More Trade And Hunger in Developing Countries

Under Deflationary Conditions 

Utsa Patnaik

More trade leads to more hunger in developing countries under global and local deflationary conditions.

THE land resources of India, more so than in most developing countries, have the potential for producing a highly diversified range of products, not only the crops and fruits grown in the summer season in temperate lands but also the typically tropical crops, which cannot be grown at all in advanced countries located in temperate regions. The crops of our lands have been demanded abroad in advanced countries for over three centuries for meeting their direct consumption and raw material needs. But, historically the growth of exports from tropical agriculture under free trade regimes, has always led to a fall in domestic foodgrains output and availability, plunging the mass of the population into deepening under-nutrition and in extreme cases into famine. This is bound to happen since land is not a reproducible resource, and heavy external demand made on our more botanically diverse lands by advanced countries to meet their ever-rising and diversifying needs, leads to diversion of our land and resources away from non-traded locally consumed food staples to meet export demands.

RICARDIAN FALLACY IN THEORY OF TRADE

The Ricardian theory of comparative advantage which says there is necessarily mutual gain from specialisation and trade, contains a material and logical fallacy since the conclusion is based crucially on assuming that ‘both countries produce both goods’ which is factually untrue for agriculture. The advanced countries mainly located in cold temperate regions cannot produce tropical crops at all, the cost of production of say coffee or rubber cannot even be defined in these countries, leave alone relative cost and transformation frontiers.

In theory, more exports from developing countries can accompany more food production for domestic needs, but this can only happen when there is substantial rise in investment to raise productivity, for land is a non-producible resource whose ‘supply’ can only increase via investment permitting one hectare to produce what two hectares did earlier.

UNDERMINING FOOD SECURITY

The deeply disturbing feature of the current thrust for liberalising trade is that it has been taking place within an investment-reducing, deflationary regime. (I predicted in 1992 that given the deflationary climate, food security would be undermined with trade liberalisation in India and that is precisely what has happened). As soon as trade was liberalised from 1991, within a few years, 8 million hectares of food-growing land were converted to exportable crops leading to fall in per head foodgrains output, but farmers did not benefit since their exposure to steeply falling global primary prices from mid-decade has plunged them into spiralling farm debt and insolvency. Over seven thousand farmer suicides in India since 1998 are only the tip of the iceberg – there is a pervasive agrarian crisis and foodgrains absorption in India is back to the level prevailing fifty years ago.

Trade liberalisation and an export thrust makes sense when local and global markets are expanding owing to expansionary developmental policies which promote growth in the material productive sectors, rising employment and incomes. But when the opposite is the case, when both globally and in local economies the dominant policy sentiment is strongly deflationary as at present, then trade liberalisation spells lowered mass welfare in developing countries. India’s experience in the last fourteen years provides a good illustration of this.

India, a signatory to GATT 1994, removed all quantitative restrictions on trade and converted to tariffs by April 2001, lowering the average tariff rate at the same time to 35 per cent, or well below the bound rates which were 100 per cent for crops and 150 per cent for agricultural processed products. India’s thrust for trade liberalisation could not have been worse timed, since advanced country markets were in recession and global primary product prices went into a steep tailspin with 40-50 per cent decline in unit dollar prices of all crops –cereals, cotton, jute, sugar, tea, coffee – and up to 80 per cent decline in some oil crops between 1995 and 2001 as Table 5 shows. With a brief spike in 2002 prices have continued to fall and some prices are today lower than as far back as 1986. The price to growers is even lower than world price as state marketing boards’ activities have been replaced by private transnational companies.

NEO-LIBERAL POLICIES & AGRARIAN CRISIS

As prices fell for Indian producers of export crops, their access to low-cost credit was also reduced under financial sector reforms. Since the nationalisation of banks in 1969 agriculture and small scale industry had been treated as priority sectors offered bank credit at a lower than average interest rate but that ended with financial reforms, thrusting farmers into dependence on private moneylenders and high-cost credit (interest rates are usurious, ranging from 36 to 60 percent annually). Other crucial input prices including power tariff were raised as part of the neo-liberal dicta on reducing subsidies (which were already meagre compared to developed countries). Reduced tariff protection meant that producers of rice, fresh fruit and dairy products faced the undermining of their incomes from inflow of usually heavily subsidised foreign goods.

More than five thousand indebted farmers, mainly cotton farmers, have committed suicide in Andhra Pradesh alone since 1998 as its government which had entered into a state-level Structural Adjustment Programme with the World Bank, raised power tariff five times even as cotton price fell by half (Table 6). Over a thousand farmer suicides have also taken place in Punjab, mainly in the cotton belt, and in the four years from 2001, over 1,250 suicides are recorded in Wynaad in Kerala as prices to the local growers of coffee, tea and spices have nose-dived even more steeply than global prices once large companies have taken over purchase and marketing. Thus by 2003 the price of coffee to the grower was only one-quarter and that of tea and pepper only one-third of the prices prevailing in 1999.

The agrarian crisis was the main reason for the decisive mass rejection of neo-liberal policies and the May 2004 electoral defeat of the NDA coalition at the Centre as well as the TDP government in Andhra Pradesh. In recognition of the employment crisis the new United Progressive Alliance or UPA had promised to implement an Employment Guarantee Act which has been formulated, but which has been considerably diluted already by targeting to those officially defined as ‘poor’ and by not setting a time-frame for implementation.

EXPORTS OF FOODGRAINS & EMPTY STOMACHS

India has exported record volumes of wheat and rice during the last six years, and its share in global exports of rice and wheat has risen quite noticeably. Despite the drastic slowing down of output growth noted in Table 3, India exported 20 million tonnes of foodgrains during the two years 2002 and 2003, and the share of grain exports in total exports has risen from under one –fifth to almost a quarter. There is higher global trade integration reflected in rising trade-GDP ratio. During the severe drought year starting from monsoon 2002, despite grain output being 30 million tonnes lower than in the previous year, from June 2002 to November 2003, a total of 17 million tonnes of foodgrains were exported by the former NDA government. Superficially it looks as though policies of trade liberalisation have ‘worked.’

However the crucial fact which is suppressed in official publications and in the writings of pro-reform economists, and this is true even after the elections and the change in government, is that the vastly increased grain exports have been coming out of more and more empty stomachs as millions of rural labourers and farmers have suffered job loss and income decline. Food grains absorption in India today has reached a historic low as a result of the massive decline in purchasing power especially in villages owing to the combination of rising unemployment, rising input and credit costs for farmers and exposure to global price declines. Loss of purchasing power is pervasive affecting both the 158 million wage-dependent workers as well as the 120 million cultivating workers and their families.

Targeting the food subsidy from 1997-8 by restricting supply of cheaper grain to only those officially identified as ‘below the poverty line’ has also added to the institutional denial of affordable food grains to the poor, not merely owing to mistakes of wrong exclusion from the set of the officially poor, but also owing to the gross official underestimation of the numbers in poverty. Actual proportion of rural population unable to access 2400 calories energy intake in 1999-2000 was 75 per cent according to 55th Round data, and the official gross underestimate of 27 per cent has been reached by quietly dropping the calorie standard to below 1900 calories without informing the public. As discussed earlier in these columns, this is not an acceptable procedure. No comparison of change in poverty incidence over time can be valid, when the consumption standard is not held constant but is being lowered. 

Table 5

Source: Food Outlook, Various issues from 1986 to 2001; available from Global Information and Early Warning System on Agriculture, U N Food and Agriculture Organisation; and Monthly Commodity Price Bulletin, UNCTAD 2001.  For the cereals, edible oils and seeds the unit is USD per ton, for cotton and sugar, US cents per lb. and for Jute, USD per metric ton.  

* Relates to 1999, and per cent change is 1999 compared to 1995. 

The 2004 price data show that sugar , cotton and jute prices continue to remain flat around 2001 levels while the cereals show some rise.

Table 6

Note: The total number of suicides up to 2004 is over five thousand. Data from police records up to Jan. 27, 2002, presented by Kisan Sabha at a symposium on farmer suicides held at Hyderabad (Andhra Pradesh), 3 February 2002 and attended by the author. The Table has been partially updated by incorporating information for the entire year 2002, so far available for the three districts only (Warangal. Karimnagar and Nizamabad) as reported in The Hindu, Hyderabad edition, Jan.6 2003. For the other districts the figures given in the last column continue to refer to a single month, January 2002. Additional suicides numbering 1700 have taken place since then, for which the district break-up is not available.