Turning Farmers Into Brokers
Deccan Herald, Mysore
By DEVINDER SHARMA
To expect poor and marginal farmers to go online and trade seems to be a wild imagination of a stockbroker.
In the present era of economic liberalisation, the Union Ministry of Agriculture is asking farmers to take on futures trading in commodities so as to get higher prices for their produce. At a time when more than 16,000 farmers have committed suicide in the last few years throughout the country, the government's intention to introduce futures trading in rice, wheat and other commodities shows the complete bankruptcy in finding alternatives.
In India, the average land holding size is 1.47 hectares, and only five to ten per cent of the farming population has land holdings exceeding 4 hectares. To expect these farmers, who continue to survive against all odds year after year, to go online and trade seems to be a wild imagination of a stockbroker that has been accepted by an apathetic official machinery.
Prime Minister A B Vajpayee inaugurated futures trading in rice and wheat at the National Multi-Commodity Exchange (NMCE) in New Delhi on December 13. Terming it an important milestone, the Prime Minister said the initiative was aimed at de-risking Indian agriculture in terms of irrational and erratic fluctuations. The commodity trading exchange provides an opportunity to chase a US $ 600 billion market opportunity, he said.
Defunct & inefficient
The NMCE is promoted by a galaxy of defunct and inefficient public sector units which, as per Arun Shourie's yardstick, should have been disinvested long ago. They are the Central Warehousing Corporation, National Agricultural Cooperative Marketing Federation of India (NAFED), National Institute of Agricultural Marketing (NIAM), Gujarat Agro-Industries Corporation (GAICL) and Gujarat State Agricultural Marketing Board (GSAMB). The Commodity Exchange currently has 214 traders participating in its network covering 48 locations. And we thought that the exchange was meant for farmers!
What is the purpose behind setting up a commodity exchange? The government is slowly withdrawing from food procurement citing the unwieldy procurement structure as the main reason. Food procurement provided an assured market to the farmers. By withdrawing from food procurement, it is obvious that farmers are being penalised for the inefficiency of the food corporation and other government agencies, which include some of the promoters of the NMCE.
Getting out of food procurement defeats the basic purpose of ensuring food supplies for disadvantageous populations at affordable prices. Already the prices of wheat (mill quality) has shot up to an all-time high of Rs 1000 per quintal (on Jan 6, 2004), from Rs 800 per quintal a few days ago. This means that more and more people will be unable to afford food. The liberalisation and globalisation process is therefore reaching a stage where it will do more damage to the farming sector.
At the same time, the government is also withdrawing from providing assured prices to farmers by saying time and again that the minimum support price (MSP) has become the maximum support price. This is a wrong conclusion, and does not hold true. The reality is that the MSP looks higher than the international prices because of the massive agricultural subsidies in the western countries that depress global prices. In the richest trading bloc — Organisation for Economic Cooperation and Development (OECD) countries — a subsidy of US $ 1 billion is provided every day to agriculture as a result of which the international prices slump.
The question is why should the Indian farmers be penalised for the subsidised agriculture in the rich countries? By withdrawing the support prices, the Indian government is only helping the American and European farmers who continue to produce at subsidised prices and then dump the produce in the global markets. The cheap and subsidised commodities that are dumped on the world markets, actually is the key reason for growing rural poverty and loss of livelihood.
Even in America, it is not the farmers who trade at the stock markets. It is trade which does that. If futures trading was a viable mechanism to ensure lock in prices of future production or sales, and provide efficient management of price risks through hedging, there was no need for the rich countries to shell out a monumental subsidy for agriculture. If American farmers, with their level of education and size of land holdings do not find futures trading to be helpful, it is strange that the Ministry of Agriculture is promoting it as a saviour for the farming community.
In reality, futures trading is a recipe for sure destruction of the gains
achieved after the advent of Green Revolution. This is a recipe for the
elimination of small and marginal farmers, forming 80 percent of the agricultural
work force, and is meant to pave the way for the smooth entry of the private
sector. This is a recipe for further marginalisation of the farming communities.
This is a recipe to ensure that India slips back into the dark days of
the ‘ship-to-mouth' existence.
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