THE agrarian crisis currently unfolding in India, owing to the opening up of the agrarian economy to unfair trade, which has been discussed in these columns many times, is likely to be prolonged as long as the present policies of openness to the world market continue to be followed. This is because the global conditions of trade in primary commodities are extremely unfavourable at present and are likely to continue to be unfavourable. A very significant fact to be noted is that the World Bank's price projections to 2005, made in a 1993 Report, are not being borne out by the actual global price trends experienced so far. While the World Bank had projected fairly steeply falling prices for non-grain products exported by developing countries, it had projected firm and even rising prices for the foodgrains which are exported by advanced countries (The US and Western Europe together dominate the global market for food and feed grains). The price projections were for real prices, viz. the particular primary product price divided by an index of manufactured goods prices.

We find however that while on the one hand after a brief upsurge in the early nineties, prices of primary products mainly exported by developing countries have indeed been crashing, on the other hand contrary to all projections, so have prices of cereals exported by developed countries, crashed. Moreover the trough in food and feed grains prices has been exceptionally prolonged. Starting with decline from 1996, to this day after five years these grain prices remain depressed to levels about half of the level prevailing in the mid-nineties. As a consequence, with removal of quantitative restrictions and opening up to global trade, not only are those of our farmers engaged in growing tea, coffee, rubber, cotton etc. - the exported cash crops - suffering, but the much more numerous, millions of foodgrain producers too are facing the threat of the undermining of their livelihoods through import of exceptionally low-priced foreign grain. By liberalizing trade, by opening up at this juncture, the depression in the global markets is being imported into the Indian economy.

A look at the Table 1 will give an idea of the pervasiveness, extent and prolonged nature of price fall of some of the most important globally traded crops. All commodities have declined strongly in unit current price between 1995 and 2000, the extent of decline ranging between over one-third to over one-half; except jute and groundnut oil which have declined too but to a smaller extent. Prices in current dollars are substantially lower in 2001 than they were even as far back as in 1988. The most catastrophic decline as can be seen has been for soyabean oil, which by 2001 has only 15 per cent of the unit value it had in 1995. But a halving of the price of the major staples like rice, wheat and maize, shown by the figures below, has very serious implications for the incomes of producers, not only of the exporting countries but also of countries which are now forced to become cereal importers owing to removal of protection.

For those who know their economic history, the situation today is strongly reminiscent of the run-up to the Great Depression. Four years before the famous stock-market crash of 1929, from 1925, all primary products prices started falling owing to the build-up of stocks, which took place owing to over-production relative to demand, in a number of large producing countries. The non-combatant countries had expanded output in response to high wartime prices as output was curtailed in the combatant countries, and with the post-War restoration of production in the latter, an overall excess supply situation had come about. As export earnings of the major agricultural exporters - which included Germany and USA at that time - fell with falling prices, trade balances moved into the red, importing capacity declined and so did government's customs and other revenues, which led to expenditure cuts worsening demand problems. (Is there not a strong echo in this, of the crisis from falling export prices and revenues faced at present by states like Kerala?)

In the iron grip of the dogma of balanced budgets, a dogma rigidly promoted by financial interests in the City of London the main centre of the financial world at that time, finance ministers in all countries reduced expenditures, ("cut the fiscal deficit") and through the multiplier effects of such deflationary policies, incomes were reduced, importing capacity was further reduced, reacting back in lower export incomes of trading partners. Demand for manufactured goods started declining and unemployment rose, as worldwide, income growth slowed down or there was absolute decline. All Keynes's warnings based on his revolutionary new theory of income determination, (which correctly held that governments should be spending more to create demand, not doing the opposite by cutting back expenditures and aggravating the problem of effective demand) fell on unheeding ears. What had started merely as a global agricultural recession, owing to wrong deflationary policies in every country, reacting back in turn on trade, deepened into a world wide downward spiral of trade and production. In India too at that time the colonial government cut expenditures and thereby made the problem of falling farm incomes and poverty worse: by the 1931 Census as high as 38 per cent of all rural workers were returning themselves as relying on wage labour compared to only 26 per cent in 1921.

The extent of price fall between 1995 and 2000 is as great for many commodities as it had been in the period 1925 to 1930. For example at that time, wheat prices had declined from an index of 140 to 80 (taking base 1929=100) or by 43 per cent, cotton from 120 to 70 or by 42 per cent, sugar declined as wheat did, from 140 to 80 or by 43 per cent. (These figures are quoted from graphs in C P Kindelberger's book The World in Depression 1929-39) As may be seen from Table 1 below the decline for these crops during 1995 to 2001 has been of a similar order, by 46 per cent, 50 per cent and 31 per cent respectively. Prices continued to decline at that time up to 1933 for most commodities.

What is the reason for the present prolonged decline of primary prices, especially those traded by the advanced countries? An important difference in the global situation now compared to the 1920s, is that we have seen an even more prolonged dominance of neo-liberal orthodoxy - an orthodoxy similar in most respects to the pre-Keynesian balanced budget doctrines - which has been effective in imposing loan-conditional income deflation across the globe now for a quarter century, since the late seventies. The global dominance of finance capital has meant a ruthless imposition through the international lending institutions, of effective demand-contracting economic agendas on dozens of countries, entailing the measures of cuts in fiscal deficit, high interest rates, caps on wages, reduction in priority sector lending, cuts in social subsidies, retrenchment of workers from public enterprises and so on. Most of the 46 countries of Sub-Saharan Africa were under structural adjustment programmes and the per capita GDP of the region fell over the 1980s at an average rate of 1 per cent annually while it has stagnated in the 1990s; the former Soviet Union's break-up and "shock therapy" under the advice Western "experts" saw a catastrophic absolute collapse of GDP in Russia and Ukraine to half the 1990 level, by 1996 and large rise in the death rate . This was followed by the 1997 crisis of the former Asian "tigers" and deflation in those economies. From 1991 India too has been implementing deflationary policies as well. The only large area of sovereign economic policy remains China.

Is it surprising then, after two decades of deflationary policies, that world as a whole should now be seeing the results of contracting global effective demand, in the form of build up of stocks of essential commodities and price fall? Who will buy the mountains of wheat and rice sought to be exported by advanced countries, when purchasing power world wide has been deliberately cut for so long, of the poorer mass of populations who have a high income elasticity of demand for foodgrains? The national situation in India today - huge stocks of foodgrains and not enough purchasing power with the poor - replicates the situation at the global level.

The supply side of the picture is as important as the question of deflation and effective demand we have been discussing so far. Very large agricultural subsidies are given by advanced countries to their farming sector - which includes the giant agro-business corporations - in order to capture global markets and maintain corporate profits. Every episode of falling global food and feed grains prices leads to subsidies being increased, further sending the wrong signals. Instead of a cut-back, over-production is promoted and hence there is even more aggressive attempts to penetrate developing country markets. While lecturing the developing countries on the iniquity of subsidies, the advanced countries under the pressure of their farm lobbies, keep raising their own market-distorting subsidies.

Thus during 1980 to 1986 as cereal prices fell by a quarter to a third, the US increased producer subsidy equivalent (PSE) as a percentage of its total value of agricultural output, from 9 per cent only to an astronomical 45 per cent. All EU countries did the same as did Japan. The highly inflated mid-80s subsidy levels were made the base from which a mere one-fifth cut was undertaken by advanced countries in the Agreement on Agriculture. Following only two years of reducing subsidy in compliance with WTO, as soon as prices started falling from 1995, huge increases in transfers were again effected: thus the US increased total transfers to its farm sector, from 71 billion dollars to 96 billion dollars in just two years, 1997 to 1999 or by 35 per cent. Clearly if compensatory increases in farm transfers are made every time there is fall in price, this merely compounds the problem of excess supply in advanced countries further and induces, as we have already seen, very strong pressure by advanced countries on a country like India to open our market to imports, years before we were required to do so it under WTO. This in turn by undermining the incomes of our farmers, contributes to the vicious circle of economic distress.

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* Relates to 1999, and percent change is 1999 compared to 1995