Is Privatization = Efficiency in agriculture?

India achieved independence in 1947 and we started off as a very conservative economy which basically meant we were closed to the outside world. Think: wide nationalization of sectors, License raj, quota raj and Monopolies and Restrictive Trade Practices (MRTP) Act. But we know that this didn’t work out. By the 1970s we had a rapid inflation, huge balance of payment crisis in the form of current account deficits (Import > Exports) and rupee had devalued drastically. The country kept on financing the deficit through borrowings from abroad but there came a time when we didn’t have enough money for essential imports and we were weeks away from actually defaulting. We desperately needed a bailout and thus ended the license raj era. 

Era of Liberalization

India then liberalized almost all sectors of the economy, which basically meant making the economy market oriented and expanding the role of private and foreign investment rather than state controlled. Some changes included reduction in import tariffs, deregulation of sectors, allowing foreign direct investment and likes to attain high economic growth. While it is true that this did help the economy a lot – GDP went up, the income inequality also deepened, jobless growth happened and the nutrition values took a hit. But overall, the liberalization, privatization and globalization reforms brought “efficiency”. How? The argument goes like this. Allowing private players will increase competition, where each of the players will try to give maximum value to the consumer and in this race the overall efficiency of everyone will increase which in turn will increase the GDP.

Privatization in Agriculture

But then, agriculture has always been a sector where privatization hasn’t “really” happened. Sure, in recent times, government has deregulated APMC a little bit [please refer to my previous blog post], PPP and contract farming is happening in some states, but there is a lot of inefficiency in the agriculture domain. While India’s income is increasing, the farming revenues are not. Over 60,000 farmers committed suicide in 2018, the average income of an Indian farmer is Rs 6400 per month, there is a crisis in the management, planning and marketing of agriculture produce and farmers suffer severe exploitation in the hands of middlemen. Moreover, it is still reliant on natural forces and one bad yield due to bad rains for example, leaves the farmers with no buffer! They’re risk averse which means unable to innovate, change or plan long-term. During some months, onion prices are sky high and during some, the farmers have to throw the produce because transportation costs are more than the market price. Agriculture being a state subject, leads to confusion between the center and the state policies. The technology used in farming and at various stages of the supply chain is outdated, the last substantial and wide-spread research in seed productivity and irrigation practices only happened in the second green revolution. The sector is not profitable and since decades there is an ongoing discussion on doubling farmer’s income but it hasn’t happened yet.

Is Privatization the Panacea?

While the above is true, is privatization the panacea? It does make a strong case. Because most small farmers (86% of all farmers) rely upon minimum support prices to hedge the risk. This translates to growing “bad crops” just to get the minimum price. For example, rice enjoys a high MSP but it also requires a lot of water and thus electricity to pump it up. In states where there is water scarcity (eg: Telangana), farmers still chose to grow rice just to receive subsidy and MSPs. Where is the wisdom in this? Private enterprises mean more choice and freedom to the farmer.

Some of my concerns are - Can earth’s resources be privatized? The thing is, agriculture cannot be compared to sectors such as automobiles or discoms. Government has always regulated and controlled agriculture in terms of marketing and distribution because it is the bulk purchaser to ensure social security. The farmer tends to the land and cares for the soil. The same land passes over generations and becomes part of the culture. There is a very real risk that privatization will lead to commodification and thus chemicalisation of land. The goal of any private company is to maximize profits. We already know that in market economy, social costs are not considered. Sure, fertilizers will increase productivity and thus profits but this is food we are talking about! Food that we ingest, food that supports all life on earth! Another issue is of mechanization. What happens when private players substitute farm labor for machines? Given the national unemployment rate of 9.2%, can the economy absorb the displaced workers? Thirdly, given the WTO agreements and global markets, we know that cash crops fetch more prices than food crops. If agriculture becomes completely market oriented, who is going to grow essentials? Lastly, what happens when private enterprises decide to export most of the produce in lieu of better prices? Can we really risk shortage and inflation in crop prices? On similar lines, if private enterprises find cheaper produce from other countries and decide to import instead to grow here, what happens to our farmers?

Food for thought:

Is productivity the answer? Let’s say if our productivity doubles, will farmers income also double? Not really, because our productivity has been increasing over the decades but that has only led to the produce becoming cheaper or the money not reaching to the farmer. Theoretically, changing this disproportionate share of revenue can double farmer’s income. Question now, is how? We again come back to the central question, is privatization the panacea? Or we go down the route of cooperative federalism (loosely translated to mixed economy)? One reference that comes to my mind is NASDA, a cooperative and federal entity in the US. Can NASDA model work here? More in my next post.
I told you what my concerns are, what do you think? Do mention in the comment box. J

Illustration: Chad Crowe


  1. Insightful read. Two points to consider:
    1. Since Agriculture is in state listing as you said, there are lot of interstate problems such as Cauvery river water dispute which mostly affect the agriculture in Karnataka and in delta districts of Tamil Nadu. Will privatisation change the game when industries lobby and intervene to favor the one that's convenient for them.
    2. Can privatisation of agriculture bring possible resolution to food security issues in India?

    What are your thoughts?

    1. Thank you Sownthara for reading. I am conflicted when it comes to privatisation because countries that went the same way for eg USA, Mexico, Brazil to name a few, suffered terribly from food inflation. I do plan to discuss the Cauvery river dispute in coming blog posts. :)

  2. Priya, in my opinion,a very populous country like India,there is a room for everybody. There are pros and cons of privatisation in agriculture. If it increases unemployment somewhere,then it also creates new opportunities and different types of employment in somewhere else. Now the question of using chemicals to get more profits. Even today where privatisation isn't there in agriculture, even though farmers are using pesticides and insecticides and chemical fertilizers. So it doesn't make much difference in my opinion. What do you think?

    1. Yes, farmers have been using all sorts of chemicals and fertilisers to increase productivity and shorten the crop cycle. Surprisingly, they don't put chemicals inside food for their own consumption. They realise it is wrong but they do it because otherwise they wont even be able to afford one square meal a day. Does that make it right? not at all. If private players enter and are not regulated, the monsanto situation is very likely to occur which is even worse. In my view, middle is the best way. All extremes are bad. Thanks a lot for reading and providing feedback :)

  3. The above comments given by Preeti Suchak.

  4. The above comments given by Preeti Suchak.

  5. I believe that privatization in agricultural sector can work just as well as in any other sector. The principle of automatic adjustment mechanism can work here too. If a farmer gets a higher price for cash crops he will produce. It's supply rise may reduce it's price and he may shift to the production of food grain production. Moreover the production of agriculture depends more on the quality of soil suitable for a crop and not much on the price. So ideally even after privatization not much change may take place in cropping pattern. If middle men are evicted and if he can sell it at a better price, privatization is definitely good. Agriculturists in India have been reinventing themselves and finding employment in other sectors since long. So the argument of rise in unemployment to me is not a big deal. It may be for a short period but privatization can benefit the agriculturists ultimately.
    Prof. Usha Venkatesan

    1. I genuinely want to share your optimistic viewpoint but in countries that have privatised agriculture are not faring very well either. The burden gets transferred onto the consumer which leads to food inflation and given some of the instances in karnataka where the state deregulated APMCs, the farmers are still exploited while the corporates take the larger cut. As always, middle is the best way. Any extreme is problematic. Thanks a lot for reading and providing feedback maam :)

  6. Privatization never solves farmers problem and only 6% all Indian agri production procure at MSP.Higher production means lower prices.Areawise and resources wise crop planning will work.If we talk about kharif season this year than groundnut sowing is increasing in Gujarat compared to last year as state govt. procure groundnut on quota bases at MSP but this year in doldrums and I dont think state govt.procure groundnut so market rate will definitely go down below MSP heavily than farmers are at loosing end for sure.So in this scenario farmers have to sow different crops like tur dal,black gram so they minimize losses.Vinay Patel

  7. Worth reading. Thanks.
    Increasing Farmers income.
    My details:

  8. This article may open new vista of discussion in the field of agriculture-based economics. There may be different viewpoints but this write up has definitely opened new doors of discussion.
    Privatisation in agriculture Sector and handing it over to corporates is being carried out under the name of agriculture reforms by Government of India. Privatisation of Agriculture will result into the malpractices of hoarding of agricultural produce, which ultimately lead to inflation, where prices will go up and supply will be in scarcity. There will be short of supply created by Private stake holders to earn more and more profit. The prices will rise too high which will increase starvation as the income of poor people will be so less that they hardly afford to spend for the bare minimum needs. The backbone of the poor and the marginal farmers will be broken by the corporate giants. Privatisation of agriculture sector without the support of MSP (Minimum Support Price) will make it very difficult for the farmers to survive. The recent enactments by the Govt. of India will hamper the progress of Country. It is a quantum leap forward in handing over the reign of agriculture from the hands of farmers to the very few hands of Corporate Giants. In this regard Mr. Prem Singh Bhangru and Vijay Kumar Chaudhari of All India Kisan Federation (AIKF) in a joint statement have said, “ordinances indicate that the government is appeasing the World Trade Organisation (WTO), which is dictating since India became its member, to abandon the support price and state procurement of agriculture produces and implement recommendations of the Shanta Kumar committee.” (Source: Hindustan Times, Chandigarh)
    It is now worth examining whether, opening of private markets, unrestricted trade, and unlimited storing and hoarding of agricultural produce would open floodgates for big corporates and will abolish the small and marginal farmers as alleged by the AIKF.
    The Illustration by Chad Crowe is very apt, appropriate, suggestive and symbolic. This will be the pathetic condition of the Indian farmers after the recent enactments. The Illustration by Chad Crowe may turn the Indian farmer into Scarecrow, where the poor farmer will stand on a tall rugged rostrum to deter birds or other animals from eating seeds and crops. The device known as scarecrow where an effigy is made in the form of human to ward off birds. In Gujarati this device-Scarecrow is called Chadiyo ચાડિયો. In the name of the illustrator coincidentally both the words are interwoven Chad and Crowe.


Post a Comment

Popular Posts