Big changes are taking place in Indian agriculture, driven by Prime Minister Narendra Modi at considerable political risk. Freeing up agricultural markets can be just as important as dismantling industrial licenses in 1991. However, if the protection of the state fades only to reveal a few great capitalists as the new overlords, there will be chaos and misery instead of progress and prosperity. .
To gauge the scale of what is being done, imagine the depth of stasis: 119 million growers and 144 million farm workers, collectively, 10 times the population of Australia, joined in a market designed to be anti-competitive and denied the increased productivity that drove urbanization from Japan and South Korea to Taiwan and China.
“It’s like a huge old table in the center of the room, riddled with parasites.” This is how Hemant Gaur, an entrepreneur who is bringing technology to potato farming in India, describes to me the “mandi”, or the designated market yard where products change hands. “We did not dare to discard it, because how would we replace it?”
Finally, Modi has thrown away old furniture by pushing the legislation through parliament, passed by a dubious voice vote. Now producers do not have to bring their crops to the mandi. They can sell it in farms, factories, warehouses, silos and cold rooms. The market remains, but it cannot charge any fees for transactions outside of its physical space. Transactions can be made online. Farmers can enter into five-year fixed price contracts with corporate buyers. The government will only control excessive price increases instead of imposing limits on incremental nerves; free markets will be the rule.
The repercussions will reverberate in the second most populous country in the world. India’s sheer size as a producer and consumer means that the ripples can also feel like a long-term deflationary wave in world food prices.
SV Agri Pvt. De Gaur. operates at the intersection of technology and agriculture. It produces and markets seeds and inputs for farmers, buys and stores its potatoes in modern warehouses before supplying companies that manufacture chips and snacks. In one fell swoop, the 2.5% mandi tax paid by Gaur in Uttar Pradesh, India’s largest state, disappears. With the most efficient provisioning that makes it possible, you have savings of up to 10%. Efficiency gains will be shared by farmers, processors and consumers. They will lead to more investment in cold chains and less waste, a big problem.
But without the fees and commissions, the market yards can atrophy, and the local elite who have prospered thanks to the system but have also cushioned it could lose their dominance, leaving farmers at the mercy of merchant cartels controlled by corporate monopolies. . This could be particularly true in the cereal-producing belt of Punjab and Haryana, where the percentage cut in mandi taxes and other levies is in the double digits. Not surprisingly, political opposition is fiercest in these northern states.
Modi has played big before, with some disastrous results. It is asking many people in rural India to trust him again. Banning most banknotes in 2016 was supposed to immobilize tax traps. The economy froze. Your goods and services tax turned into a compliance nightmare. Opposition parties claim that agricultural “reform” will also fail, especially since the liberation of the regulated yard in Bihar 14 years ago brought the market to the roadside, with no infrastructure and no open auction to discover prices.
Growers’ greatest fear of deregulation is losing their most important bargaining chip: the minimum prices guaranteed by the state. Modi has assured farmers that support will continue by announcing winter crop prices, although as activist farmers have pointed out, the 2.6% increase for wheat is only half the cost escalation.
The need at the moment is for farmers to establish large sales organizations of their own. If state support could give them bargaining power, they would not sell cotton to private traders for a quarter less than the guaranteed minimum. How will Modi lock in base prices once the mandi system is deprecated? The professionally managed dairy cooperative in Gujarat, the prime minister’s home state, has $ 5 billion in annual revenue from its Amul brand of milk, butter and cheese. But that movement took shape in a political firmament very different from the 1960s, and it was not successful everywhere or on all raw materials.
With all the risks involved, a new farm-to-table model is still worth it. Boosting agricultural productivity is important for societies to reach the “Lewis tipping point.” Beyond that threshold proposed by economist Arthur Lewis, surplus rural labor is no longer a drag on urban wages and living standards. Japan got there by nearly tripling per capita output between 1950 and the early 1960s, thanks to General Douglas MacArthur’s reorganization of postwar land reforms. After independence from the British, India lost the opportunity to cede land to peasants and allowed absent landowners to continue to drive policy.
Almost 9 out of 10 Indian farmers have less than five acres. Most remain reluctantly, barely able to earn a living. Landless labor is paid to stay in the villages with a rural labor guarantee from the taxpayer. Pressure to feed India’s 1.3 billion people has led to suboptimal choices, such as a water-intensive rice crop grown in abundance in Punjab and drying up aquifers. Burning rice residues causes unbearable pollution in New Delhi.
The expected 20-fold growth in online grocery sales over the next five years is the surest opportunity to end the suffocating status quo, as long as farmers can come together and stand their ground in negotiations with aggregators. With the closure of Covid-19 emptying urban production centers, the rural economy has become more crucial. But free markets should also be fair. Otherwise, Indian farmers will climb out of a hole and land in a ditch.
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