The Modi Government Has Put the Cart Before the Horse

Indian agriculture is in the grip of a crisis and needs to move away from the 'cereal trap' towards alternatives. Deregulation of marketing should come second, not first.

At the Indian Express’s e-Adda on March 21, Punjab’s chief minister Captain Amarinder Singh asked a question that has still not received an answer: Why did the Central government feel it had to change a marketing system that has existed for a hundred years, when it has met not only their every need, but also fed the nation’s poor at times of need for the past 60 years? He went on to stress that what agriculture needed was diversification out of cereals into other, high value products; that destroying what was working was no way to create what did not exist.

There is an answer to his question: Indian agriculture is in the grip of a crisis. It is not a crisis of shortages, but of mounting food surpluses. These surpluses are concentrated in rice and wheat, and have been growing from year to year. To prevent a crash in their prices, the Food Corporation of India has been buying all that rice and wheat offered to it at minimum sale prices announced yearly by the Central government.

The FCI’s purchases have not only backstopped highly-subsidised food distribution through ration and fair price shops, but become the sheet anchor of a widening range of poverty alleviation, employment generation and nutrition programmes, notably MNREGA and the nationwide mid-day meal programme.

But despite this, the food surpluses have continued to grow. In January 2016, the FCI’s stock of foodgrains had already reached an unsustainable level of 36 million tonnes. By January 2020, it had risen further to 56.5 million tonnes.

In recent years, the FCI has been holding open market sales where most of the offerings have been snapped up by exporters. These have made India the second largest exporter of rice and an increasingly important exporter of wheat in the world market.

But food stocks have still continued to grow. This cannot be allowed to go on indefinitely. So the farmers have to either grow less wheat and rice, or the FCI has to limit its purchase of cereals from the farmers. In choosing the second alternative, the Modi government has put the cart before the horse. Although his ministers are now denying it vehemently, the end product of opening up agricultural marketing to the private sector before diversifying agriculture will be attrition and the eventual death of the government regulated MSP-APMC, ie mandi, system of food marketing without giving farmers an alternative way of safeguarding their incomes.

Also read: How Promising Is the Food Processing Industry for Indian Agriculture?

It is not difficult to forecast what will happen. With no mandi taxes or licensing fees to pay, traders outside the APMC system will initially offer better prices than the arhtiyas who are the present link between the farmer and the market. Once they have been eliminated, the traders will have the farmers at their mercy. The intimate and flexible relations that they have with the arhtiyas will be replaced by formal, rule-bound relations with faceless employees of corporate entities whose only goal will be  to maximise profits for the company in order to climb more quickly up the corporate ladder.

Cereal prices will crash when this changeover is completed. The victims will not be the large farmers with 10 hectares or more of land, who began taking their land out of rice and wheat a decade or more ago. Nor will they be the marginal farmers, most of whom now grow vegetables, herbs and spices, but the owners of small and medium sized farms, who have neither the monetary staying power to plant orchards and wait till they start bearing fruit, nor the ‘free’ family labour that makes vegetable farming profitable for marginal farmers. These make up around 70% of the farm families in the cereal-surplus parts of the country.

India is the second largest exporter of rice and an increasingly important exporter of wheat in the world market. Photo: Reuters

That is what happened in Kenya after a similar ‘liberalisation’ in the 1990s. Deregulation allowed agri-businesses to double their share of the purchase of farm produce to 38% by 2010. But the farmers suffered a decline in real income of 6%. By 2010, many of the poorer farmers had sold their household assets to meet their expenses.

But one does not have to go to Kenya to see what a heavy reliance on private trade can do when MSP-based procurement is absent. Bihar produced 7.53 million tonnes of rice in 2019-20, but the state procured only 1.3 million tonnes. This was despite the Primary Agricultural Cooperatives having procured over 2 million tonnes for supply to the State Food Corporation.

Most farmers were therefore forced to sell their rice to private traders at Rs 1,100 per quintal or thereabouts. This was Rs 700 below the MSP set by the central government for the year. That is why several farmers came all the way to Mandis of Punjab to get a better net price.

Bihar is not the only state in which niggardly procurement under the MSP (which is often pre-empted by rich farmers) forces the rest to sell their produce at near subsistence prices. But the alternative, of continuing to protect farmers’ for an indefinite period through subsidies and restricted markets, is also untenable.

The solution, as Amarinder Singh stressed at the e-Adda, lies in shifting agriculture away from cereals. But shifting to what? For every other agricultural product is already fully at the mercy of the ‘free market’, and all but a few among those who have made the shift have found themselves continuing to live in perilous uncertainty.

Also read: Is India’s Millets Policy Headed in the Right Direction?

The worst off, in terms of bargaining power, have been those who grow perishable crops, especially vegetables. The fragmentation of holdings had began to force marginal land holders to switch to horticulture as long back as the early nineties. In 2004-5, the UPA government created a National Horticultural Mission to co-ordinate its development with state governments. In the decade-and-a-half that has followed, the rise in production of fruits and vegetables from 146 million tonnes to 324 million tonnes has outstripped the increase in cereals by 33 million tonnes.

Gasification of crop residues

The average yield of vegetables in India is 13 tonnes per hectare against four to five tonnes for rice and wheat taken from the same land. Vegetables also command much higher prices in the market than cereals. One would have expected, therefore, to find horticulturists considerably better off then their cereal-growing peers. But that has not happened because all of the higher retail value of their crop has been appropriated by traders and cold storage owners, leaving the vegetable growers with just enough net income to keep body and soul together.

This is because the credit and other facilities provided by the National Horticulture Mission went into building warehouses and cold storages in towns and cities. On September 23, 2020 there were 8,186 cold storages, capable of storing 37.4 million tonnes of perishable produce. But all of these were in the cities and market towns.

It does not seem to have occurred to either the Centre or the states that till farmers find a way of staggering their sale of fruit and vegetables over several months, the more they grow, the more will they fatten only the traders, exporters and cold storage owners in cities.

Also read: How Much of India’s Agricultural Produce Is Wasted Annually?

Cold storages in their home villages will enable them to do so. This used to be the dream of planners at Yojana Bhawan in the 1960s and ‘70s, but it faded away when they realised that there simply wasn’t enough money to build the infrastructure of power lines and connections, and provide the round -the-clock electricity that 600,000 villages would need.

However, a series of little noticed advances in technology have now made it possible to provide the continuous power to village cold storages that has been denied to them so far. The key component fn this technology is the gasification (not fermentation) of crop residues to produce a ‘lean’ fuel gas that can run a generator when power from the state grid is switched off, which is on an average for eight hours a day.

Gasification is the incomplete combustion of any carbon bearing substance in a limited supply of oxygen. When one fully burns any biomass, be it crop residues, wood, paper, plastics or garbage, all one is left with is carbon dioxide (CO2) and a sludge of melted inorganic compounds. But if one limits the supply of air to the furnace the combustion remains incomplete.

Also read: In the Year of Millets, Coarse Grains Remain Neglected Despite Nutritional Benefits

The exhaust gas then consists mostly of highly flammable carbon monoxide and hydrogen, a small amount of CO2 , and the nitrogen that was present in the air. This mixture is called “lean gas” because while it burns as freely as natural gas, it contains much less energy because of the presence of the nitrogen. That energy is, however, sufficient to run a Stirling engine that drives a generator to produce electricity.

In virtually any village in India, and in most parts of the low income world, the gasification of crop residues can provide the electricity a village needs to keep a cold storage cold. This is the missing link: India needs to make the diversification out of cereals profitable enough for farmers to break out of the ‘cereals trap’.

Gasification of rice, and surplus wheat straw, promises to solve the problems of both the cereal and vegetable growers not only in Punjab and Haryana, but right across the Indo-Gangetic plain and the Brahmaputra valley, and the rice growing regions of the Deccan.. This is because the lean gas it produces contains enough energy to run Stirling engines that can drive the dynamos needed to generate power when the supply from the grid is cut off, and thus ensure that cold storages remain cold.

Equally importantly biochar, which is the residue left after gasification, can be cleaned and briquetted at next to no cost to produce a substitute for the 48 million tonnes of coking coal that steel plants are currently importing at $200 or more per tonne.

A series of little noticed advances in technology have now made it possible to provide the continuous power to village cold storages that has been denied to them so far. Photo: PTI

But these briquettes can also be transported to larger and more sophisticated gasifiers that use pure oxygen in place of air to produce a Synthesis Gas (now being obtained by ‘cracking’ crude oil or natural gas) that is the building block of the entire petrochemicals industry of the world. It is a superior substitute for coal, which the Germans used to produce diesel and aviation fuel during World War II and it is entirely carbon neutral.

At more than 600 million tonnes, India’s rice and wheat straw, and sugar cane waste and bagasse alone, are sufficient to produce more than 300 million tonnes of transport fuels, which is double the total consumption of the country in 2019-20. If farmers retain their rights to a portion of the income generated by the biochar it could mean a near-doubling of their income from the same crop.

At the prices quoted currently on the internet, of biomass gasifiers and power generation systems that rely on lean gas, the total investment required for bringing about this transformation is unlikely to exceed a crore of rupees. exceed more than a crore of rupees. That is, as late Pakistan president Zia-ul Haq once said about American aid for the Afghan war, “peanuts”.

Prem Shankar Jha is a Delhi-based former journalist and editor. He is the author of Managed Chaos: The Fragility of the Chinese Miracle, and Crouching Dragon, Hidden Tiger—Can China and India Dominate the West.