The world’s second most populous country is shaking up its agriculture policy and whether it gets it right could have major implications for global food trade.
India has little room for error.
Its population is expected to surpass China’s in a few years and its demographic is younger. Its position in the development curve is earlier than China, which is fairly mature, meaning India could see faster economic growth. All its cultivatable land is farmed and its groundwater table is under great pressure.
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If it gets policy right, it continues to feed itself. If it gets it wrong, it would lead to huge food imports.
India’s past deficit in pulse production helped kickstart Canada’s pulse industry. But changes in its openness to pulse imports have already forced the industry here to look for other ways to grow.
India’s latest agriculture policy change could lead to even more impacts on trade in pulses and other commodities.
In many ways Indian agriculture is a success story. It is mostly self-sufficient in food and even generates surpluses of rice, wheat, buffalo meat and milk that it exports.
It is not clear how many Indians make their living from farming but one estimate I saw in the Hindustan Times put the number at 262 million. Many more are involved in businesses that support farming.
Most live in poverty, struggling to make a living from farms often of only a few acres.
In 2019 Prime Minister Narendra Modi’s BJP party won re-election on a platform that included a proposal initially advanced in 2015 to double farm income by 2022.
The government soon admitted it can’t meet that target. It said that a prerequisite to improved incomes is a major reform to the decades-old marketing system that sees government regulators acting as middlemen between farmers and end users.
These regulated rural markets, called Mandis, were originally set up to protect farmers from unscrupulous buyers, who would cheat on weights, measurements and price.
But over the decades the Mandis have become tainted with party politics and undue influence of traders. The commissions and other charges they levy eat into farmers’ returns.
Inadequate investment in storage facilities allowed weather to damage stored crops.
The Modi government this fall took aim at the Mandis system with three laws to liberalize farm trade, give freedom to farmers to sell their produce outside regulated markets and enter into contracts with buyers at a pre-agreed price.
There is steep opposition to the new laws. Opponents say the changes will hurt small producers with no storage, no ability to transport crops long distances and no market power, turning them into the virtual slaves of big ag buyers.
The government says the more open market will free farmers to sell who they want to and be more responsive to what the market actually wants. Supporters say it will spark private sector investment in things such as improved trading systems and better warehouses.
The India Pulses and Grains Association, representing traders, supports the new laws.
The government emphasizes that it has retained the minimum support price (MSP) that puts a floor under the price of key crops, but opponents say that as huge buyers are able to bypass the Mandis system, they will use their market power to eventually cause the MSP to collapse.
I have no idea whether this will ultimately be good or bad for small farmers but it will most definitely spark change that farmers in other countries, including Canada, should monitor.
Shakeups in long-standing agricultural policies in countries with huge populations have implications for the world.
The other billion-plus country in the world, China, shook up its farm policy about five years ago to connect farmers more closely to market demand and reduce the huge, burdensome government-owned corn stocks.
That policy seems to have succeeded only too well.
Annual corn production stagnated and did not keep pace with rising demand, which was turbocharged by another policy that encouraged corn processing for ethanol and starch.
China went from virtually no corn imports to a situation where investment bank Goldman Sachs forecasts that it will import 33 million tonnes next year and 55 million two years from now.
If that happens, it would completely change global corn trade.
It will take time to determine if India’s market reform will succeed and if it does, how it will change farmers’ income and their seeding decisions.
But I predict that in the immediate short term, with so much tension over the farm law change, and also the tensions over pandemic disruptions, India’s government will do all it can to curry favour with farmers and ensure good prices for the coming harvest.
Already it raised the MSP for winter crops, with the biggest increase, 6.25 percent, for lentils.
And all signs indicate that once the domestic harvest begins, the government will limit pulse imports to support domestic prices and keep farmers happy.
Mother Nature is helping the government’s position. A good monsoon left better than normal soil moisture, and full reservoirs have farmers racing to seed winter crops. The amount of seed already in the ground is way ahead of last year.
None of this looks good for Canadian lentil exports to India next year.
