India Needs a Rethinking on Free Market

The Tribune     30th December 2020     Save    
QEP Pocket Notes

Context: Instead of free market-driven business model, India needs a production system by the masses with the assured price delivery mechanism.

 Arguments against Free Market Driven Business Model: which obviates the need for Minimum Support Price (MSP).

  • Perpetuates poverty: E.g. While the chocolate industry takes the highest market share in the billion-dollar confectionary sector, cocoa farmers in West Africa receives only Rs 100/day.
    • Biennial Cocoa Barometer 2020 report holds that MSP for cocoa farmers would have lifted them out of poverty, hunger and malnutrition.
  • Hurts small farmers:
    • E.g. In America, at least 50% of the dairy farms have disappeared in the past two decades.
    • While small farmers bowed out, mega-dairies have taken over. As a result, despite the closure of small dairy farms, milk production has further swelled.
    • This leads to vicious cycle of over-production, which was then dumped in developing countries –
      • Leading to a breach of 5% product-specific support norms for developed countries under Agreement on Agriculture by the World Trade Organisation (WTO).
      • In the process, small dairy farmers suffered at both ends — in developed as well as developing countries.

Examples of worldwide support to farmers:

  • Canadian farm unions are demanding State protection: by subsidy and import tariffs against recent $32-billion subsidy package for American farmers.
  • The US brings a Farm Bill every five years, to ensure that small farmers are not wiped out.
    • In the 2018 Farm Bill, the US expanded the safety net for farmers and brought several measures to enhance farm incomes as well as for nutrition schemes.
    • The US introduced the Agricultural Risk Campaign (ARC) and Price Loss Coverage (PLC) programmes in the 2018 Farm Bill, to check the volatility of agricultural prices.
    • There are numerous other programmes for relief from natural disasters, crop insurance, structural adjustment and environment.
  • China’s agriculture support: China provided a farm subsidy support of $212 billion in 2016 (highest in the world), raised farm incomes by 38% or wheat, 32% for rice and 29% for corn through government purchases at above market price.

Conclusion: India must rethink its approach towards agri-market regulation and assured price mechanism system in the agriculture sector.

QEP Pocket Notes