Off and on there have been discussions in this and other blogs( for example, http://www.shivamvij.com/ and otherindia.org) about the effects of globalization on Indian farmers. It emerged from the discussions that Indian Govt., various state governments, regional rivalries, spurious seeds and greedy merchants are at least partly to blame. But there was no clear discussion of how prices are fixed. I keep seeing various reports like the following that indicate globalization has effect on prices. From http://www.flonnet.com/stories/20061229004911600.htm:
"Why are cotton prices falling?
Since 1994, international prices have fallen and domestic prices reflect this depression. It was $1.10 for one pound of cotton in 1994 [Rs.2,500 a quintal]. It fell to 40 cents a pound. Today, it is 54 cents a pound [Rs.1,800 a quintal]. Between 1997 and 2003, we imported 110 lakh bales of cotton. The import tariff is only 10 per cent. Textile mills that export yarn do not even have to pay this tariff.
Our political leaders say farmers should compete in the free market and not rely on the government. But, it is not a free market. The prices in the international market are low right now because contries like the U.S. and China give subsidies to their cotton farmers. In the U.S., 20,000 cotton farmers get $4.7 billion in subsidies. China gives Rs. 900 a quintal to its farmers, that is, half the price. How can our farmers compete? That is why they are committing suicide.
Our government should at least intervene to ensure that the prices of cotton lint do not fall below Rs. 80 a kg. Then farmers will be assured of a price of Rs.2,700 to Rs.3,000 a quintal. It does not implement this policy because it is under pressure from the mill lobby, which imports cheap, subsidised cotton."
See also http://alternativeperspective.blogspot.com/2006/12/hidden-hand-of-free-market-corporate.html and two earlier posts of Madhukar Shukla mentioned in the article. Again, this is all for my own reference since earlier there was a query as to how American subsidies can affect prices in India.
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swarup garu,
i distinctly remember pointing out to you how the cotton corporation of india fixes the price of cotton it will buy which in turn influences other buyers in india. the cci of course arrives at the price taking into consideration input costs and a profit margin (its calculation of what is a reasonable profit)..just like the agricultural costs and prices commission arrives at the figures of support prices of other crops. the international prices too do have an effect but the extent of their effect was/is marginal on crops other than cotton until recently because trade in those products was liberalized only recently, and not even fully (as i pointed out in a recent post of mine).
this was on one of dilip's/shivam's posts on otherindia.
Kuffir, I remember your comments and also comments like this:
From an artcle by Devnder Sharma n 2004:
http://www.zmag.org/content/showarticle.cfm?ItemID=4871
"What the Prime Minister did not specify was that the World Trade Organisation (WTO) makes it imperative for countries like India to knock down the procurement machinery. Accordingly, grains for the food buffer have to be purchased at the market price and the releases from the buffer (read FCI) have also to be at the market prices, except for those living below the poverty line. In the past two years, the government has tried to "restructure" the public distribution system as per the WTO norms by removing the "above the poverty line" (APL) families from being a recipient of the subsidised rations."
I am sure that you have thought long and hard on these problems, but I am not convinced that globalization had no effect at all on Indian prices. I will keep exploring.
'What the Prime Minister did not specify was that the World Trade Organisation (WTO) makes it imperative for countries like India to knock down the procurement machinery. Accordingly, grains for the food buffer have to be purchased at the market price ....'
the comment you quote is not relevant past that stage... how are the prices fixed, you ask? if you follow the direction that the wto is fixing the prices ...well i'd like to know how? through what agency?
global markets, i had said, do have an effect on the prices but only very marginal...it is the support prices which have the effect of influencing market prices in india and not vice versa..
going by the articles/posts of some journalists one'd think that the wto and global buyers sit at guntur/warangal mandis and see that the prices don't go up beyond costs.
the question of prices, in my view, is totally irrelevant.. because 1) 60 % of indian farmers don't bring their produce to the markets because they don't have any surpluses 2) 80% of indian farmers, according to the recent nsso survey, don't even know what a 'minimum support price' is.
3)only subsidies, in various forms, get through to majority of indian farmers, be it food subsidies or farm input subsidies etc., but what the farming family gets from this is only a small portion of what's originally intended for them .. for example the much touted a)public distribution system does not provide monetised benefit of more than rs.2.50 per person per month b)fertiliser and pesticide subsidies mostly go through to the producer but they do help poor farmers to a small extent c)subsidies on power etc mean that the farmer pays through long power cuts at home etc., it also means that any viable occupation/ activity other than farming is impossible in the villages because of the lack of power supply.
my view is that subsidies get through to farmers so it'd be more useful if the govt worked on things like a dole which would substantially reduce living costs ( which i believe are more responsible farmers incurring debt than anything else) and spent more on public services like education and health it'd be more helpful to everyone living in the villages, apart from farmers.
there are two many journalists who focus on support prices and how globalisation has done this and done that...well, it's a very absorbing way to pass the time, i suppose. but i haven't learnt as single thing of value from any of them. and their ways of twisting facts to make it seem like globalisation is the only reason why farmers are dying...and no policy before 1990 has any relevance is to say the least..dishonest.
and finally, the support prices are still mostly fixed by the govt and political parties and local pressure groups still exert a lot of influence on this process. but i don't think supoort prices are the reason why farmers are dying - they might act as triggers.
the dole i suggested is actually what the americans and europeans cleverly package their subsidies as.. a flat living allowance. i'll send the link when i find it..
Kuffir,
There seem to be several threads going on here. I must add that I have been following thesemattersonly for an year and as far asI can see there is no concensus and may be no solutions. You seem to be coming with a longer background and perhaps tired of the criticsof globalization. First, I must say I am one of those who thinks that globalization is good but each country must take its own safeguards. Here it is not even clear what
' country' means. Sometimes power groups in one country seem to do what benefits them with the help of power groups in another country and it is not clear whether the decisions are benefitial to most. So, most of what I say should be considered as 'impressions' which are likely to change as I get more information.
My impression is that global prices have effect on local prices. ( I will post some of thwquotes in the next comments). Secondly, it is not clear to me why small farmers grow cash crops like BT cotton if as you say most of them grow for their own needs. Thirdly it seems to me that there are both imports and exports of cotton for some time, one of the links that I have quotes figures from 1998. Even if there is no trade between two countries, still the prices in one country can affect the prices in another country since they may trade with a third country or due to threats of imports. From the articles of From the articlesof Eric Orsenns and of Vamsi and othersI quoted, I get the impression that cotton pricesin all countries are affected by American prices and it is not only small farmersin India but also thise in USA who are affected by it.
Having said this, I think that it may be only one of several factors ( many others are discussed in the otherindia discussions) and what proportion thishas on the suicides of farmers, I do not know. I think that the reasons for any such events are many and keepchanging and that we need to keep a data base of all such studies and keep looking at them from time to time.
Some of the links I mentioned above (some may not be working now, thesewere collected a few months ago):
http://trade.indiainfoline.com/Commexwebsite/olw/fadc.pdf#
( published December 2004, This paper also discusses minimum support prices set by the Indian government and various state governments)
“US production will determine the price in the international market as the country has set a target of exporting half of its production in the current season’
From http://ncdex.com/products/products_agro_indian28mmcotton.aspx?Type=Gen
(date not clear. Quotes figures from July 2003)
Futures prices of cotton at the New York Board of Trade (NyBOT) serves as the 'reference price' for cotton traded in the international market.”
“Among several other reasons, it is 'the lack of availability of desired quality cotton' that has made many Indian buyers (particularly the export oriented units) to opt for purchases of foreign cotton despite enough domestic supplies. Most importing mills in India are ready to pay 5-10% premium for foreign cotton due to its higher quality (less trash, uniform lots, higher ginning out turn) and better credit terms (3-6 months vs. 15-30 days for local). Mills using ELS have been pleased with US Pima and its fibre characteristics. US has emerged as an important supplier in the last two seasons. Apart from US, India is also importing from Egypt, West Africa, the CIS countries and Australia on account of lower freight and shorter delivery periods offered to Indian buyers.”
According another source the import export figures in millions of dollars were 137.87, 377.64, 294.52 against 20.08, 9.08, 11.28 during years 1998-99, 1999-2000, 2000-2001.
These figures must have changed substantially but as the above article indicates, there are both imports and exports even later. For example, according to
http://www.fibre2fashion.com/news/images/newspdf/Indian_Cotton_report_20043.pdf#
imports are .07 million metric tons whereas exports are .80 million metric tons during 2005-06.
More links and quotes:
From http://www.ajc.com/opinion/content/opinion/stories/2006/10/09/1010edcotton.html
The United States now wants to expand these devastating discriminatory policies throughout the developing world. The subsidy commodity program is a prime example. Congress and corporations wanted to increase U.S. exports so they lowered the guaranteed minimum price for U.S. commodities such as cotton.
Prior to this devastating legislation, farmers were guaranteed a minimum price that was close to the cost of production. No more. Congress also stopped the acreage set-aside program, under which cotton farmers were paid not to plant on some of their land. This opened up an additional 10 million to 14 million acres into production, some of which went into cotton.
Without regulations that set a fair price, corporations can purchase cotton below the cost of production in the United States, driving down prices in the developing world. And the higher production has increased demand for chemicals and seeds. It's been a corporate windfall.
So where are farmers in this picture? Because there are virtually no regulations to offer a fair price for commodities, the government pays farmers a subsidy to make up for their loss. It usually just barely covers the cost of production. Black farmers and small family farmers in the United States depend on subsidies in an attempt to break even.
In a recent survey of African-American cotton farmers we conducted throughout the Southeast, it was found that the subsidy program is essential for their survival. But when asked if subsidies would be as important if the farmers received a fair price for their cotton, the answer was "no."
The subsidy program is a scapegoat for failed agriculture and development policies that are bolstered by the World Trade Organization, International Monetary Fund and the World Bank that force the governments of developing countries out of agriculture. This enables corporations to control the global agriculture system.
World governments should instead be encouraged to create an agricultural system that supports small farmers and protects borders through fair trade and not free trade.
Policies that would go a long way toward resolving the current corporate agriculture welfare system would include a "Farmer Living Wage Program" so that corporations would have to pay a fair price to farmers and supply management that would reinstitute the acreage set-aside program.
From http://www.ictsd.org/weekly/06-10-04/story4.htm
At its 28 September meeting, the Dispute Settlement Body (DSB) established a panel to determine whether the US had indeed complied with an 18-month old ruling against its cotton subsidy programmes, in response to a request from Brazil. The US had blocked Brazil's first request for a compliance panel at an earlier September DSB meeting, but WTO rules prevent Members from doing so a second time (see BRIDGES Weekly, 13 September 2006).
In March 2005, the Appellate Body confirmed that some US cotton subsidy and export credit programmes violated its WTO commitments and distorted world cotton prices enough to cause 'serious prejudice' to Brazil's trade interests. It set deadlines for compliance later that year. The US and Brazil reached procedural agreements to suspend the latter's requests to impose retaliatory tariffs, following promises from Washington that it was moving to implement the required reforms (see BRIDGES Weekly, 23 November 2005).
From http://www.themountainmail.com/main.asp?SectionID=7&SubSectionID=7&ArticleID=9193
“The proposals by Senators Grassley and Dorgan and President Bush to cap farm subsidy payments are misguided.
These initiatives inaccurately portray subsidies as a big farmer versus small farmer problem. Payment caps without price supports and supply management would actually give taxpayers little relief, and corporate agribusiness would continue to replace diversified production on family farms with giant feedlots.
Highly processed food created from corn, wheat, soy flour and soy oil would further supplant healthy diets and local food supplies around the world.
The trend of farm consolidation needs to be reversed so that our young people have opportunities to make a decent living in rural America.
Farm bill reform needs to create price floors for commodities related to their true cost of production and stop fencerow-to-fencerow farming. Taxpayers will benefit only when giant agribusiness pays rational prices to farmers.
This will happen when politicians stop pitting farmers against other farmers and speak for the public interest, not that of giant agribusiness.”
From http://atisweb.org/sections/world/analysis/2003/december/pdf/Cotton_International_Trade.pdf#
“The subsidies given by the US to its cotton farmers have largely been accepted to be the reason for the spectacular decline in cotton prices at a global level.
The reason for this is that since the government provides a large range of domestic support, US cotton farmers increase their production unlimitedly and in much excess of domestic demand. This excess is then dumped in the international market, which makes the world cotton supply much larger than demand and brings down cotton prices. This is possible since the US has
various export promotion programmes like credit promotion and other direct payments for making US cotton globally competitive, which, though disguised as non-subsidies, actually help to dump this surplus in the international market. Some of it is given as compensation to US farmers if their actual price is higher than the world price (See step 2 payments in the box below). This
obviously encourages the US producer to dump a huge supply on the international market. Not surprisingly world prices have declined steadily since 1995 and reached a 29 year low in 2001. While Cotton prices have declined by more than 60 percent since 1995, U.S. subsidies to its 25,000 cotton farmers reached 3.9 billion dollars in 2001-02, double the level of subsidies in 1992. Interestingly, the value of subsidies provided by American taxpayers to the cotton barons of Texas and elsewhere in 2001 exceeded the market value of output of cotton by around 30 percent. In addition, this subsidy is provided to only the richest 10% of US farmers who get 73% of the total cotton subsidies. The rest of the cotton farmers in America hardly benefit from these subsidies. This actually shows that US subsidies, though largely domestic, is actually for the benefit of the export market.”
'I must add that I have been following thesemattersonly for an year and as far as I can see there is no concensus and may be no solutions.'
depends on what kind of consensus you are looking for..solutions are again another matter. but it should be borne in mind that there are *no* painless solutions.
india is now the world's second largest producer of cotton (please read this - http://www.thehindubusinessline.com/2006/10/04/stories/2006100403030800.htm )read also this - http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=14117 and this - http://www.thehindubusinessline.com/2005/04/19/stories/2005041900720400.htm.
all the reports would show you that india is fast, not just steadily, climbing towards a no.2 position in terms of production, consumption and exports in the world. this year india has surpassed the u.s. in production and has also recorded a massive growth in exports to china. in apparels too india has also come to occupy the position of no. 2/3 in the world. the u.s., and china production have reached a plateau. china has imported cotton massively to meet growing demands of its textile industry ( which again is the largest supplier to the u.s.,). india's textile industry too is expanding massively since the last few years (when wto came into effect)and is poised to double both its production and exports and jobs (it shall provide 14 million additional jobs by 2010) in the next five years. what all the above data means is that china is concentrating more on finished goods production (and so is india) and less on cotton production. you can see opportunities opening up for india on all fronts - in production and in exports and in consumption. why am i quoting all these 'positive' news reports? to press home the point that any large effort to keep prices at an artificial high would be disastrous for india.
how many additional jobs would price support measures for cotton farmers in india contribute? there are roughly around 6 million cotton growers in india. and around 15 million employed in india's textile industry right now and as i mentioned earlier the country would be adding another 14 million jobs in this sector.
the articles/papers you link to essentially make the point that the u.s., has continued to feed the support-procurement mechanism for cotton cultivation over the last one decade.. my point is that india hasn't abandoned totally its support machinery either - in this kind of a scenario do you really think i am wrong in saying that the international prices have not played a significant role they're believed to have, and publicized as having, on indian cotton prices? i've read earlier the links you have provided- but until now, i haven't been able to find an objective study better than the paper by rimjhimm agarwal i linked to in my post 'test tune village'- the paper discusses events and policy peculiar, with specific reference to cotton, to india in the last one decade and provides a better understanding of the situation in india than articles/papers which present essentially a
so-called 'international perspective' on the subject. people married to certain ideologies (like the wsf types) might find a great deal in common between american and indian farmers and other working classes but i don't.
this article (http://mcxindia.com/products_CottonLStaple.html) has this short note on what factors influence the cotton market in india... it says:
'*Only one-third of the area is under irrigation, and this causes the cotton output to vary considerably from year to year in response to the vagaries of weather and pest attacks.
*More than 80 percent of the cotton produced is sold out by March 31 every year and the price starts firming up from April and starts easing only in September when the new crop starts arriving in the market.
*The Government of India fixes the Minimum Support Price for cotton and several Government agencies like Cotton Corporation of India, Maharashtra State Co-operative Cotton Growers' Marketing Federation procure cotton at this price. This sets the trend for the price initially. But the industry involves large number of players and the market forces determine the price soon.
*The imports of cotton into the country and exports from the country.'
i've also found this study is helpful in understanding the evolution of agriculture and of policy in india since independence, especially in semi-arid tropical regions like andhra pradesh (telangana and rayalaseema) and karnataka. i've also found this report of the fao -http://www.fao.org/docrep/006/y5026e/y5026e0b.htm (though of 1990) very educative in understanding the 'what/how and who' of indian agriculture..
most of the above links provided me with an understanding of how policy shapes the destinies of people. the green revolution, as many notable researchers point out, changed the way agriculture was 'done' in india. though, in terms of direction, it was pogressive in the sense that it introduced indians to 'modern' technology that improved yields..the mechanism of incentives through which this was done has had a negative impact, in my view, on the precariously balanced economic/social life of farmers in the vast drylands of india traditionally dependent on the monsoon and their own conservative water mangement methods.. and on crops suited to these conditions. the green revolution, by popularizing the cultivation of certain food crops(over others)and later other cash crops by providing those farmers with subsidised inputs and guaranteed price support induced many farmers in these regions too to shift/migrate to cash crops. the green activists make this point too, as you are more than aware. the study paper on dryland agriculture in andhra pardesh/karnataka acknowledges this fact (sorghum cultivation in a.p., came down from 34% of total cropped area to less than 24% in the nineties).. please look at this page too- (http://www.ap.gov.in/budget/tab7_2.htm)..it will tell you how expansion of paddy and other cash crops cultivation happened at the cost of coarse grains traditionally grown in the drylands. the latest figures tell you that paddy is cultivated in over 88 lakh hectares in andhra pradesh (the table provide figures only until mid-nineties)- a more than 200% jump since independence! and the same goes for cotton - from 4 lakh hectares in the late seventies it is now cultivated in more than 10 lakh hectares (mostly in telangana) now! this should partly provide you with an answer as to why 'small farmers' cultivate crops like cotton.. although one needs to look at the indian defition of 'small farmer' too to fully grasp the picture.
Kuffir,
Thanks. I will start reading the articles you mentioned. That and the series of articles that you are writing in your blog may clarify things some more. Thanks again for your efforts.
swarup
i'm sorry i linked to the wrong fao report in my earlier comment. this is the page i had intended to link to - http://www.fao.org/docrep/005/ac484e/ac484e05.htm#TopOfPage . it will show you that though technically small landholdings in india (as on 1990) constitute 78% of all holdings in india there are further significant divisions within this category. so the actual 'small farmer' in india is not someone who is at bottom of the landowning classes in india but someone who's actually in the middle. there are marginal and sub-marginal landholders below him and together they make up around 60% of india's farmers.
may i suggest that you might find the rest of the report interesting - you can go to previous/next pages through buttons on top of the page..
Kuffir,
Thanks. I am reading them one by one among other things. Regards,
Swarup
Another recent article for futurere ference:
http://www.scidev.net/Features/index.cfm?fuseaction=readFeatures&itemid=570&language=1
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