Thursday, July 9, 2015

Who are we saving – poor farmers or poor consumers? Not both!

Both central and state Govt.’s have many food subsidy schemes. They are meant to protect poor consumers. Poor should not go hungry as food grains have become unaffordable for those having lower incomes. Govt. takes that burden to provide relief to the poor.

Farmers committing suicide continues this year too as the prices for the crops they had grown had dropped. Govt. pitches in, offers Minimum Support Prices for crops in attempt to save the farmers from killing themselves.

Does not look this odd? If food commodity prices were high, farmers would have been doing great. If food grains were cheap, poor consumers would have no issues with affordability.

Just take the case in Karnataka. Sugarcane farmers are committing suicides in a row. At the same time, the state Govt. provides rice at Rs.1/kg to protect the poor. 

Then who are the real beneficiary of Govt. subsidies? Somebody is making real money.

Prices of food commodities do not remain same throughout the year. Peak season to off-season rates see a huge volatility. During peak-season, when the supply is high, prices drop. Many farmers do not have holding power or access to storage facilities and reach to bigger markets. Middlemen provide liquidity to farmers but buy at a bargain price. Their ability to hold on till off-season ensures they get good price. Govt. made attempts to weaken the middlemen traders. But they did a poor job. Govt. bought directly from farmers and stored it in their warehouses which are not well maintained. Make a few checks, you will come to know that 20-30% food grains were rotten due to improper storage. That reduced supply during off-season, prices went up. That puts Govt. into action with subsidies again. Private enterprises do an efficient job in maintaining their food storage because of profit motive. For Govt., prime objective is not to make profits but to maintain a social balance. So Govt. owned food corporations are not efficient as private one. The best thing to do is to privatize these facilities. But Govt. will not fire its employees. So the inefficiency remains.

And the cycle continues. Govt. can’t let the farmers die or the poor suffer. Subsidies (which are taxpayer’s money) flow out into the hands of middlemen. They in turn fund all variety of political parties and corrupt Govt. machinery to keep their interests intact. The crony capitalism thus in operation does not let farmers and the labor class never get rich ensuring wages are always lower than capital costs. So I say in title of this post ‘We do not save either farmers or poor consumers’.

In my opinion the biggest reforms India needs are in Agriculture and Infra space. Robots (Make in India) and Computers (Digital India) would have waited. Making life easier should have been made a priority than doing business easy. No, I have nothing against the priorities of the ruling Govt. But our farmers and poor labor class should not extinct in our ambition of reaching Mars by mastering the rocket science or to become a global business magnet. All those ambitions are fine. But provide reliable supply of water and electricity first. Then our farmers and labor will buy smartphones and pay for the internet. That will increase the demand for manufactured goods and services and spurs the consumption cycle.

No matter what the Govt. does, this vicious cycle could be broken with personal and collective efforts too. We can help (or sponsor) the farmers we know to learn the new tricks of the trade – be it new seeds, low water utilization techniques or solar pumps and encourage them to build their own storage facilities. We can pool with neighbors to buy from farmers directly whenever possible. Similarly we can ask farmers to pool themselves and arrange delivery to consumers directly. It is not convenient in the beginning but once established it would work better. Help farmers earn better by avoiding big margins middlemen make wherever possible. However small the impact is, once it seems to work the idea will spread.

Instead of blaming rain gods or our political system for the inflation, we the consumers who can afford to go extra mile should do the same to reach the farmer and make it work better for both of us. Do not watch him die. Save the farmer to save ourselves.