UNCLAS SECTION 01 OF 03 MUMBAI 000284

SENSITIVE
SIPDIS

USDA PASS FAS/OCRA

E.O. 12958: N/A
TAGS: EAGR ECON IN
SUBJECT: MAHARASHTRA AG-EXPERTS AGREE THAT INDIAN FARMERS ARE
SACRIFICED FOR LOW-FOOD PRICES

MUMBAI 00000284 001.2 OF 003



1. (SBU) Summary: On June 4, a senior Foreign Agriculture
Service official met with agricultural experts in Maharashtra to
discuss rising global food prices and the impact on farmers of
the food exports ban. There was a general consensus that the
export ban harmed local farmers but that the government's
priority was to ensure food security domestically and maintain
low prices for the poor. Several agreed that the ban was made
based on an error in projections by the Government of India and
expected the government to relax the ban based on actual
production figures. Also, the experts agreed that the
intermediaries in the "farm-to-fork" process posed a major road
block and prevented farmers from realizing increases in food
prices. Removing or reducing their role would help small
farmers gain a larger share of the retail price. One expert
said that any and all change in India's agricultural sector will
occur at a slow and gradual pace. End Summary.

Rice Export Ban "Instinctive" Reaction to Global Food Price
Increases
-------------- --------------


2. (SBU) On June 4, Maurice House, the Senior Advisor of the
Foreign Agriculture Service, and Agriculture Minister-Counselor
Holly Higgins participated in a roundtable with
Maharashtra-based agriculture experts. House said that the U.S.
is concerned about the global food price rises, although it
remains largely insulated from the food crisis with average per
capita income spent on food rising to 13 percent of the total
income from 10 percent earlier. Nevertheless, House explained
that the increased economic growth worldwide and rising income
levels has led to an increase in the demand for food worldwide
and has put a strain on U.S. ability to serve as the "storehouse
of the world's grain." In addition, House pointed out that the
U.S. supplies 50 percent of food aid to the world. With the
large growth in the world economy, the U.S. share has shrunk in
terms of global markets, but the American role in food security
has remained the same without other rising nations contributing.
He, along with Higgins, also expressed concern about the impact
of the export bans on wheat and rice on domestic farmers.

(Note: In April, India, the world's second largest exporter of
rice last year, banned non-basmati rice exports and imposed
export taxes on superior basmati rice to boost domestic supplies
and to contain the over 7 percent inflation rate. The
government extended the export ban on wheat and pulses and also
banned the export of edible oils. End Note).


3. (SBU) Veena Misra, an economist working for Mahindra &
Mahindra, a leading tractor manufacturer, explained that the ban
on rice exports was an immediate reaction to the international
furor over rising food prices and was taken when the Indian
central statistical board advanced estimates projected a decline
in grain production in India. Now, she continued, the
government is likely to relax the export ban with wheat
production exceeding targets. However, the government's
decision is contingent on a good monsoon, she added. N. Kasar,
a retired professor of agriculture, noted that the central
government's export policy is driven by the need to ensure that
the domestic population has enough food. He agreed with Misra
that the ban is temporary and likely to be relaxed soon.


4. (SBU) Udhay Deshmukh, Deputy Director (Information) of the
Government of Maharashtra, admitted that the export ban has
affected domestic farmers and said that the ban had dried up
opportunities for certain rice strains which had export
potential. Banning the export of certain crops makes the
farmer's cropping and investment decisions ineffective and
invalid, he continued. For example, India's soybean export
prices are nearly twice as high as the domestic market price due
to strong demand from China.

Curbs on Food Prices Distorts Price Signals, Invalidates
Technological Innovation and Hurts Farmers
-------------- --------------


5. (SBU) House pointed out that export bans and other
restrictions on the market prices of food distort price signals
to farmers and have a global impact. He believes that
agriculture should be treated as a business and should be

MUMBAI 00000284 002.2 OF 003


allowed to function under free market economic standards that
enable it to prosper. He cited China as an example of a country
which went from chronic famines to surplus food production by
making agriculture a business by privatizing the key input
industries and allowing prices to rise. He also stressed the
role Beijing played in reforming the agriculture markets and
building infrastructure.


6. (SBU) All the interlocutors pointed out that wheat and rice
are basic staples that the Indian central government provides to
the poor at subsidized prices, and are therefore central to the
country's food security. Ensuring adequate supplies and low
prices for these two cereals is in the government's interests,
they argued. Nevertheless, Milind Murugkar, an agriculture
expert who works with the NGO Pragati Abhiyan, pointed out that
the public distribution system (PDS) that provides subsidized
wheat and rice to the poor is flawed and virtually absent in the
country (septel). He pointed out a moral dimension rooted in
India's food security problem: if the government cannot take
care of the poor, it has no choice but to keep food prices low.
The government therefore "taxes" the farmers by not allowing
food prices to rise to ensure food security for the poor, he
continued. Murugkar also noted that Maharashtra, for example,
is a major producer of coarse cereals which are largely rain-fed
and do not need irrigation facilities. However, the PDS ignores
locally-available coarse cereals and imports rice and wheat from
the northern states to feed the poor in Maharashtra. He pointed
out that "coarse cereals constitute 50 percent of the food
consumption of BPL (below poverty line) families despite
state-sponsored dumping of wheat and rice." Murugkar suggested
that a better alternative to PDS is to directly transfer
purchasing power to the poor through food stamps to empower them
to make their own food choices.


7. (SBU) Misra believes that domestic farmers have been
sacrificed in favor of consumers who live in urban areas. She
said that the rising domestic food prices have not been
transferred to the farmers in India because of rising
transportation, fuel and input costs. She also highlighted the
role of the intermediaries in the "farm-to-fork" process who
take a large share of the final sale price. Kasar claimed that
a study had revealed that the farmers get a 55-60 percent share
of the retail price for perishable crops but their share dipped
to 35-40 percent for cereals as a major portion was grabbed by
the intermediaries. Several state governments are enacting
agricultural reforms and are encouraging co-operative farming
and contract farming to empower the farmer, reduce the role of
the intermediaries and to ensure that farmers benefit from food
price increases, he added. Murugkar noted that amendment to the
Agricultural Produce and Marketing Committee (APMC) Act, which
enabled private industry to set up their own mandis (market
places) to procure directly from the farmer, enabled farmers to
receive better prices which consequently led to higher increases
in agricultural productivity. High price is a key enabler of
productivity increases in agriculture, he emphasized. Murugkar
cited Madhya Pradesh as an example of a state where agricultural
productivity and land under cultivation has increased, and where
the quality of food produced has improved. (Note: MP was one of
the first states to amend the APMC Act to allow direct
procurement from the farmers. End Note).


8. (SBU) Misra argued that progress in agriculture reform would
come about through small and gradual changes. She said that the
central government's approach to the reform process was to
"familiarize, demonstrate, and then move forward." She also
pointed out that the Right to Information Act provides farmers
access to information about their rights and benefits due them
and empowers them to demand accountability, helping to curb
corruption.

Technology Innovation Cited as Key Driver to Increase
Agricultural Output
-------------- --------------


9. (SBU) Deshmukh said that market-driven food price signals
determine resource allocation. He noted that low prices for
cereals caused the total acreage of cereal cultivation to drop
in Maharashtra, while high prices for sugar led to an increase

MUMBAI 00000284 003.2 OF 003


in the area under sugarcane cultivation. However, he noted that
the total production of cereals has increased because of
increased productivity due to high-yielding seed strains,
despite decreased or constant acreage utilization. In contrast,
sugarcane productivity has fallen and the increase in output is
due to the increase in area under cultivation. Technology
innovation is central to improving agricultural productivity, he
maintained. He complained that innovations in technology are
not transferred to the farm level as the input supply and
extension services are weak and not available at the right time
and the right price.


10. (SBU) Deshmukh believes that encouraging co-operative
farming and scaling up the state-sponsored seed procurement
program, where villagers gain self-sufficiency in seed
requirements, will empower the farmers and make them more
self-reliant. Misra agreed that aggregating farmers will yield
better incentives and the savings in fixed costs will increase
yields. She said that collective farming may be easier to
implement in India than increasing individual farm acreage to
achieve benefits of scale. However, Kasar disagreed and pointed
out that farmers have an instinct to own land and to make their
own decisions, so co-operative farming models may be difficult
to universally implement in the country. He believes that small
farms can be as efficient as large farms if they receive the key
input and extension services. Technology is neutral to scale,
he argued. Misra concurred and emphasized that raising
agricultural productivity yields is key to increasing output.
She pointed out that private investment in agriculture which
slowed down as food prices declined, will once again pick up
with rising food prices.

Maharashtra Boosters Tout State's Pro-Farm Policies
-------------- --------------


11. (SBU) Deshmukh and Kasar highlighted the Maharashtra
government's pro-farm programs and state government policies
aimed at increasing food production and area under cultivation
and improving agricultural productivity. Deshmukh noted
problems like small and marginal farmers holding less than 2
hectares of land, poor quality soil, and the need for irrigation
in Maharashtra. Sustained efforts to keep productivity costs
low and the use of environmentally-friendly technology, however,
has led to an increase in agricultural production in
Maharashtra, he continued. Kasar highlighted lower interest
rates on agricultural loans and several other state-sponsored
financial assistance programs aimed at improving crop
productivity in the state and to extend technology to
uncultivated areas. He admitted that inadequate supply of
inputs such as power, water,good quality seeds and fertilizers
inhibit improvement in production and productivity. (Note:
Maharashtra has 12-14 hours of planned power shut-downs in rural
areas due to power deficit of around 25 percent of peak demand.
End Note). If these inputs and extension services can be
offered as a package to the farmers, then "Maharashtra will be
the brightest star in the agricultural map not only in India,
but in the world", he opined. He cited the vineyards and mango
orchards in Maharashtra as examples of world-class farms. Misra
pointed out that the average agricultural picture for India is
different from that of Maharashtra and that there are some
states where the state governments are apathetic to the plight
of the farmers.
OWEN