People's Democracy

"The push by some developing countries to become more self-sufficient in food may be reminiscent of a bygone era. These countries could save money by importing more food from the US."--- John Block, US Agriculture Secretary, in 1986

"I have heard .... that people may become dependent on us for food. I know this is not suppossed to be good news. To me that was good news, because before people can do anything they have got to eat. And if you are looking for a way to get people to lean on you and be dependent on you, in terms of their cooperation with you, it seems to me food dependence would be terrific." --- Hubert Humphrey, in 1957.

THERE are many fundamentally wrong theories and ideas which currently are been incessantly dinned into the heads of people through the print and electronic media in the interests of whipping up faltering support for the "economic reforms" - reforms which have been leading to a predicted agrarian crisis combined with slowdown of industrial growth and tertiarisation of the economy.

Of these many wrong ideas among the foremost are that subsidies in general are a bad thing and must be removed, particularly the subsidy on food which is increasing owing to mounting foodgrain stocks with government; indeed winding up of the FCI and letting private trade do the job of purchase and distribution of foodgrains has been seriously mooted by the proponents of reforms and liberalisation. The second and related wrong idea is that, given the prevalent low prices of foodgrains on the global market, letting these flow unhindered into the country would benefit the consumers of food and so should be permitted.

These ideas are wrong first, because large food stocks have been created by the reform policies themselves which have reduced mass income growth and hence mass demand, leading to fall in offtake and build-up of stocks, at the same time that poverty has increased and per capita total calorie intake has gone down in the country. Hence the correct solution is not to wind up the PDS which would make the situation much worse, but to put purchasing power in the hands of people so that they can access the food they need but at present cannot afford to buy, and so that they can reverse their worsening nutritional position. There are no macroeconomic or fiscal constraints on a food-for work programme. Second, the global foodgrains price embodies huge subsidies paid by advanced imperialist countries in the interest of capturing external markets, so letting currently cheaper grains into the country is to collaborate with the aims of imperialism in capturing the Indian market while ruining millions of farmers. Those who say that there are fiscal constraints and therefore that food-for work should not be undertaken, are to the economy what the Taliban is to culture - irrational destroyers, those who cause irreversible damage to peoples’ welfare owing to their adherence to a wrong set of economic beliefs, which they hold with a dogmatism which is impervious to reason or argument.

In advanced countries enormously high levels of subsidies are given to farmers to maintain production in excess of their domestic requirements and in order to capture external markets for foodgrains. The existing subsidies were deliberately raised by advanced countries between 1980 and 1986 as the first table shows, in anticipation of reduction commitments under GATT ‘94, so that they did not actually have to reduce subsidies to their farmers at all but could give three to five times higher support than before, while pressurising developing countries to give up their own tiny subsidies. The average global price of foodgrains, 80 per cent of which is supplied by a handful of advanced countries, has nothing to do with the "market" but is an administered price resulting from these enormous subsidies. (Around this average administered global price there are of course large fluctuations arising from short-term suppply and demand factors, for example the present price per tonne of grains is about half of what it was three years ago which in turn was double what it was six years ago). With the removal of protection to our grain farmers they will be exposed to the unfair competition from these heavily subsidised foreign producers, moreover at a time like the present when global prices are near a trough. Millions of producers will be ruined by such unfair competition. These points are further amplified below.

Let us take up the question of unfair competition first.

The financiers and establishment economists of advanced countries are past masters of deceit, having had over two hundred years of experience of lording it over today’s developing countries. The leading establishment economists of the latter countries on the other hand are in the main either too lazy and incompetent to inform themselves about what is going on globally and simply parrot the tired mantra that "subsidies are trade distorting and should go," or they do know the facts but opportunistically throw in their lot with the powerful Northern establishment in order to eat at the high tables of Oxbridge and hob nob with the World Bank president while preaching sanctimoniously about the benefits of globalisation to their countrymen.

As will be seen from Table 1, every advanced country rushed to increase its producer subsidy (which is a major part of their support to their farmers) between 1980 and 1986, because 1984-86 is the base-period, from the prevalent levels of which a part of this subsidy, (termed the Aggregate Measure of Support) was required to be reduced by a fifth by the advanced countries according to the GATT 1994 Agreement on Agriculture now being enforced by WTO. The USA which was paying out producer subsidy to the extent of only 9 per cent of the value of farm output in 1980, rushed to raise it to as high as 45 per cent by 1986, ten countries of the European Community raised it from 25 per cent to 66 per cent of farm output value, Canada raised it from 15 per cent to 54 per cent, Japan which already had high subsidy raised it further to 93 per cent.

A little calculation would show that from these inflated levels, in the USA for example, even if the value of agricultural output did not change, the producer subsidy after a one-fifth reduction from the average of 1984-86, would still be over three times higher than in 1980. It is through such trickery and dishonesty that the advanced countries ensured that they actually had much higher levels of subsidy in the post-GATT situation while pretending to reduce them in compliance with WTO, and meanwhile they lectured the developing countries on how their meagre subsidies were affecting their efficiency, were trade-distorting and should be removed. In fact the developing countries should have taken the position that they would not renmove an iota of protection to their farmers until the developed countries brought their astronomical levels of support down to parity with developing countries. By 1997 as Table 2 shows the advanced countries organised in OECD were paying a total of nearly $330 billion as support to their less than 18 million farmers. In the next two years as world prices remained low, they increased subsidies to an all-time high of $361 billion by 1999, the latest year for which we have the data.

This reaction of the advanced countries to low world prices in the last two years, is in sharp contrast to the anti-farmer positions of establishment economists and the finance minister of the NDA government in India today. Some calculations we have made from the basic data in the lastest OECD Report for 2000 (some of it summarised in Table 2), are illuminating. While all advanced countries without exception have increased the total support to their farmers, the USA has done so by a whopping $25 billion between 1997 and 1999, from $71.6 billion to $96.5 billion. While its total support was about one-third of the value of farm output two years ago, it amounts to one-half by 1999. (See Table 2).In the European Union the transfers as percentage of total farm output has increased from one-half to two-thirds of farm output by 1999. The USA’s subsidy to less than 3 million farmers implied a transfer of over 32,000 dollars per farmer annually in support alone, about one hundred times the annual income of the average Indian farmer. And the USA has prevailed over a comprador Indian government to open our agriculture wide to free trade, betraying the interests of millions of our farmers who will be subjected to ruin through unfair competition while the Indian foodgrains market is penetrated by the advanced countries.

What has the NDA government done in the last two years for farmers? It has systematically exposed the Indian farmer to unfair competition, it has tried to cut food subsidy by doubling issue prices and has thereby created the problem of falling off-take and rising food stocks, and its economic advisers are now using the large food stocks, the result of their own mismanagement, as an excuse to argue for winding up the FCI and therby deny forever a minimum support price to our farmers, who are to be left to fend for themselves against unfair competition from increasingly subsidized imports. One wonders how much money or kind benefits these anti-national intellectuals have received in order to betray their countrymen.

The solution to the large food stocks of over 40 million tonnes, as has been repeatedly pointed out by the Left is to use them for food-for-work programmes which would create incomes and revive demand, and if adequately designed would add to productive assets. The argument given for not undertaking such a programme embodies a wrong idea, that it will increase government’s expenditure and add to the fiscal deficit. This is like saying that if money is taken from one pocket of a coat and put into another pocket, there is a net loss - in short it is an illiterate and absurd argument. Any increase in money outlay for a food-for work programme would be recouped through the decline in the cost of holding stocks, and of course in addition millions of underemployed poor people would thereby get relief.

The level of literacy on economic theory has reached an all-time low and the most primitive, wrong pre-Keynesian ideas are being articulated daily in the print and electronic media by even senior economists, of there being a fixed savings pool to the level of which expenditure must be curbed. Their obsessive adherence to the dogma about reducing the fiscal deficit (at the behest of their Fund-Bank mentors) makes them deaf to all reasoned argument and leads to a disastrous course of attacking the livelihood of millions of working Indians while selling out the assets the country has built up over the last fifty years. This Talibanisation of the economists, their reduction to the level of illiteracy and unreason, is a sad development in a country which used to have a proud tradition of critical theorising.

It is quite clear by now, that nothing rational by way of economic policy can be expected from a deeply corrupt government advised and supported by economists servile to imperialism; and that the beginnings of a solution lies in working for its earliest possible demise.

Percentage of Producer Subsidy Equivalent to Total Agricultural Output Value

in Advanced Countries, 1980 to 1986

Note: Average of 1984-1986 is the base period from which subsidy is to be reduced by each country under the Agreement on Agriculture.

Source: K A Ingersen, J Rayner and R C Hines (eds) 1994

Transfers to Farmers in OECD countries (producer subsidy support and total support) in US $ BILLION

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Source: Agricultural Policies in OECD Countries- Monitoring and Evaluation 2000 (Paris, OECD 2000)