby enhancing farm incomes, the farm gate price for wheat in Canada happens to be much lower in 2017 than what it was 150 years back in 1867. This is not only true for Canada. Even in the US, as per media reports, farmers say the price they receive for wheat is much lower than what was prevalent at the time the four-year American Civil War ended in 1865.
So what happened to markets? After all, wheat is a staple food and its demand, considering the population boom the world has witnessed in the past 150 years, has grown exponentially over the centuries. According to the UN Food and Agricultural Organisation (FAO), wheat production forecast is pegged at 780 million tonnes in 2020-21, an increase of 7.5 million tonnes this year. Given the food insecurity the world is faced with, FAO considers the cereal production estimates (including that for wheat) to be positive.
Now, before you wonder how this could be possible, given the fact that economic curriculum in colleges and universities teaches us that markets provide the rightful price, take a look at an analysis by the US National Farmer Unions (NFU) which explains how the continuously declining peanut prices since 1965 had pushed three out of four peanut farmers out of business in America, and that too, at a time when peanut consumption was on the rise. Defying the supply demand logic, the peanut prices slumped from $1 per pound in 1965 to less than $0.25 per pound in 2020, a drop of more than 75 per cent. And if you are still thinking it probably happened because of surplus production, a Washington Post report tells us how just three companies, controlling the entire peanut market, had actually fixed the purchase price. After a lawsuit filed by 12,000 peanut growers, these companies finally agreed to pay $103 million in compensation for deliberately keeping the prices low.
Peanut is no exception. This kind of match-fixing has been going on for decades. Whether in America, Europe or India, what the farmers need to understand is that the match is already fixed. It is not without any reason that market prices, when adjusted for inflation, have remained frozen or have been on a decline over the years.
Coming back to the issue of wheat prices, a Canadian author and critic, Darrin Qualman, has in an insightful series of blog posts, explained how the prices have been on a steep decline since 1867. Adjusted for inflation, the price of wheat per bushel (27 kg) was close to $30 in 1867. Like on a ski slope, the average price had continuously been on the downward slide ever since. With global emphasis shifting to agricultural exports in the mid-1980s, the prices began to slump further. In 2017, the wheat price collapsed to a little over $5 per bushel. The price a Canadian wheat farmer sold his wheat for in 2017 was less by $25 per bushel than what his great-grandfather sold it for 150 years back.
No wonder, while small farmers abandoned agriculture in large numbers, the average size of a Canadian farm has grown to 3,000 acres with the big farms several times larger. While the number of farmers declined drastically, the economic argument in support of market reforms claiming that farm incomes go up when the number of farmers recedes too has turned out to be untrue. America has lost more than 5 million farms in less than 100 years, and Australia has lost 25 per cent of its farms between 1980 and 2002. Economists will say this is a healthy development, and will make farming profitable. But surprisingly, the speed at which farmers across the globe have got out of agriculture hasn’t increased farm incomes, but on the contrary, it has only worsened the agrarian crisis.
This is the same flawed argument that Niti Aayog too is promoting, saying that farm incomes will double when the number of people on the farm comes down. If this be true, I don’t understand why in Canada, for instance, the farm debt should be exceeding $102 billion, more than double than what it was in 2000. In the US, where hardly 1.5 per cent of the population remains in agriculture, farm debt has multiplied to a staggering $425 billion in 2020. In France, with only 7 per cent workforce employed in agriculture, more than 44 per cent farmers carry a debt burden of 400,000 euros and 25 per cent farmers earn less than 350 euros per month, below the poverty line.
While farmers have been denied the rightful price, the consumer prices have been on the rise. In another blog post, Qualman explains that while the price of a bushel of wheat in Canada and US has remained static since 1975, the retail price of 60 loaves of bread produced from each bushel in the US had increased by $50 on an average, from $25 in 1975 to a little over $75 in 2015. The same holds true for other food products as well. How can efficiency be only measured in terms of reducing farm gate prices whereas the food processing and retail giants continue to increase prices, walking away with a larger share of the end consumer price? If the markets were efficient, why the food processing and retail giants continue to thrive in inefficiency?
There is nothing sacrosanct about markets. To believe that markets provide farmers with a higher price is an outdated economic thinking (and education). Markets have historically failed to prop up farm incomes anywhere in the world, a fact that economists failed to acknowledge. Demanding no trading to be allowed below the MSP, protesting farmers are actually seeking a historic correction in economic policy and thinking. This holds the future for a reverberating agriculture, and a new economic design that provides for Sabka Saath, Sabka Vikas.
Food & Agriculture Specialist