How the US supports its rich farmers and India ditches its poor farmers

This entry is part 3 of 3 in the series Insuring the State

Farming in Tamil Nadu is in severe distress this year. Failure of north east monsoon, denial of cauvery water by Karnataka political parties including BJP and Congress, brutal implementation of neo-liberal market oriented policies in farming sector by Modi government, all these combined to create an unprecedented crisis situation in the lives of farmers.

Even providing relief to natural or man made calamities is handed over to market driven financial system with public money channeled to insurance companies.

It is not only the loss of crops for one season, farmers are at cross roads, with their entire livelihood being thrown to the clutches of multinational companies and financial corporations.

To understand how crop insurance scheme is a fraud on farmers read this RUPE article.

This article establishes that not only crop insurance, medical insurance is also economically illogical and socially nonviable way of providing care to the people. This article was published immediately after the presentation of union budget for 2016-17.

continued from part 2

Insuring the Government against the Peasantry – 3/3

Comparing US and Indian crop insurance

It is useful to compare India’s crop insurance scheme with that of the US. Despite covering most of US cropland today, crop insurance in the US still is highly subsidised by the US government. As with the new scheme in India, crop insurance in the US too (which covers not only yields but revenues as well) serves to channel subsidies and guaranteed rates of profit to insurance firms. Insurance covered only a small share of cropland in the US until, in 1994, subsidies were raised to very high levels. The US Department of Agriculture (USDA) pays 60 per cent of premiums, as well as overheads and a share of any catastrophic losses. The average total subsidy has been estimated at 80 per cent.[6] As a result, crop insurance is highly profitable for the US insurance firms in this business; according to a study commissioned by the USDA, for the period 2000-08, the average rate of return on crop insurance in the US was 18.9 per cent, compared to an estimated ‘reasonable’ rate of return of 11.3 per cent.[7]

Before brandishing US crop insurance as the model for India, however, it is important to realise there is a world of difference between US and Indian farmers.

Before brandishing US crop insurance as the model for India, however, it is important to realise there is a world of difference between US and Indian farmers. The US has 125 million hectares of harvested cropland, but just 2.1 million farms. The large majority are not commercial farms: For 1.5 million farm households, less than 25 percent of household income comes from their farm. Large farms (of over 200 hectares) make up 11 per cent of the total, but account for 71 per cent of the cropland; 2 per cent of the farms account for 34 per cent of the cropland.[8] It is the large farms in the US that are the main beneficiaries of the crop insurance subsidies as well as other subsidies, and the concentration of land with such giant industrial farms is increasing very rapidly.[9]

Indeed crop insurance is just one part of a web of subsidies to US agriculture. Price Loss Coverage provides price assurance to producers; Agriculture Risk Coverage protects farm revenues; Marketing Loan Assistance establishes minimum prices for most major farm commodities; and the largest scheme, the Supplemental Nutrition Assistance Program (earlier known as the Food Stamp program), has the direct and stated objective of disposing of surplus agricultural production. Total agricultural subsidies have risen from $74 billion in 2000 to $140 billion in 2012, and are set to rise further.[10] That comes to over $65,000 per farm. In the US, median farm household income is considerably higher than the median income of all households, and this is much more so in the case of large commercial farms.

Doubtless, Indian cultivators will be in a much weaker position to pursue their claims against the insurance firms than US cultivators.

For India, on the other hand, the National Sample Survey for 2012-13 estimates the number of ‘agricultural households’ at 90 million. It estimates that there are 109 million operational holdings, with an average area of 0.9 hectares each. Of these, 73 per cent are marginal (< 1 hectare), 15 per cent small (1-2 hectares), and 8 per cent semi-medium (2-4 hectares), accounting for 75 per cent of the land. There is a significant amount of tenancy, most of it oral. In tribal areas a large percentage of forest plots have still not been regularised.

It is in this unorganised sector milieu, vastly different from that of the US, that crop insurance is meant to operate in India. Doubtless, Indian cultivators will be in a much weaker position to pursue their claims against the insurance firms than US cultivators. Moreover, crop insurance is one of the modes by which the US government actively funnels subsidies to not only the insurance industry but large-scale agriculture as well, using its economic and political clout to twist or defy WTO restrictions; and so there is little pressure to reduce the payments to its farmers, even if the costs are large. By contrast, the Indian government, lacking such clout as well as political will, is on the opposite course of reducing subsidies to agriculture, regardless of the consequences. Hence crop insurance in India will not be a means of funneling subsidies to agriculture.

Indeed, the European Union, Canada, Australia and Thailand have signalled that they would consider India’s proposed crop insurance scheme a trade-distorting subsidy, to be counted within the overall WTO cap on such subsidies at 10 per cent of the value of agricultural production. (India could avoid this ‘trade-distorting’ label only by applying very restrictive conditions on the insurance: for indemnity to be payable, at least 30 per cent crop would have to be destroyed and a natural calamity would have to be declared.) It is possible the Government may solve this problem quite simply by reducing its various subsidies, including food subsidy, and replacing them with direct cash transfers – indeed, it has already taken this direction.

Why PMFBY

Despite the callous conduct of the Government with regard to the peasantry, it is unable entirely to shrug off such responsibility for delivering relief, both physical and monetary, in various conditions of distress.

The real logic of the PMFBY, then, is not to provide cultivators effective protection against calamity, and not to find an economically efficient means of delivering such protection. The real benefit to the Government from the PMFBY is that it will enable it to wash its hands of responsibility to directly protect the peasantry against various types of distress.

Despite the callous conduct of the Government with regard to the peasantry, it is unable entirely to shrug off such responsibility for delivering relief, both physical and monetary, in various conditions of distress. It therefore also faces the brunt of democratic peasant struggles, whether for procurement, compensation, or relief.

For example, the UPA regime came to power in 2004 amid acute agrarian distress, and thanks to the votes of discontented peasants. It therefore was compelled to (partially) reverse earlier policies that had slashed public procurement of food grains, bank credit to agriculture, and public investment in agriculture. More recently, after mocking the NREGS in Parliament and further slashing spending on it during the drought of 2014-15, the Modi regime was forced to reverse its stand (partially, and very inadequately), and increase NREGS spending.

There is ample evidence that peasant discontent is on the boil once more. To take a few examples from 2015-16:

    1. In October 2015 the Punjab government faced an extended agitation by peasant unions, including a prolonged rail blockade, to demand compensation for the devastation caused by the white fly pest to the cotton crop; the state government had to face widespread condemnation as a result.
    2. In March 2016 tens of thousands of Karnataka peasants demonstrated in the state capital Bengaluru, jamming the main roads of the city.
    3. In Nashik (Maharashtra), tens of thousands of peasants blocked the main squares and roads in April 2016 demanding a loan waiver, better drought relief measures and compensation of Rs 50,000 per acre for destroyed crops.
    4. When cultivators of various horticultural crops faced a crash in prices during the past year, the state and Central governments faced their ire.

All these struggles are legitimate, in that the responsibility for protecting (‘insuring’) the peasantry ultimately lies with the State, whether it takes such measures preventively or in the form of compensation.

Amritsar: Farmers on the the sixth day of their ‘Rail Roko’ agitation on the rail tracks at Muchhal village near Amritsar

It is precisely for this reason that the Government requires the PMFBY. In future the Government will be able to counter all such demands with a simple formula: It will tell the peasants to make their individual claims to the insurance firms. Crop insurance is, then, a form of political insurance for neoliberal reforms.

This is precisely analogous to what the State is doing to public health: Arvind Panagariya, the vice-chairperson of the NITI Aayog, suggests that “for just three-quarters of a per cent of the GDP”, 0.76 per cent to be precise, “the government can provide at least a modest healthcare cover for the bottom half of the population” after which “there does not remain a case for additionally free provision of the service by the government”. As two experts in public health comment, “Such perceptions form the basis of an alternative for an eventual obliteration of the public services and in the process, lowering further the already low public spending in health.” [11]

The insurance India’s agriculture needs

The provision of free, universal and adequate health care and public education, and a properly functioning public distribution system for basic food needs, would also be a part of such a comprehensive insurance. This is because these heads of expenditure are significant contributors to peasant distress.

India’s agriculture does require insurance, but not a financialised one. It requires a State which, viewing agriculture as the base of India’s economy today, takes responsibility for the whole of agriculture, including, most importantly, those who work in agriculture. That is, a State which plans for the needs of sustainable and adequate production in cooperation with democratic organisations of peasants themselves, and ensures public investment in appropriate irrigation and land improvement, financial assistance for agricultural activities, a full-fledged system of public sector agricultural research and extension workers, the provision of inputs at affordable prices, the procurement of production at remunerative prices, and as a part of such a systematic and comprehensive ‘insurance’, the provision of relief in the case of a fall in either yield or revenue. (Such relief need not be tied to a financial contract.) The provision of free, universal and adequate health care and public education, and a properly functioning public distribution system for basic food needs, would also be a part of such a comprehensive insurance. This is because these heads of expenditure are significant contributors to peasant distress.

Far from being an unproductive handout, such a comprehensive ‘insurance’ is a necessary guarantee of the country’s food security as well as the viability of the single largest source of livelihood. It is also of vital importance to expanding domestic demand for industrial goods. In brief, it is a necessary part of a national programme of development.

None of this is on the cards, however. On the contrary, for almost all elements of that comprehensive insurance listed above, not only is actual provision today abysmal; even further, the Government’s target is to eliminate what little there remains of them. And so the peasantry are to be buffeted not just by natural calamities, but by planned, manmade calamities. In those circumstances, the distribution of paper contracts to millions of small and marginal peasants is a cruel joke.

Notes

[6] Bruce A. Babcock, “Examining the Health of the US Crop Insurance Industry”, Iowa Ag Review, Fall 2009.

[7] Milliman, Inc., “Historical Rate of Return Analysis”, Risk Management Agency, USDA, 2009. http://www.rma.usda.gov/pubs/2009/millimanhistoricalrate.pdf

[8] James M. MacDonald, Penni Korb, and Robert A. Hoppe, Farm Size and the Organization of U.S. Crop Farming, USDA Economic Research Service, 2013.

[9] Ibid.

[10] Biswajit Dhar, Roshan Kishore, “Reality of US Farm Subsidies”, Economic & Political Weekly, 13/2/2016.

[11] Imrana Qadeer, Sourindra Mohan Ghosh, “Public health’s in the infirmary”, Hindu Business Line, 19/4/16.

part 1 part 2

Courtesy : RUPE

Series Navigation<< Finance Capital feeds on farmers distress

Permanent link to this article: http://new-democrats.com/farming-distress-government-washing-off-its-hands-3/

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