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Why Indian Farmer’s Protests is the ultimate Free Markets debate?

Understanding Farmers Protests

Why are farmers protesting around the world?

Farmer protests have been brewing up all over the world over the past years. The latest development in February 2024, is from the Farmers from parts of North India who have been protesting for a set of demands from the Indian government. These farmer’s protest demands include a guarantee on Minimum Support Prices (MSP) for crop production, pensions, and loan waivers. While there is discontent among farmers globally, the demands of the farmers are different across the world. 

The main demands from the farmer protests can be categorized in the following categories:

  • Prices & Competition
    • Low prices
    • Rising costs
    • Competition from Imports
  • Government Policies
    • Environmental policies
    • Subsidies
    • Land use policies
  • Support & Welfare
    • Loan waivers
    • Pensions
Demands from farmer protests across the world
Demands from farmer protests across the world

Low prices

Causes

Firstly, advancements in technology and farming practices lead to higher supply and lower prices. Secondly, the better negotiating power of large corporations that control pricing, leaves small farmers with a smaller share of profits. Thirdly, imports from countries with lower production costs due to subsidies further undercut local prices. Finally, farmers in remote areas or with niche crops struggle to reach markets and get fair prices.

Solutions

Technology can help farmers connect directly with consumers, bypassing middlemen. Initiatives like the electronic National Agriculture Market (eNAM) in India help in removing information asymmetry between farmers and traders.

Farmer Producer Organizations (FPOs) can help small farmers negotiate better with large corporations. This can promote fair competition and reduce the dominance of large corporations.

Fairtrade agreements can be negotiated to protect local farmers from unfair competition.

Building better infrastructure like roads and logistics can help farmers in remote areas access larger markets.

Producing processed or branded goods with higher profit margins can also be encouraged.

Why does a biscuit-making MNC have pricing power, unlike a farmer?

  • Biscuits have a longer shelf life, and farm crops are perishable: So a Farmer is under pressure to sell his crops at a low price as they will go to waste. A biscuit maker is under no such stress, he can keep prices higher and keep waiting for sales for a longer period.
  • Bargaining power due to scale: Biscuit makers will buy large amounts from several farmers, so they will have better bargaining power over prices.
  • Brand recognition: If the consumer likes Britannia biscuits, he won’t care if the prices increase and will keep buying Britannia. With crops, if someone increases prices, the consumer will buy the cheaper crops available in the market.

Rising costs

Causes

Global factors like resource scarcity and geopolitical tensions can cause rising costs of fertilizers, seeds, fuel, and machinery. Limited access to credit can lead to higher financing costs.

Solutions

Financial support can be provided to farmers for purchasing crucial inputs. Organic farming practices or the use of biofertilizers can be encouraged to reduce dependence on expensive chemical inputs.

Climate change policies that require the use of natural gas in power generation raise the cost of fertilizer production. Hence, natural gas can be prioritized for fertilizers over power to keep the cost low.

Why is rising costs not a major issue with Indian farmers?

  • A higher percentage of natural gas is used for fertilizer production in India compared to many other countries, including those in Europe. While India still uses coal-based thermal power plants, European countries are using natural gas for power generation due to climate concerns. This causes fertilizers in Europe to be more expensive.
  • The Indian government has prioritized the needs of its citizens when it comes to importing fuel and gas from countries like Russia and Qatar.
  • Subsidies: India has one of the world´s largest fertilizer subsidy programs. Even electricity is heavily subsidized. That is why the WTO raises concerns about the heavy subsidies in India.

Competition from imports

Causes

Governments in some countries subsidize their agricultural sector, lowering production costs for their farmers. This creates unfair competition for farmers in other countries who don’t receive similar subsidies.

Solutions

Trade agreements can encourage fair competition by setting limits on subsidies or imposing countervailing duties. Make local agriculture more competitive by improving productivity, infrastructure, and market access. Help farmers diversify crops or adopt value-added practices to compete with imports.

Environmental Policies

Causes

Strict environmental regulations can increase costs for farmers. Investing in cleaner technologies or adopting more sustainable practices can impact profitability.

Solutions

Provide financial assistance or technical support to help farmers comply with environmental regulations. Encourage practices that are both environmentally friendly and economically beneficial for farmers. Develop more affordable and efficient technologies for sustainable agriculture by investing in R&D.

Land use policies

Causes

Land expropriation without compensation is a significant policy issue in South Africa as it creates uncertainty and anxiety among farmers. This undermines investment in agriculture and raises concerns about food security. Land redistribution can greatly impact agricultural output as it is attributed as one of the causes of the Great Chinese Famine (1959-1961). Large farms can often benefit from economies of scale as they can produce goods at a lower average cost per unit.

Solutions

Policies that prioritize the preservation of agricultural land and prevent its conversion for other uses can help with the risks of land expropriation. Fair compensation can help in reducing the uncertainty for farmers. Quickly adapting to grow different crops like vegetables suitable for smaller tracts of land can help preserve agriculture despite land redistribution.

Loan waivers

Causes

Many farmers face high debt burdens due to factors like low prices, high input costs, and natural disasters. This can trap them in a cycle of debt, making it difficult to invest in their farms and improve their livelihoods.

Solutions

Debt restructuring is a process used to manage existing debt obligations and improve financial viability. Hence, farmers facing debt burdens can be empowered to negotiate with lenders to restructure loans with lower interest rates or longer repayment periods.

Microfinance solutions are designed for low-income individuals and small businesses who lack access to conventional banking services due to insufficient collateral and irregular income. The Grameen Bank founded by economist Muhammad Yunus in Bangladesh is a pioneer in the field of Microfinance. It has helped uplift rural women and farmers living in poverty. Instead of individual loans, they provide loans to a group of women thus fostering peer pressure and accountability within groups for repayment.

Pensions

Causes

Most farmers lack access to formal social security systems, leaving them without financial security in their old age. This can force them to continue working well past retirement or live in poverty.

Solutions

Farmers can be encouraged to contribute to pension schemes where even the government matches the contributions. This will not only ensure adequate pension support to old farmers but will also collect funds that can be invested in the country´s economy.

Why a Minimum Support Price on all crops is a bad idea?

It distorts the market. Market prices give us valuable information on scarcity and surplus of supply and demand. With MSP, nobody will know which crop is being produced in excess and which crop is grown less. So all farmers will start growing the same crops instead of diversifying as there is no incentive to choose which crop to grow.

This will cause:

  • Overproduction and inefficiency: Farmers don’t know or care about demand as they only care about MSP.
  • Resource Misallocation: Too many rice and wheat farmers for example in Punjab due to the prevailing MSP.
  • Consumer gets impacted by higher fixed prices
  • Lack of incentive to innovate in farming with better techniques.
  • The burden on the government to purchase at MSP, to keep storing it till wastage, or to distribute as free rations.

Hence, a free market approach would be more beneficial to all stakeholders in the economy.

What are better solutions than the MSP for Indian farmers?

  • Initiatives like the electronic National Agriculture Market (eNAM) aim to improve market access and transparency.
  • Farmer Producer Organizations (FPOs), where small farmers can join together and negotiate for better prices.
  • Give farmers some direct financial assistance instead of MSP.
  • Build better supply chains

Conclusion:


Farmers globally are taking a stand against a tide of challenges. Low crop prices due to oversupply and competition, coupled with rising production costs, are squeezing their profits. Government policies on the environment and land use add another layer of pressure.

In response, the farmer’s protests have made demands for better prices, help with debt, and social safety nets. The way forward lies in a multi-pronged approach: improving market access for farmers to get fairer prices, extending financial assistance to ease their burden, promoting sustainable practices that benefit both farmers and the environment, and establishing fair trade agreements to protect them from unfair competition. By addressing these core issues, we can ensure food security, improve farmer livelihoods, and create a more sustainable agricultural future.

Hi, I’m Vineeth Naik

Liberal part time Blogger and full time Researcher with a broad range of experience, professionally and personally in Austria, Italy, UAE & India. Loves Finance, Business & Technology. Cares about society.

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