Every day, 54, mostly developed countries give nearly $2 billion in support to their farmers
The sites of the farmers’ protests on the borders of Delhi are a microcosm of Indian peasantry — rich and poor, small and big, irrigated and rainfed and supported and not supported. The voices from these sites have now merged into one clarion call: Guarantee government support to farmers by legalising the minimum support price (MSP).
Farmers want this guarantee. It would ensure that nobody in private markets dares to buy lower than the MSP.
This has set both farmers and the government on the path of confrontation. In fact, states ruled by parties other than the Bharatiya Janata Party have started enacting laws to make MSP mandatory for non-government procurement or purchases.
The novel coronavirus disease (COVID-19) pandemic has added to the debate over the criticality of government support to farmers; particularly when they have delivered bumper harvests. The market is not that favourable since consumption to some extent has reduced as people have less income to spare.
R Ramakumar, professor at the Centre for Study of Developing Economies, School of Development Studies, Tata Institute of Social Science, said:
The COVID-19 pandemic has made government support more urgent, important and pervasive across the world. Agriculture and food security will remain a priority and as a result, the support to agriculture is unlikely to fall or reduce. In some cases, it may even rise.
Some 35 countries and the European Union (EU) have declared financial support schemes for farmers to face the COVID-19 pandemic. This is according to the annual Agricultural Policy Monitoring and Evaluation, 2020 by the Organisation for Economic Cooperation and Development (OECD) that covers 54 countries.
There have been over 400 policy responses related to food and agriculture. And with a slight sense of a dilution of government support, farmers are becoming restless.
Ramakumar added, “India is actually trying to avoid support to farmers. If you look at the Atmanirbhar package, the direct spending from the government budget is less than Rs 5,000 crore.”
There is not a single country that doesn’t support farm and farmers, directly or indirectly. This is irrespective of the much-fought battles over farm support between the developing and developed countries, particularly in the World Trade Organization (WTO) regime. This includes New Zealand, a country that did away with all farm subsidies way back in 1985.
Every day, just 54 countries in the world pump in nearly $2 billion as support to their farmers. The latest OECD assessment of farm supports in 54 countries shows that in 2017-2019, the net transfer to the agriculture sector was $619 billion per annum.
Out of this, $425 billion was budgetary support for the agriculture sector while the rest was for market price support like India’s MSP scheme. A major chunk of the support for the sector was direct support to producers or the farmers. It was $536 billion.
OECD countries supported agriculture to the tune of $319 billion annually. Of this, 72 per cent went directly to the producers. This amounts to 17.6 per cent of a farmer’s gross farm receipts.
In case of emerging economies like India and China, the total support is $295 billion per year and 71 per cent of it went to producers directly. This amounted to 8.5 per cent of a farmer’s gross receipt.
According to OECD data, between 2015 and 2017, more than $620 billion was paid in annual transfers to the agricultural sector by the 20 largest producer countries for which subsidy data are available. Of this, nearly $475 billion was transferred directly to farmers.
For almost all countries, support to farmers and agriculture has the same pathway. Below are a few selected countries’ support systems and the policy interventions:
The EU, which is the world’s largest importer and exporter of agricultural food products, has the Common Agricultural Policy (CAP). Under this, it distributes subsidies to member countries. Its support to farmers as a share of gross farm receipts has remained at 19 per cent since 2010. But 89 per cent of its total support goes to individual producers.
The block’s subsidy or support policy has been moving from production to income support since 2003 when it started the process of delinking support from production. In 2014-18, such supports accounted for 57 per cent of family income from farming.
The basic tenet of subsidies in the EU is to support small farmers and also to encourage environmentally less damaging agriculture. Around 80 per cent of payment to the producer is conditional to mandatory environmental norms.
These norms include taking up at least two to three different crops simultaneously to ensure diversity and to ensure permanent grasslands at the 2014 level. However, as the discussion for a post-2020 CAP is on, there may be changes to its current support system for farmers. But it clearly emerges that the farm supports would be more towards ecosystem services payment to farmers.
It decides its support to farmers through what are known as the ‘Farm Bills’. These were started in 1933 to rescue the country’s farmers from a drastic price crash due to the Great Depression. The US Congress usually reviews the existing Bill to further tune the support level to prevailing circumstances.
Its support primarily provides a safety net to farmers. US support to the sector is to keep food inflation under control, to reduce harvest risks and to enable poor Americans to purchase food at affordable prices.
Under the current Farm Bill, most of the support for agriculture has been committed to the Supplementary Nutrition Assistance Program (earlier known as the Food Stamp Program) and the Special Supplemental Nutrition Program for Women, Infants, and Children.
It also lends major support in terms of supporting farmers for buying crop insurance — government covers over 70 per cent of the commercial cost of insurance cover.
In 2020, the US’ estimated farm subsidy to farmers is around $46 billion. To make sense of this, it would account for up to 40 per cent of farm income in the country in 2020. Without this support, the country would have reported negative income from farms.
The American Farm Bureau has estimated that the farm debt in the country is at $434 billion. This surge in support is to compensate farmers due to the country’s trade war with China and Europe that led to punishing tariffs on American agricultural exports like corn and lobsters.
A farmer in Yunnan Province, China. Photo: Wikimedia Commons
The most populated country in the world has arguably the most expansive subsidy regime and the sole policy goal to feed its growing population equally and at affordable prices. In 2004, China became a net food importer. From this point, the whole farm support system has been to increase local production and also local income from farming.
In 2006, it abolished almost all taxes on agriculture. Rather, it started a massive farm support programme. This includes direct payment to farmers based on fixed land under cultivation, high subsidies for inputs like fertilisers and fuels.
Similarly, it gives cash support for improved seed varieties. It has MSP, like India, for rice and wheat. This led to around a 40 per cent increase in the production of rice, wheat and maize (2005-15).
Its support to the farm sector is to sustain the majority small farmers and at the same time, keep food affordable to ensure food security. The support system spans production, processing and distribution.
Currently, there is a cash or income support scheme as well. The 2020-21 Union Budget allocated Rs 750 billion ($10.6 billion) for the direct income transfer scheme PM-KISAN.
According to a study on Indian agriculture subsidies prepared by the Indian Statistical Institute for the XV Finance Commission in March 2019, the total subsidy expenditure (both Union and state governments) in 2017-18 was about Rs 235,500 crore. Out of this, Rs 120,500 crore was from the Union government while the rest was borne by the states.
For every hectare of sown farm land, the input subsidy was Rs 7,750 (in 2014) while the price subsidy was Rs 1,050. In 2017, farm subsidy expenditure accounted for 21 per cent of average farm income.
However, the latest OECD assessment says that India is one of the few countries that has penalised farmers to keep consumers happy. The international measure of a government’s budgetary and other subsidies to farmers is the Producer Support Estimate (PSE), developed by OECD that uses this for its annual tracking of global agriculture supports.
In simple terms, this measure estimates what a farmer receives at the farm gate. OECD assesses that it is negative 5.7 per cent for Indian farmers, or that the government has actually taxed the farmers. In 2019, Indian farmers lost $23 billion this way.
In contrast, Norway offers 60 per cent support to its farmers. India’s negative PSE benefits the consumers in term of cheaper food, or our obsession to control food inflation. Mostly, government support and policy intervention keep the wholesale price low and also help distribute cheap produce through the public distribution system to keep food inflation low. This way, consumers gained a benefit of $80 billion.
This is opposite to what most countries do: Keep agricultural produce price higher than the global level and make the consumers and government supports compensate for it. This means a good return to farmers.
Government support to producers has remained negative in the last two decades. While allocations for fertiliser and food subsidies increased between 2018 and 2019, both fertiliser and food subsidies were lowered for financial year 2020-21 (by 10.8 per cent and 37 per cent, respectively).
Indian farmers suffered a cumulative loss of Rs 45 lakh crore ($ 600 billion plus) between 2000 and 2016-17 on account of being denied their rightful income.
Subsequently, the NITI Aayog itself had admitted that between 2011-12 and 2015-16, the growth in real farm incomes had prevailed at less than half a per cent every year, 0.44 per cent to be exact. For the next two years, the growth in real farm income had been ‘near zero’, according to agriculture expert Devinder Sharma.
The small and marginal farmers account for 85 per cent of the total landholdings and hold close to 40 per cent share in the total ‘marketable surpluses’.
The government’s market interventions such as procurement of food grains like wheat and rice through the Food Corporation of India or the Market Intervention Scheme have mostly helped large farmers, that too, partially.
The dominant small and marginal farmers have been bypassed by the market interventions. “They cannot be a wholesome substitute for an efficient marketing system,” the report of the Committee on Doubling of Farmers’ Income, or the Dalwai Committee Report has said.
A sheep farm in New Zealand. Photo: Pixabay
In 1984, this country did away with all supports and subsidies to farmers. Protests followed this decision across the country. But, the new norms became the new reality, making it an international case study on how to sustain farming without supports.
It is considered to be one of the most globalised economies in the world and its food export plays a crucial role in this. Agriculture contributes seven per cent of its gross domestic product. Its export mostly includes agricultural products like meat and dairy. In fact, it is considered as the world’s largest exporter of sheep meat and dairy products.
The decision taken some 36 years ago also marked the beginning of a new kind of government support in the country. All subsidies and supports were directed to agricultural research and development.
And like any other country, New Zealand also had the same objective: Make local agricultural products competitive in global markets. The research and innovation funds primarily focused on raising productivity of the country’s locally thriving agricultural activity: Livestock and the by-products.
The country didn’t take up globally hot commodities like wheat. It spent the most on raising pastoral farming. Since 1984, it has brought down its sheep flock by half but still has production at the same level and dominates the world export market.
The government’s farm support accounts for just one per cent of its farmers’ gross receipts, which is the least among the OECD countries. However, its farm support still continues. It spends significant amounts on disease control, makes direct payment to compensate farmers for losses due to natural disasters and offers full support in terms of providing information to farmers.
The government also supports off-farm irrigation projects at community levels. Though the country is a vocal voice against disruptive farm subsidies by other countries at the WTO, it by far has one of the largest bouquets of bilateral free trade agreements with countries, the latest being negotiated with China. Thus, agricultural goods account for 66 per cent of its total exports.
In 2019, New Zealand adopted the Climate Change Response (Zero Carbon) Amendment Act to legally binding itself in meeting the Paris Agreement to limit the temperature increase to 1.5 degree Celsius.
This Act mandates the country to reduce all “greenhouse gases (except methane) to net zero by 2050, reduce emissions of biogenic methane (produced from biological sources) up to 24-47 per cent below 2017 levels by 2050 and to 10 per cent below 2017 levels by 2030.”
Each farmer is supposed to make a farm-specific emissions reduction plan. If they don’t reduce emissions as mandated, they would face additional taxes by 2022. The livestock sector being a major source of greenhouse gas emissions, dairy farmers are already demanding support for this transition. However, the government has set up a $229 million sustainable land use investment budget under which farmers would be supported.
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