Agri-market freedom: Lessons from China & Israel

GOVERNANCE/ ECONOMY/ INTERNATIONAL

Topic:

• GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation
• GS-3: Indian Economy
  

Agri-market freedom: Lessons from China & Israel

Context: The farmers protest against newly enacted farm laws provides us an opportunity to compare India’s agricultural system with those present in other countries which have done exceptionally well.

Do You Know?

• All the three countries — India, China and Israel — started off their new political journey in late 1940s, but today China’s per capita income in dollar terms is almost five times that of India, and Israel’s almost 20 times higher than India.

• absolute poverty head count ratio at $1.9 per day (2011 purchasing power parity) definition was only 0.7 per cent in China as against 13.4 per cent in India in 2015

Problems with Indian Agri-Policies

• Indian agri-food policies remained more consumer-oriented with a view to “protect the poor”. In the process, they never allowed farmers to enjoy the best prices they could get from free markets within India or abroad.
• Export controls, stocking limits on traders, movement restrictions, etc all continued at the hint of any price rise.
• The net result of all this was farmers’ incomes remained low and so did those of landless agri-labourers.
• Today, Indian agriculture is saddled with more agri-labourers (55 per cent) than cultivators and are supported by huge subsidies, are in a low-level equilibrium trap of poverty.

Case Study of China

• Agri-output: China produces three times more agri-output than India from a smaller arable area.
• Similar case of fragmented landholding: The average holding size in China was just 0.9 ha in 2016-18, smaller than India’s 1.08 ha in 2015-16. Therefore, landholding size is not that big a hindrance for agri-growth.
• Early start of Reforms: China started off its economic reforms in 1978 by taking up agriculture first. It dismantled its commune system of land holdings and liberated agri-markets that allowed farmers to get much higher prices for their produce.
• Agri-growth: As a result of early reforms, in 1978-84, farmers’ incomes in China increased by almost 14 per cent per annum, more than doubling in six years. In India, the 1991 reforms bypassed agriculture. There was only some indirect effect when tariffs on manufactured goods were reduced.
• Foundation for manufacturing growth: Success of early agri-reform gave political legitimacy for further reforms as masses gained, and also generated demand for industrial goods, sowing the seeds of a manufacturing revolution in China
• Economic Contribution: Agriculture contributes just 8 per cent of overall GDP in China compared to about 17 per cent in India.
• Employment: About 26 per cent of China’s workforce is in agriculture, while India is still stuck with 42 per cent.

Case Study of Israel

• Water accounting: This has made it turn a desert into cultivating high-value crops for exports (citrus fruits, dates, olives) by using every drop of water and recycling urban waste water for agriculture, by de-salinisation of sea waters
• Depleting Groundwater table in India: It is so alarming in a state like Punjab where almost 80 per cent of blocks are over-exploited or critical, meaning the withdrawal of water is much more than the recharge.
• Until India breaks away from the policy of free power for agriculture, there would be no incentive for farmers to save water.

Way Forward:

Indian agriculture has the potential to double or even triple its output in the next 15-20 years. Many countries have done it and we can do it, too, provided our agri-food policy framework takes a dramatic turn,

• From being subsidy-led to investment-driven
• From being consumer-oriented to producer-oriented,
• From being supply-oriented to demand-driven by linking farms with factories and foreign markets
• From being business as usual to an innovations-centred system.

Connecting the dots:

• Why farmers are protesting against farm laws: Click here and here
• Why earlier government negotiations have failed: Click here
• What is the long term solution advocated by experts: Click here