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Opinion

Required repurposing

India needs to modify its farm subsidies for ensuring income support to farmers and securing the country’s food market from cheaper imports

Required repurposing
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Another terrible year, 2021, is coming to an end. In addition to news on national disasters during the COVID second wave, the only other news that received enormous public attention was around the farmers' protest and repeal of farm laws by the government. After a prolonged struggle, the agitating farmers have, temporarily, called off their movement though the major contentious issue of legal guarantee on MSP (minimum support price) has remained unaddressed.

It may be recalled that the Union government announces the MSPs of 23 crops. These include seven cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), five pulses (chana, tur / arhar, moong, urad and masoor), seven oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and niger seed) and four commercial crops (sugarcane, cotton, copra and raw jute). While the MSPs technically ensure a minimum 50 per cent return on all cultivation costs, the prices received by farmers, especially during harvest time, are well below the officially-declared MSPs. And since MSPs have no statutory backing, they cannot demand these as a matter of right. The farmers' unions wanted the Modi government to enact legislation conferring mandatory status to MSP, rather than just leaving it as an indicative or desired price.

Harish Damodaran, in an article dated November 30, in The Indian Express, estimated the MSP value of the total output of all the 23 notified crops to be about Rs 11.9 lakh crore in 2020-21. Taking an average marketed surplus ratio of 75 per cent (say 25 per cent is retained by farmers for self-consumption, feeding animals and seeds) the estimated MSP value of production actually sold by farmers was under Rs 9 lakh crore, not a huge amount if compared to the massive corporate bad debts waived by the government.

Problems with the current form of price support

First, several countries, including the USA, have complained against India in the WTO, alleging that agriculture subsidies given by the Indian government were trade-distorting and inconsistent with the rules of the Agreement on Agriculture (AoA). Recently, on July 11, 2019, Australia had requested for the establishment of a panel to judge their complaint against "support (allegedly) provided by India in favour of producers of sugarcane and sugar (domestic support measures), as well as all export subsidies that India allegedly provides for sugar and sugarcane (export subsidy measures)". Few other countries (Brazil, Canada, China, Colombia, Costa Rica, El Salvador, European Union, Guatemala, Honduras, Indonesia, Japan, Panama, Russian Federation, Thailand, the United States) also joined Australia as third parties. As per The Indian Express report, on December 14, the panel, set up by the Dispute Settlement Body (DSB) of the World Trade Organisation (WTO), has ruled against India's sugar subsidies and asked it to "withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of [the] report". This ruling may create a major challenge before the government to extend support to farmers through the existing MSP route in the future. However, it is expected that India will appeal against this decision of DSB and argue for a level playing field for the calculation of subsidies.

Second, a section of economists and policymakers are of the view that MSP does not help farmers in the long run. Very low levels of productivity of rice and wheat, compared to other countries, are cited as examples. In 2019, while the average production of wheat in India was 3.5 tonnes per hectare, China produced 5.6 tonnes per hectare and Ireland's yield was 9.4 tonnes per hectare. In the same year, India produced only 2.7 tonnes of rice per hectare while China and Australia produced 7.1 and 8.8 tonnes per hectare respectively. As a large portion of this support price is appropriated by the fertiliser, pesticide and seeds suppliers, the farmers are not left with many funds to invest in new technology. This vicious cycle of increasing cost and subsidy gets wider with every passing year. It has to be broken to salvage the Indian farm sector from the clutches of input suppliers and to make it globally competitive.

Repurposing farm subsidies

On September 14, 2021, three major UN organisations, namely, Food and Agriculture Organisation (FAO), United Nations Environment Programme (UNEP) and UN Development Programme (UNDP) have come out with a report titled, 'A Multi-billion Dollar Opportunity: Repurposing Agricultural Support to Transform Food Systems'. The report shows how state support can be repurposed to promote healthier and more sustainable agriculture.

This joint FAO-UNDP-UNEP report has called for governments to rethink the way agriculture is subsidised and supported. According to it, the majority (87 per cent) of USD 540 billion of support to agricultural producers is either price-distorting or harmful to nature and health. Repurposing this support can help transform food systems and achieve sustainable development goals (SDGs).

The report has strongly suggested actions at country, regional and global levels to phase out the most of the 'distortive, environmentally and socially harmful support', such as price incentives and coupled subsidies, and redirect it towards investments in public goods and services for agriculture, such as research and development and infrastructure. It makes a convincing case for repurposing such support — rather than eliminating it altogether.

The UN report has also recommended a broad six-step approach to the governments: (i) measuring the support provided; (ii) understanding its positive and negative impacts; (iii) identifying repurposing options; (iv) forecasting their impacts; (v) refining the proposed strategy and detailing its implementation plan; (vi) finally, monitoring the implemented strategy.

Options before India

To begin with, the Indian government may link its farm subsidy programme to the agriculture practices followed by the farmer. For example, a farmer who practices organic farming — mostly uses green (rain) water than blue (underground) water and cultivates diversified crops — would get more government support than the other farmers who practice chemical-based farming processes. Unless the productivity of major crops is improved, Indian farmers would not be able to compete with the global grains suppliers and the country would be flooded with cheap imported crops.

Complaints against the Indian subsidy programme in the WTO is an integral part of a strategy to capture the Indian food market with low-grade grains like wheat, corn, barley and rice. The livelihood of a huge farming community will be at stake unless effective steps to save the farm sector are taken. All the major stakeholders of the Indian farm sector must deliberate on the burning issues of farm subsidy and declining productivity of major crops from a global perspective.

Views expressed are personal

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