−− The ongoing debate on India’s farm policies invites comparison with China whose agricultural output, investment in research and development concerning farming practices and incentives to farmers are better.
Jan. 1, 2021
The ongoing protests in New Delhi and the surrounding areas against the three farm bills passed by the Union government in September don’t seem to be ending anytime soon. Farmer unions and the Opposition parties have termed these laws as “anti-farmer”, saying that they benefit the corporates. The government, on the other hand, claims that these policy changes will enable farmers to sell their produce directly to consumers and buyers.
The ongoing debate on India’s farm policies invites comparison with China whose agricultural output, investment in research and development concerning farming practices and incentives to farmers are better.
India and China both have chosen a different economic path. China started off by working on its agriculture and farming sector, especially in the rural areas, while India focused on reforming its manufacturing sector and liberalising the same. Differences in their policies have led to different implications for growth and poverty reduction in the two countries.
Farming policies of China
With respect to China, the trend in its growth rates of agriculture and related indicators suggest that the acceleration in agricultural growth between 1978 and 2002 was directly proportional to the rapid reduction in its poverty ratio.
Years between 1978 and 1984 saw the first set of reforms enforced by China. This resulted in a hike in China’s gross domestic product (GDP) and a sharp decline in poverty rates.
The above figure shows the contribution of the agricultural sector towards the respective nations’ GDP. Over the years, we have seen a reduction in the reliance on both countries’ GDP on their respective agricultural sectors. India still sees around 15 per cent reliance whereas China only sees around eight per cent reliance. This is owing to the initiation of new sectors concerning manufacturing and technology.
Referring to the paper ‘The Dragon and the Elephant: Learning from Agricultural and Rural Reforms in China and India’ by Shenggen Fan and Ashok Gulati, China made agriculture as its starting point of market-oriented reforms. China wanted to ensure widespread distribution of gains along with building political support for the continuation of reforms.
Reform policies included clear incentive plans which thereby helped farmers achieve higher gains. Policies also focused on efficient resource allocation, strengthening the domestic production base. China decided to strengthen its domestic food supply situation via various incentive reforms to ensure high levels of grain production before opening to liberalisation of the Chinese markets.
The grain procurement system and the food rationing system were discontinued except for a few regions in the early 1990s. This gave rise to the beginning of private agricultural trades.
Historical studies imply that the contribution of the incentive reforms, procurement prices and high agricultural production were larger than the market liberalisation reforms to the betterment of farming and agriculture after 1984. Analysts quote this as a direct result of the strong emergence of local markets and farming which continued to flourish even after the reduced influence of the central planning systems and market-based allocations by the government.
Many of these policy inclusions and reforms were introduced via small experiments and phases rather than large-scale implementations and predetermined rollouts. This increased the likelihood of the success of reforms since it implied a “learning by doing” approach. Regular “field tests” were conducted in smaller districts to test the success of these policies before rolling them out nationwide.
One of the biggest strengths China had was the egalitarian access to land resulting in land distribution that limited the number of the landless, providing most of the rural farmers with subsistence and helping to distribute the benefits from agricultural price and market reform. This improvement in efficiency and productivity were major triggers in poverty alleviation.
China also took the lead in providing free basic healthcare and education to its citizens along with nationwide electrification of towns and villages. China’s rural electricity consumption grew at a rate of 27 per cent a year between 1953 and 1980.
While both China and India have high population-land ratios, the distribution is less skewed in China when compared to India as landlessness is virtually absent in China.
China produces more using a lesser number of arable lands. This is a testament to their farming policies and practices.
India’s biggest advantage over China is its democracy. India has a representative political system, China does not. The vital difference between the two countries is in the way reforms are implemented, or the manner of policy-making and governance. Political differences are expressed freely in India, and policy is debated by the Opposition as well as across the media; a hundred schools of thought contend.
India’s bureaucratic sloth has an important facet; the checks and balances it imposes on its policy-making whereas China is a ‘quicker’ society backed by mass mobilisation.
A report prepared by Ashok Gulati and Prerna Terway shows that in 2019, China’s agricultural output stands at $ 1,367 billion compared to $407 billion for India. China also invests a lot in the research and development field concerning farming practices where an investment of $7.8 billion was granted for 2018-19 focused on Agricultural Knowledge and Innovation Systems. At the same time, India invested $ 1.4 billion on similar R&D initiatives.
China also provides better incentives to its farmers than India as per the producer support estimates (PSE) standards. The PSE for Chinese farmers was 15.3 per cent of the gross farm for 2018-19 while it was 5.8 per cent for Indian farmers.
One more reason for China’s higher efficiency and diversity in its farming practices is that farmers are incentivised to grow different crops based on the type of land and season involved. India allocates billions of dollars to provide subsidies on fertilisers, power, irrigation, insurance and credit. The majority of the incentives are focused on a few major crops resulting in production which often surpasses the storage capacity of the Food Corporation of India (FCI).
Added to this, high Minimum Support Price (MSP) values have brought down the rice exports figures for the country. A notable fact here is that rice crops require plenty of water and electricity which is often supplied free or highly incentivised. The availability of water resources drawn via borewells and wells, in turn, brought down the ground water levels across the country.
China introduced very progressive reforms at the irrigation levels. Reforms aimed at providing incentives to irrigation system managers in order to improve the efficiency of water usage had a positive effect on crop yields, groundwater table and cereal production.
Experts opine that this is more of a sustainable model unlike in India, where low water prices and vote bank-based power subsidies have encouraged wasteful use of water and depletion of groundwater resources. India also has laws linking water rights to land ownership, leading to inefficiencies.
Such laws resulted in rich landholders and water companies using modern water extraction technology to profit from selling water to poorer cultivators and households.
China has invested in providing “water-saving” irrigation facilities. Almost 50 per cent of the irrigated land in China has micro-irrigation facilities that disperse water efficiently. This was a major aspect of China’s 12th Five Year Plan (FYP) which allocated around RMB 139 billion to provide micro-irrigation system covering 7.5 million hectares. This coverage has risen to 63 per cent of all irrigated lands this year and is expected to rise to 75 per cent by 2030.
The most famous policy directive concerning water irrigation is the “three red lines” water policy which limits the water usage and applies strict water tariff system for farming use.
High and efficient farm growth has translated into rapid reduction of poverty in China. Multiple studies attribute China’s dramatic decline in rural poverty, especially in rural areas, to faster farm growth.
Farming policies of India
India saw its most rapid poverty reduction period between 1960 and 1980. This was the period of ‘Green Revolution’ during which there was high agricultural growth, owing to the use of modern and imported farming technologies and techniques coupled with strong policy support from the government.
But, in contrast, agriculture was not a major contributor to poverty reduction during the actual era of reforms in India. Ever since the 1980s, farm growth has remained around the same levels or reduced marginally. During the period 1991-2003, the agricultural GDP grew at 2.67 per cent a year compared to 2.89 per cent a year between the years 1980-1990.
Agriculture grew at a rate of 4.1 per cent a year from 1991-1997. But this growth did not have a perceptible impact on rural poverty as per the figures for this period. Analysts feel components like currency depreciation and liberalisation may have led to marginal improvements in the agriculture industry.
One more reason for the difference in patterns observed between India and China is that reforms in India started with non-agricultural reforms unlike in China. This directly influenced the rapid economic growth via non-agricultural industries but at the same time did not create an effect on the poverty ratio as big as the one noticed in China, owing to the fact that more than 50 per cent of the labour force in India belonged to the agricultural sector.
Policy changes for the agriculture sector were indeed introduced but at a later stage. India, unlike China, continues with state-backed food procurement and distribution policies. The Indian agricultural sector is often seen to be burdened with excessive regulations on private trading. Experts feel that significant gains could be made if many of these constraints get removed.
Liberalisation of trade policies created an imbalance of sorts, owing to low protection as a result of lesser-priced international imports. On the other hand, wheat products saw a high supply from domestic farms owing to high MSP. India is the second-largest producer of wheat with China being number one.
Series of economic and trade reforms did result in increased agricultural exports and financial benefits for farmers, but the same also left the sector more exposed to international competition, owing to domestic productivity limitations.
Land reform policies introduced to make the farming structure more equitable were not as successful and often left a larger number of landless agricultural labourers exposed to the harsh impact of unemployment.
The above chart shows China’s agricultural sector getting leaner and fitter. China now has less than 30 per cent of its overall workforce in the agriculture sector whereas India still has over 40 per cent of its workforce still part of its agriculture industry.
The rural electrification of India was not as rapid and effective as what China managed to do. This severely affected the growth of agro-processing and cold storage capabilities. Almost 10-15 per cent of the fruits and vegetables produced go waste often owing to lack of storage facilities and inefficient supply chains. These differences highlight the reasons owing to which Chinese farmers could produce more and perform better even though government-backed reforms only kicked in late owing to the commune system.
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Once economic reforms were introduced in China, they further enhanced the already-sound agricultural system, resulting in a very high growth rate and rapid reduction in poverty in the 1980s and thereafter.
China has seen a correlation between its poverty reduction and agricultural growth, making a case for government investments in rural infrastructure and social services. India, on the other hand, has seen a reverse effect of sorts where rising subsidies on fertilisers, power, water and price support is now being regarded as a primary cause of slower growth since the 2000s.
Diversity in crops is also something China largely benefited from. China gradually moved away from policies that favoured the farming of crops like rice and wheat and promoted more diversity in crops being farmed. China introduced incentives and policies that encouraged farmers to diversify production.
Contrast this to India where steadily growing MSPs of major crops have now raised production levels of major cereals, often discouraging diversification toward non-grain commodities.
India’s agricultural investment now makes up less than eight per cent of its gross capital formation compared to 18 per cent in the 1980s. A large chunk of this investment goes into non-productive subsidies that mainly benefit big farmers who own large hectares of land in a country where 80 per cent of the farmers own less than two hectares of land.
In 2007, the Indian finance ministry came out with a study that showed even households that possess four hectares of land cannot earn enough from farming to meet basic needs. The situation is much worse today.
Several factors explain the stark differences in agricultural growth between India and China in terms of the reformative years.
China has seen a lot of technology getting embedded into its agricultural ethos almost seamlessly. The highly advanced e-commerce ecosystem in China has enabled its farmers to become e-commerce entrepreneurs. Farmers often sell their own produce directly to consumers located across the world.
Digital infrastructural upgrades and tools have enabled farmers in China to better equip themselves and continue upskilling themselves to face newer challenges in the agricultural world of today. Digital technologies are transforming traditional agriculture industry models and making the farming business more profitable and efficient.
China has now become the pioneer in “community supported agriculture” which enables consumers to commit to buying from a farmer, or group of farmers directly. A key point is that the consumers commit to buying on a regular basis and at least for a whole growing season, ensuring a guaranteed income system for the farmers and removing uncertainties attached to final crop transaction. It basically ensures the sharing of risks and benefits by both the parties related to the growing season. Payments are usually made in advance but may vary.
India has already started to adopt many of these policies and techniques but in silos, and a centralised reform path is the only way forward to help ensure all the benefits of farm produce reach the farmers and the same is not lost in between.
As regards the farm bill protests that are currently gaining momentum, the issue of MSP remains a tough nut to crack.
Farmers are also apprehensive about the power bill 2020 and the contract farming laws which deal with the removal of electricity subsidies and land grabbing by big corporations respectively. Seeing China’s success story, one may ponder that similar policies helped China strengthen its agricultural sector, and create one that is not dependent on subsidies.
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