VIII. GLOBALIZED TRADE AND SMALL-HOLDER AGRICULTURE

Trade, especially international trade, reputedly contributes to poverty reduction and food security. Does this statement hold true for small-holder farmers in developing countries? For India, three questions arise. Firstly, do the small farmers generate marketable surpluses? - if not, can they be assisted to generate surpluses in appropriate regions and commodities? Secondly, how should small-scale agriculture compete with imported products, and what trade protection is needed? Thirdly, can small-holders benefit from export opportunities, and are there market-access constraints that need to be overcome? We here attempt to answer those questions.

Globalization of agricultural trade will highlight: access to markets; new opportunities for employment and income generation; productivity gains and increased investment in sustainable agriculture and rural development. If managed well, liberalization of agricultural markets will benefit developing countries in the long term. It will force the adoption of new technologies, shift production functions upwards, and attract new capital into deprived sectors. However, such benefits will accrue only if due attention is directed to the short- and medium-term interests of hundreds of millions of small-scale, subsistence-oriented farmers, fisher-folk, and forest dwellers. The magic of globalization has not yet been felt in India.

To the first question: Table 27 analyses trends (1970-1990) for marketable surplus among major commodities. However, as was cautioned in relation to Tables 3, 4, 6, these Table-27 estimates similarly presume yields to have been equal among all farm-size categories. If smaller farms had higher productivity than larger ones, then estimates for the marketable surplus from small-holdings should be increased, and estimates for their extent of net buying correspondingly decreased. Nonetheless, Table 27 does permit the conclusion that in almost all years sub-marginal- and marginal-size households were net buyers of all of the listed commodities, including the food-grains. Farms larger than 1.0 ha (the small, medium, and large categories) produced the aggregate marketable surplus.

At 1970, the small-size holdings (1.0 - 2.0 ha) also were net buyers or produced meagre surpluses. However, and notably, at 1990-91 these small-size holdings generated a marketable surplus of 7.2 Mt/ann (million ton per annum) of rice, 1.3 Mt/ann of wheat, 2.1 Mt/ann of coarse cereals, and 1.7 Mt/ann of oilseeds. Correspondingly, during 1970-1990 the proportion of these small farms’ aggregate production of rice that was contributed to the market increased from zero to 42 percent. For wheat, there was transformation from net buyer to a contribution of 12 per cent of production to the market, for oilseeds from net buyer to a contribution of 71 per cent, and for the coarse cereals the marketed proportion increased from 5 to 34 per cent. Similarly, for the marginal-size- and the sub-marginal-size-farm households, the magnitude of the food-purchase requirement lessened appreciably during 1970-1990.

Within a free-market economy, the contributions and the importance of the small, marginal, and sub-marginal farms will increase. Consequently, the needs and aspirations of these farm families must feature prominently in policies of market reform that correct acknowledged distortions and that seek to improve food and nutritional security - both in these small-holder households and nationally. Relatedly, small- holders may become more vulnerable and more disadvantaged as the global agricultural economy enlarges immensely through the expansion of international-trade liberalization.

Table 27: Marketable surplus (all India) in major commodities: Years 1970, 1980, 1990; Various farm-size categories

Crop	Farm-size category	Marketable surplus (million ton per ann)			Marketable surplus/category’s production (%)
		1970	1980	1990	1970	1980	1990
Rice	Sub-marginal	-8.45	-13.97	-13.14	-	-	-
	Marginal	-2.19	-2.82	-0.07	-	-	-
	Small	0.01	1.85	7.20	0	16	42
	Medium	4.12	7.62	12.28	42	56	66
	Large	11.19	13.00	16.01	73	75	80
Wheat	Sub-marginal	-3.79	-5.65	-4.92	-	-	-
	Marginal	-1.34	-2.11	0.11	-	-	2
	Small	-0.74	-2.33	1.26	-	-	12
	Medium	0.60	0.23	4.52	12	3	35
	Large	7.17	7.89	15.38	56	49	72
Coarse cereal	Sub-marginal	-2.14	-2.69	-2.37	-	-	-
	Marginal	-0.91	-1.21	-0.33	-	-	-
	Small	0.16	-0.21	2.08	5	-	34
	Medium	1.99	2.11	5.24	35	32	60
	Large	13.32	12.79	12.92	69	74	80
Pulses	Sub-marginal	-0.58	-1.32	-1.43	-	-	-
	Marginal	0.07	-0.50	-0.51	-	-	-
	Small	0.28	-0.37	-0.19	23	-	-
	Medium	1.04	0.46	0.74	51	24	37
	Large	5.56	3.86	3.71	80	72	79
Oilseeds	Sub-marginal	-1.25	-0.34	-0.18	-	-	-
	Marginal	-0.64	0.02	0.52	-	4	48
	Small	-0.60	0.45	1.745	-	46	71
	Medium	-0.03	1.19	3.093	-	70	84
	Large	3.11	3.73	6.958	67	88	94

Source: Computed from various data in Agricultural Census, Agricultural Statistics at a Glance, and Consumer Household Survey in National Sample Surveys (Various Rounds - 1970-1990)

Notes:

(-) indicates no marketable surplus generated.

Negative marketable surplus means farmers are net buyers: this category of farm size does not contribute to the supply to consumers. Marketable surplus is production less consumption. Consumption is number of households (from census data) × per household annual consumption (from NSS consumer expenditure budget survey). Production is crop area within farm-size category (from Agricultural Census) × average yield (Ministry of Agriculture estimates).

To the second question (can Indian agriculture compete globally?): Building on its 1991 economic reform programmes, India has implemented several agricultural-trade liberalization initiatives (Chand and Jha, 2001). Thus, restrictions on imports and exports have been removed, and tariff rates have been progressively lessened. In consequence, agricultural exports and imports each increased sharply, and the share of agricultural trade in agricultural GDP increased from 6 to 9 per cent. Prices received for Indian exports, and prices paid for imports, were each 15 to 20 per cent below international-market prices for comparable products. Thus there was no net social gain from rice and wheat exports, nor for soybean imports. In the case of pulses, there was a positive net social gain.

When international prices fluctuate widely, the impacts are felt by small producers and poor consumers - who in India constitute the majority of the populace. Protection of these producers and consumers should be achieved through timely and WTO-permitted interventions guided by monitoring and analysis of international prices. Chand and Jha (2001) concluded that attempts to increase exports of grains and raw materials are not likely to be a beneficial proposition - particularly as international prices for these commodities are forecast to remain low. However, they identified potential for export of processed agricultural products. Similarly, Vyas (2000) found no justification to promote export or import of food-grains, and advocated the continuance of the current policy of self-sufficiency in food-grains unless and until opportunities arise for cost-effective and price-competitive surpluses.

However, since the early-1990s’ acceleration of trade liberalization, there have in India been various unforeseen developments. The growth rates in agricultural GDP and in crop yields and in non-agricultural employment have all been less than forecast. Thus, and as we expressed in relation to our first question, trade liberalization must be pursued with due concern and action to achieve for rural populations a just, inclusive, equitable, and sustainable way of life, and there must be effective measures to ease the adjustment process for small-holder households.

Notwithstanding (Tables 23 and 24) India’s progress in lessening the incidence of poverty and hunger among the marginal-size- and sub-marginal-size-farm households, those 80 million households (400 million persons) are still net buyers (Table 27) of food-grains. Consequently, the country’s trade policy should continue to be formulated within a national strategy for sustainable food security, employment security, and poverty reduction. Encouragingly, the small, marginal, and sub-marginal-size holdings have progressively adopted new technologies and have often increased productivity more quickly than the larger holdings. The small-holder farmers should be further empowered to increase productivity of both land and labour, and to augment their income through off-farm employment and enterprises.

The net buyers of food - comprising many marginal-size- and sub-marginal-size-farm households, many land-less-labourer households, and the non-agricultural population - would welcome low-priced food. With international food-grain prices now lower than domestic prices, there might thus be logic in the Government importing and distributing food to the needy. However, matters are not so simple. Cheaper imports will rapidly depress prices in domestic markets - and hence farm-gate prices, and will impact adversely the livelihood of almost all farmers; they would correspondingly distort cropping/farming patterns and consequently the availability of on-farm employment and its associated wages. Free-trade importation of agricultural products would thus in India equate to large-scale importation of unemployment, poverty, and hunger. It is highly pertinent that in India more than 600 million people depend on agricultural employment. Consequences shall be similarly adverse if international food-grain prices soar, while domestic supply falls.

Often, international prices are lower than Indian domestic prices - as is the case with edible oils - primarily because of large subsidies to exporting-country producers. As a counter, domestic markets impose tariffs. Thus, as was previewed in an earlier paragraph, the levels for such tariffs must be professionally determined and dynamically adjusted. India should therefore continue to pursue vigorously the incorporation of a “food-security box” within the WTO procedures. Indeed, the concept of “a level playing field” is far from being achieved and practised. The OECD-country subsidies to agriculture amount to US$ 1 billion a day. It is difficult to maintain a level playing field when such huge humps are created each day!

In India, government intervention in agricultural markets are pervasive - notwith-standing that 80 per cent of agricultural-commodity trade is through the private sector. During the Green Revolution, government pricing policy provided incentives to producers to encourage adoption of new technologies. Currently, India’s agricultural-prices policies include several pro-poor and farmer-friendly features: minimum support prices, selective market intervention, encouragement to producers and/or consumers co-operatives, cereals buffer stocks, and distribution of subsidized food-grains through the Public Distribution System (Acharya, 2001). These features have resulted in improved market integration (Wilson, 2001); they can help also to lessen food insecurity and poverty.

India’s populace appreciates this government policy of subsidizing farm inputs and thereby restraining food prices so that affordable food is everywhere available. All sectors of society have thereby benefited: small-holder families, landless labourers, other resource-poor families, surplus-generating farmers, the net buyers of food, urban consumers, and manufacturing industry.

Nonetheless, policies and strategies will need to be kept dynamic to accommodate the ever-changing situations and issues of domestic demand and supply, the role of agriculture and its small-holder farms in the national economy, the profiles of food insecurity and of poverty, societal inequities and regional disparities in development, and economic liberalization and globalization. Among those issues there are contradictions and conflicts: no trade policy and strategy, however comprehensive, can hope to reconcile and integrate them all. There must thus be compromises in trade policies. India’ agricultural-trade policy must address with priority the welfare of small-holder farmers and the issues of food insecurity and poverty. Protection of domestic agriculture remains the foremost priority, but consequential increases in prices of food and of non-food agricultural products, and in wage rates, must be restrained. The several trades-off must continue to be carefully researched and to be transparently debated - with due concern for the interests of the rural poor.

As a consequence of its vast area and population, India has much agro-ecological diversity and many socio-economic inter-regional disparities. It is thus requisite that the country should reform its domestic markets before it links them to the global market. Crucially, the sequencing of the reforms must be apposite. Thus, liberalization of domestic markets - including the removal of inter-state movement restrictions - must precede trade liberalization. Effective functioning of domestic markets and a strengthening of farm/non-farm linkages are essential in addressing the needs of small-holder farmers. There is evidence that those countries that failed to sequence their liberalization activities in an appropriate and effective manner subsequently struggle to benefit from the new opportunities.

Notwithstanding the positive impacts of India’s various inter-related policy instruments in achieving food self-sufficiency by the late 1980s, inefficient implementation has lessened their effectiveness, and there have been several distortions (Vyas, 2000). Minimum support prices, which are now the same as procurement prices, have escalated; the obligation to purchase, at the procurement price, all offered grain has resulted in unmanageably huge stocks (over 50 million tonnes) - far in excess of what is required by the Public Distribution System (PDS). The government is finding it difficult to dispose of the excess, and may be compelled to export part of it at much below the currenty low international price. The high procurement price, coupled with high and escalating costs of procuring, storing, and distributing the grain, has raised the PDS issuing price, thereby confronting the PDS objective of supporting the food-insecure and vulnerable people.

The main beneficiaries of this situation have been the larger, surplus-producing farmers. Moreover, the costs of the subsidy have escalated, thereby preventing Indian agriculture from deploying its scarce resources in more-productive investments such as rural-infrastructure development, research and extension, and reaching the yet-un-reached. The policy of minimum guaranteed prices and of subsidy for food and agricultural inputs should be restricted to small-holdings, and to the needy and poor. Subsidies enjoyed by the non-poor - in both the farm and the non-farm sectors - should be progressively eliminated, and the resources thus released effectively used for generating and diffusing modern technologies, for value-addition in small-holder agriculture, and for rural infra-structural and social development.

The third question asked whether India’s small-holders might benefit from exports within globalized markets, and whether their access to such markets would be constrained. India here faces a dilemma: it must protect its own agricultural production against import-induced instability, but it must also capture export opportunities. Our preceding analyses have demonstrated that small-holders have responded to market forces and opportunities by adapting and adopting new and diversified cropping and farming systems. For those of their products/commodities that have a favourable of export/domestic price ratio, and for which there is stable international-market demand, and for which surpluses can be maintained - after meeting the needs of poorer people - export should be facilitated and promoted. Candidates would include the commercial and cash crops: cotton, tea, jute, some fruits (grape, mango, litchi) and vegetables (okra, onion) and flowers. There are firm prospects also for existing and for new speciality products: basmati rice, glutinous rice, and durum wheat. [A supportive benefit of an intensification of durum wheat production - in Madhya Pradesh - would be a major lessening of rust incidence and damage in India’s bread-wheat belt (Pandey et al, 2000) by increasing the genetic diversity for rust resistance and hence suppressing inoculam build-up and spread.]

Herbal medicines are increasingly in demand in industrialized countries. India has a rich heritage of developing and using such medicines. Moreover, it has high bio-diversity among such herbs, and has also a complementary agro-ecological diversity within which to produce/harvest medicinal plants and botanicals. India’s prospects for using these resources are perhaps the world’s brightest - notwithstanding that China is currently making better use of its similar, but lesser, resources.

India needs a concerted effort to realize these prospects: perhaps through specialized herbal-medicine co-operatives linked to small-scale rural production, processing, and value-addition units. There would be need also for effective quality-control and marketing, and for infra-structural, institutional, and export-procedures support. Such innovations would boost national export and income, and strengthen health-care services for the Indian people. Such ventures involve high-value low-volume products that are suited to small-scale production and processing; they are thus highly appropriate for hill farms, which necessarily are small; moreover, most medicinal and essential-oil and aromatic plants are already grown in such areas. Herbal-medicine production systems could thus be incorporated - with beneficial synergism - into agro-forestry systems and wasteland-development programmes. Such venture and systems would promote agricultural diversification, and increase on-farm and off-farm employment and income - notably among the small, marginal, and sub-marginal-size holdings.

For small-holders there is also a powerful opportunity to compete in the industrial-world’s strengthening market for certified organically-grown agricultural products. Our earlier analyses showed that the mixed crop/livestock systems - which generate the required quantities of “organic” manures and which facilitate desirable crop diversification and nutrients recycling - are in India practised predominantly on the smaller holdings. A nationally co-ordinated system for production, certification, distribution, and export of such products - with international promotion, and preferably co-operatives-based - merits strong public- and private-sector support.