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Lessons For India From The Chinese Farm: What Are They Doing Right?
hina has learnt the hard way the disadvantages of too much MSP leading to hoarding of only specific goods and food wastage, instead they rectified core policy issues.
Photo Credit : Reuters
India and China started their development story simultaneously in the 1950s. Today, both the countries are on different pages, with respect to economy and farm development. While all of us may not agree with the Chinese model of governance, there is a lot to learn from their agriculture sector for the Indian policy maker.
For overview of the farm sector in India with respect to other countries, OECD provides five sets of data on the issue of how the Indian government supports its farmers as compared to other countries:
· Producer Support Estimate: It is money transferred to the farmers via government policies like MSP, tax breaks to agriculture export band etc. In countries like Indonesia, Brazil, China and Mexico, the support is positive, while in India this support is negative! The domestic producers are implicitly taxed, that is, the taxes are more and expenditure on agriculture is less.
· Consumer Support Estimate: The Indian consumer is paying way less for agriculture produce, as compared to other developing and developed countries. This is due to heavy consumer subsidy by the government. In a way it is paid from consumer taxes. However, it can also mean the agriculturist is running into a loss.
· General Services Support: This is linked to measures creating conditions for development of private or public services, institutions, and infrastructure. Indonesia and China are leading in this department, with India lagging way behind.
· Total Support Estimate: General service support is a sub-component of Total Support estimate. This department has emerged as a silver lining for India, where we are doing way better than other countries.
· Producer Protection: It is ratio between average price received by the farmer, compared to International price of same commodity. In India, it is 0.7, which means Indian farmers received prices 30% lower than international prices.
India has a lot of catching up to do when compared to its peers. One such example is China, from where we can take a few lessons. China and India are the two most populated countries in the world, with limited cultivation area given the housing area required and limited arable land. There is continuous stress on investing more in agriculture research, developments (R&D) and innovations, while improving incentives for farmers by carrying out agriculture marketing reforms, and adding to direct input subsidies, by the Chinese government. Also, as per MDPI, a non-profit institute, the grain production there uses 9% of the world’s arable land, and produces 24% of the world’s grain, which feeds 18% of the world’s population!
While one may idealise the Chinese agriculture policies, MSP experience Chinese gave procurement prices to farmers that were much higher than international prices. The result was a massive accumulation of stocks of wheat, rice, and corn. To learn from the Chinese experience, India must focus on the core policy issue rather than solely focusing on subsidies. China is investing heavily in agriculture research, where India is lacking. In fact less than 1% of our GDP goes into research. This is one of the primary lessons Inia must take from the Chinese experience.
Further, taking a leaf from other countries, we also need to attract investment in Indian farm and associated sector which supports off farm activities. As per invesindia.org, presently, India has 100% FDI via automatic route in the farm sector. However, this is not the case for all crops. To ease out the investment further, issues pertaining to land acquisition in the country must be addressed on a war footing. Not only with respect to documentation, but uniformity in land laws across all the states. China has learnt the hard way the disadvantages of too much MSP leading to hoarding of only specific goods and food wastage, instead they rectified core policy issues. India must take its lesson from them.
Also, overall economic growth in China has contributed to most of the rural poverty reduction. This is relevant because a decline in poverty has been directly related to increase in off farm activities in the Chinese case. As per Food and Agriculture Organisation (FAO) during the past 20 years, a 1 percent increase in per capita GDP led on average to a 0.7 percent decline in rural poverty incidence in China. Government investment in agriculture, and rural infrastructure is also important in this respect. As per FAO, share in GDP of agriculture in China accounted for more than 40 percent of the GDP in 1970, which fell to 15 percent in 2004. FAO also notes, that by 2003 about half of China's rural labour force earned part of its income from off-farm jobs. Their non-agricultural income has exceeded agricultural income since 2000. In India however, 50% of the workforce is employed in agriculture as of 2021. Given that we have a case study of a country that has developed agriculture by addressing poverty, India can take note of the lessons attached.
It is also crucial to note, that China has crop insurance for their farmers in case of a failed harvest. This is unlike India, which has rising farmer suicides by the year due to crop failure and inability of farmers to pay back the middlemen. The harvest has been bountiful in the last 2 years due to a stable monsoon cycle. However, the produce varies year-by-year and is particularly bad in a rain deficit year. In such a situation we do not have a system in place to make up for farmer losses. The National Crime Records Bureau (NCRB) has reported that a staggering 296,438 farmers in India have committed suicide since 1995. The Chinese government is taking the right step by providing crop insurance extensively, a system which is yet to be executed in India.
Lastly, developing economies must recognize the importance of both domestic and external laws in achieving sustainable agriculture growth. China's rapid progress has been made possible due to its economic reforms, macroeconomic stability, and its open-door policy (equal treatment for all trading countries). China's experience also shows that institutional plus technological development, along with market reform and infrastructure advancement are critical to agricultural growth and the improvement of the country’s food security issues.
Thus, India has lessons to learn from other economies, developed or developing in promoting agriculture and its allied sectors. The Chinese example, while not ideal, has set multiple milestones for India to heed.