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Business Commentary/ Dilip Thakore

Wanted: A Second Green Revolution

The sharp rise in the price of onions in marketplaces all over the country has once again brought the long-neglected issue of orderly rural development into the national limelight. There is something radically wrong with the mechanism of the horticulture produce market if the price of the humble onion -- averaging a retail price of Rs 7 to Rs 8 per kg in urban markets for several decades -- has risen to Rs 50 to Rs 60 and even touched Rs 100 per kg recently.

The official explanation is that the usually prolonged monsoon with rainfall continuing into September and October has adversely affected the onion harvest of September, especially in the Nashik belt of Maharashtra which accounts for over 50 per cent of the nation's annual output. This bulbous vegetable will never again be described as the staple of the poor.

While there is undoubtedly some substance in this explanation, as Dr Amartya Sen has argued in one of his most famous treatises on famines, even in times of worst natural calamities, production shortfall of agriculture commodities seldom exceeds 15 to 20 per cent of usual annual output. Famine conditions are caused by maldistribution and maladministration which accentuate shortages and drive prices beyond the reach of the poor and socially disadvantaged. It is ironic that Sen's argument has been validated by India's onion famine almost immediately after he won the Nobel Economics Prize this year.

The magnitude of the chronic mismanagement and maldistribution of horticulture produce in the hitherto centrally planned Indian economy is indicated by the reality that an estimated 30 per cent of the annual onion harvest of five million tonnes is always lost due to inadequate storage facilities.

Now a potato famine is round the corner because Uttar Pradesh has lost an estimated one million tonnes of its potato crop for the same reason. The socio-economic reality is that 70 per cent of the nation's population lives in rural India. Over two-thirds of the national workforce is under-employed in the agriculture sector. Yet a rural marketing infrastructure is almost non-existent. This is perhaps the strongest indictment of the Soviet-style central planning which has beggared the Indian economy.

The consequence of the gross under-development of the agriculture marketing infrastructure is the dominance of rural India by a chain of ubiquitous middlemen and traders with monopoly storage and transportation facilities.

A McKinsey & Co study has highlighted that as against an average of three middlemen separating farmers from consumers in the US, Indian agriculture averages seven. These middlemen are experts in negotiating rockbottom farm gate payments and passing on their generous mark-ups to urban consumers.

The onion famine which the nation is currently experiencing has been exacerbated by the Union government's muddled foreign trade policies. The government controlled National Agricultural Co-operative Marketing Federation of India -- or Nafed -- routinely exports about half a million tonnes of onions mainly to the neighbouring countries of West Asia. Hence the hue and cry about the re-import of onions exported from India in a section of the press.

However, there is nothing objectionable about horticulture exports per se given the abysmal prices that farmers (as opposed to traders) obtain for their produce in the domestic market. Yet it needs to be noted that the higher margins obtained by Nafed do not accrue to onion growers directly.

Moreover, Nafed's export enthusiasm is disproportionate to its import sourcing abilities in times of shortages. Indeed, this imbroglio is a good argument for freeing international trade in horticulture produce by decanalising exports and gradually placing green produce on the Open General Licence imports list. In the short run setting trader against trader is the only available option to break the stranglehold of the trade on the nation's agriculture sector.

The firmness of the grip of the trade on farm produce is also indicated by recent riots and police firing in the market town of Sira in the heart of Karnataka's groundnut growing district. As soon as the news was out that the crop had been good, the ubiquitous combination of traders and local government officials ensured that purchase prices hit a rockbottom of Rs 700 to Rs 800 per quintal against last year's average of Rs 1,500.

Likewise, a year ago a bumper tomato crop in Karnataka resulted in prices plunging to less than Rs 2 per kg prompting disgusted farmers to dump their produce on the national highway.

Despite huge wastages and perennial mass distress selling of agriculture produce in rural India, a sentiment of extreme prejudice against facilitating the growth and development of a viable food and horticulture produce processing industry has penetrated the vitals of the establishment in New Delhi and the state capitals.

Decision-makers in government (as also in the media) refuse to acknowledge the logic of a viable food storage and processing industry as being the prerequisite of better farm gate prices and a stable consumer price regimen in urban India. The irony of India being perhaps the only nation in the world in which highly taxed packaged and processed foods are more expensive than garden fresh produce is lost upon the wiseacres in the Planning Commission and the economic ministries at the Centre and in the states.

This extreme prejudice against the growth and development of a national food processing industry is perhaps also rooted in a subliminal awareness that contemporary food transport, storage and processing technology is available only with the big bad food-processing multinationals which have applied the full force of modern technology and business management practices to make most foods affordable to the masses in Western societies.

But the aversion of the Indian establishment to multinationals is greater than its concern for the well-being of the general populace. So, in spite of India having obstinately remained an agricultural economy -- or perhaps because of it -- the downstream food processing industry has not been allowed to grow.

So, whereas Brazil processes 50 per cent of its annual horticulture produce, India manages to process only one per cent.

It is not as though there is not a domestic precedent. Some four decades ago, India's dairy sector also suffered seasonal shortages, and the paradox of perennial distress selling and high consumer prices. Then came Dr Verghese Kurien who applied the full force of modern technology to Operation Flood to metamorphose India into the world's largest producer of milk.

Through the technology-driven expedient of processing milk into non-perishable milk powder in the flush season and 'recombinating' it into milk in the lean season, he assured farmers of a steady price for milk and urban consumers a constant supply even as he built Amul into India's most durable non-multinational brand by utilising contemporary management and marketing practices.

But, for his singular achievements, Dr Kurien is a hate figure of the establishment and Leftists of all hues and shades.

In its national agenda for governance, the Bharatiya Janata Party-led coalition government has promised to allocate 60 per cent of the Rs 875 billion investment outlay of the Ninth Plan (1997-2002) for the agriculture sector. But agriculture development requires more than greater monetary allocation. It requires a Second Green Revolution on the lines of Operation Flood. Yet it is doubtful if the BJP-led coalition with its muddled preference for computer chips but not potato chips, can engineer this Second Green Revolution which the nation so desperately needs.

Dilip Thakore

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