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Growth in agriculture reduces poverty faster

Apr 01, 2013

'Farm Trade: Tapping Hidden Potential', a discussion paper from the Commission for Agricultural Costs and Prices (CACP), demands a major shift in India’s farm trade policies to be able to tap the sector’s potential to create prosperity.

New Delhi: Agricultural commodities such as rice and cotton have been subjected to an extremely uncertain trade policy in India. Despite this, the country’s share in global farm trade, at 2.1 per cent, is higher than its share in the global trade per se, at 1.7 per cent.

Looking at the scenario, a discussion paper from the Commission for Agricultural Costs and Prices (CACP)—Farm Trade: Tapping Hidden Potential –demands a major shift in India’s farm trade policies to be able to tap the sector’s potential to create prosperity.

Through this paper, CACP, a government body which advises the government on farm prices, brings out the potential of India’s farm sector to generate prosperity in the country. India, currently, is the world’s largest exporter of rice and buffalo meat and it has been one of the major exporters of cotton also, until the government banned cotton exports. Similarly, rice exports had been banned till recently.

Poverty declines much faster when the agriculture sector, where majority of the poor is engaged, experiences higher growth than when fast growth in other sectors comes down to the rural poor.

What has been restricting farm sector growth is the usual suspect: weak-kneed politics. All policies are aimed at muting the protests of vocal urban consumers, who cry foul at the smallest sign of a rise in food prices. This surrender to blackmail has led to choppy, uncertain policies on farm trade, swinging between outright bans to exports incentives, says the discussion paper and adds that this needs to change at the earliest.

Fertiliser subsidy keeps farm inputs artificially cheap, bloats the fiscal deficit and exaggerates export competitiveness. This is followed by exports take-off, prices rise and then the Government slams the brakes.

Subsequently, buyers lose faith in Indian suppliers and looks for other options. When the negative impact of the export ban manifests itself, policy-makers open an export window. This is evident from a pile up of 80 million tonnes of grain stocks.

When approached for comment, chairman, CACP, Ashok Gulati, said that Indian farmers need stable access to fully-priced inputs and global markets. The trade policy has to be stable, liberal and without bias towards either producers or consumers. In short, farming communities need a functional commodity markets which lack a statutory regulator, derivatives beyond futures and risk –takers with financial muscles.

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