[Published in the November 2010 issue of Freedom First]
All that a government is required to do in for farmers, as it is required to do for others, is to ensure security (including biosecurity in this case), strong property rights, and justice. Justice, in the case of agriculture, includes minimising harm to the environment (see my Freedom First article of May 2010 for how this can be achieved.)
In addition, a government can legitimately undertake a few other functions for agriculture, such as maintaining a strategic reserve of foodgrains; facilitating agricultural research through (private only!) universities and the private sector; ensuring infrastructure such as irrigation canals through private enterprise and public-private partnerships; and supporting the re-skilling of agricultural workers who want to move into more productive vocations. Beyond that, the free market should operate. That, in essence, should be the agriculture policy of India.
Freedom is vital to food security
Innovation is a direct outcome of freedom. As a result, free nations manage to produce huge quantities of food, cheaply. I love the story about a young couple, Craig and Helen Elliott, who started with virtually nothing in their pocket in 1995. Without any government assistance, they built a farm in New Zealand which generates 26,000 litres of milk per day. Between the two of them they milk 900 cows each day!
Similarly, just 3.5 lakh farmers, representing four per cent of Australia’s workforce, produce food not only for Australia but export it in huge quantities. So also, in free societies the share of food in family budgets has declined to less than 10 per cent while in unfree nations like India up to 70 per cent of the family budget is spent on food
The Indian farmer is bound and gagged
Markets, operating through the price system, allocate resources optimally to the production, supply and distribution of all commodities, including food. But socialist India has never tolerated markets. The Essential Commodities Act (ECA) enables the government to “control of the production, supply and distribution of, and trade and commerce, in certain commodities”. As a result, every aspect of agriculture is whimsically distorted in India, making agricultural investment a game of chance.
Input and output prices are distorted by fertiliser and electricity subsidies which can only be exploited by wealthy farmers, by the price support system, and by compulsory procurement. Subsidies on fertilizers have increased over the past decade, as have the number of states that supply electricity free of charge to farmers. This has under-priced ground water and reduced incentives for efficient water management.
Opportunities to develop private crop insurance have been blocked, and logistics and trade (including exports) literally strangulated. By blocking markets in forestry and wildlife products these resources are now grossly undervalued and hence over-harvested. The loss of habitat due to socialism is almost irreplaceable.
Zoning of agricultural land prevents farmers from receiving the true value of their land, and efficient farmers are prevented from expanding through the imposition of land ceilings. Reservations for small scale industry in agro-processing and restrictions in foreign direct investment in the food supply chain destroy incentives for innovation, destroying huge quantities of perishables.
Not happy with strangulating the farmers, the corrupt public distribution system (PDS) creates huge deadweight losses and destroys massive quantities of food. Corrupt politicians use the farm sector (which pays almost no land revenues, and no income tax) to launder black money. Confused environmentalists like Vandana Shiva attack the use of science and technology. By blindly opposing pesticides and biotechnology including GM crops (I’m only referring to those that have been fully tested), agricultural potential is significantly impacted. And not to be outdone, Hindu fanatics – who don’t seem to know their own religion and culture – prevent farmers from using cattle in the most productive manner.
With all this, and more, it is a miracle that any food gets produced at all. One thing is sure, that no farmer’s child wants to work on the farm. And our system doesn’t allow well trained agriculture experts to buy and operate large farms, which is how the Western farming sector works.
The reform package
Indian agriculture can’t be liberated without first ensuring that no farmer or his family goes hungry. Poverty must be eliminated first, using methods outlined in my May 2009articlein Freedom First. There should be people support, not price support, for those below the poverty line. Once poverty has been eliminated, a range of liberation policies can be introduced.
Agricultural subsidies would need to be phased out quickly, and barriers to agricultural trade eliminated by abolishing the ECA, the Agricultural Produce Market Committees Act and thePDSalong with all shades of compulsory procurement. Modest strategic reserves can be procured at market price, and stored privately.
Property rights must be absolute, subject only to strongly demonstrated public purpose. Long diluted by Indian socialist governments, these rights must be strengthened so that farmer who own land must have full rights to its use (including when and whom to sell). It is legitimate for a government to acquire land to prevent public roads from bending at the boundary of each farm. But nothing beyond obvious public purpose can be used as ground for land acquisition. Ceilings on land holdings would necessarily have to be abolished, allowing the more efficient farmers to buy out their less efficient neighbours. Similarly, by abolishing land zoning and encouraging strong local governments, small towns will boom, reducing the pressure on large cities.
A well-regulated insurance industry would then provide high-quality crop insurance, with futures markets allowing farmers to hedge. Farmers will study the markets carefully for relevant signals and if their crop fails, both crop insurance and, in the worst case, the social minimum (frugal subsistence) will protect them.
Agricultural regulation motivated by religious interference would have to be repealed. It should be possible, given the great diversity of religious beliefs in India, for those who do not wish to slaughter cows to sell them to those who will. What is needed are, instead, are laws (with strong enforcement) to prevent cruelty to animals, as part of the justice system.
Finally, we should stop worrying about WTO matters. If foolish Western nations want to destroy their taxpayers’ wealth through agricultural subsidies, by all means let them. We should exploit such foolishness by buying their products at throw-away prices. We must, however, to insist on selling our agricultural products to them freely, and insist that foreign aid, which comes tied to insidious objectives, come to an immediate halt.
With these policies India will become a powerhouse in all sectors, including in food production. Lack of freedom today has meant that our farmers are one of the least productive in the world. Over half of India’s workers, over 20 crores, are engaged in agriculture but produce only 17% of our GDP. Free India can produce sufficient food with less than 1.5 crore professionally qualified expert farmers.
Freedom Team of India
I once again request you to join the Freedom Team of India (http://freedomteam.in/
) or at least becoming a Freedom Partner to politically oppose India’s misgovernance.
John Dyson, ‘A Rich Harvest and No Handouts’, Reader’s Digest
, January 2008.
A 2003 report by Economic Research Service of the United States Department of Agriculture. [http://ajol.info/index.php/jfecs/article/download/52867/41469]