The broken food system
June 17, 2020
Fair and assured price to farmers is turning out to be the biggest challenge. - Devinder Sharma
Writing in the Conservative American, Austin Frerick, a director at the Open Markets Institute, had said: ‘In the 1980s, 37 cents out of every dollar went back to farmer. Today, farmers take home less than 15 cents on every dollar.’ Pointing to the increasing concentration of economic power in the hands of a few multinational corporations over the decades to be primarily responsible for the declining farm incomes, he called for fixing the broken food system.
Last week, another article in Financial Times asked: ‘Is our food system broken? In fact, a Google search for broken food systems comes up with hundreds of articles, reports and studies, pointing to the desperate need to redesign global agriculture, with the primary focus on adopting sustainable practices and making agriculture economically viable. Another search for farm distress, and among the top articles to pop up is from the Time magazine: ‘They’re trying to wipe us off the map’. ‘Small American farmers are nearing extinction’ screams the headline. The more you read, the more you realise how in the name of free markets and the freedom to sell anywhere, to anyone, small farmers are being pushed off the land.
If after five decades or more of liberalisation of markets, with no stock limits for big retailers, and commodity futures markets giving an indication of the price at the time of planting, Al Davis, a former Nebraska senator and cattle farmer is left to say: ‘Farm and ranch families are facing a great extinction. If we lose the rural lifestyle, we have really lost a big part of what made this country great.’ Isn’t the exuberance being exhibited over the planned liberalising of agriculture markets in India overtly misplaced? After all, if leaving farm prices to markets is the winning formula, isn’t it time to explain why American and European agriculture is in distress.
Ever since the Uruguay Round negotiations, and after the WTO was formed in 1995, monumental subsidies being paid by the developed countries have remained a contentious issue. Former commerce minister Kamal Nath, who represented India at a number of WTO ministerial conferences, had often said: ‘You cannot expect Indian farmers to compete with the US treasury,’ referring to the massive subsidies being doled out in the US. Later, Arun Jaitley as commerce minister, too, had echoed the same sentiments at the time of the Cancun ministerial. Even now, developing countries are asking for reopening the hotly debated issue of subsidies.
If agriculture markets are so efficient, how come they failed to prop up US/EU agriculture? The US Department of Agriculture has acknowledged that the real farm incomes have been on the decline since the 1960s. That too, despite heavy subsidy support year after year. This is primarily because 80% of these subsidies go to agri-business companies, and the remaining 20% are cornered by big farmers. An UNCTAD-India study in 2007 had shown that if the green box subsidies (protecting domestic support in agriculture) in the developed countries were to be withdrawn, agricultural exports from the US, EU and Canada would drop by about 40%.
Even 25 years after the WTO came into existence, OECD countries are still providing a huge producer support for agriculture, touching $246 billion in 2018. Of this, in EU-28 countries, the producer support totals $110 billion a year, roughly 50% of it being in the form of direct income support. These subsidies are expected to further increase in the post-Covid period.
Repairing the broken food system therefore would require restructuring the markets. Whether in the US, Europe or India, where despite the scale, agrarian distress has been worsening, the proposed reforms have to be tailored to the need to first make farming economically viable, thereby restoring the pride in farming. Leaving farmers at the mercy of the markets hasn’t worked in the developed countries. Nor has commodity futures trading been of much help. Let’s look at the $103 billion chocolate industry, where the prices of cocoa beans are largely determined by commodity futures. While Africa alone produces about 75% of the cocoa in the world, what percolates down to farmers is relatively insignificant. With hardly 2% revenues coming to cocoa farmers, millions are living in acute poverty.
For several years, dairy farmers in the UK had been protesting at supermarkets, demanding to be paid a fair price that protects them against the volatility in prices. The bigger the retailer, the more is the tendency to dictate prices. In the quest for higher profits, and at the same time ensuring competitive prices to consumers, big retail has often been known to squeeze on farmers’ margins. If big retailers like Sainsbury and Tesco, with the ability to maintain huge stocks, were providing a higher price to farmers, there is no reason why half of all UK farms would end up being in business only by supplementing income from non-farm activities.
Providing a fair and assured price to farmers is turning out to be the biggest challenge. All that has been tried and tested in the developed countries has failed to show any promise. It has only pushed farmers into a severe crisis. Enabling farmers to sell anywhere to get a better price is no reason for excitement, unless farmers can be assured of a better price. Instead of pushing what the agri-business industry needs as marketing reforms, let us develop a system that actually helps farmers become economically viable and atmanirbhar. Developing a food system based on local production, local procurement and local distribution is what India needs.
This is only possible by strengthening the existing networks of regulated APMC markets, and building a robust system of trading where the MSP becomes the model price.