Issues in farm economy and related markets

‘Before the coronavirus outbreak, food insecurity was already a severe problem. More than 820 million people – one in every nine – do not have enough to eat. Of these, 113 million are coping with hunger so severe that it poses an immediate threat to life and livelihoods. The pandemic’s economic impact will cause these numbers to rise. The most vulnerable groups are the urban poor, inhabitants of remote areas, migrants, the informally employed, people in conflict areas, and other vulnerable groups. As the Global Alliance for Improved Nutrition recently noted, malnourished individuals with compromised immunity are more at risk and susceptible to the spread of the virus.’ – ‘Ensuring food security in the era of Covid 19’ by Thanawat Tiensin, Agnes Kalibata, Martin Cole

The cracks in the workings of agriculture sector, especially in the global south, including Pakistan, have only been exacerbated by the pandemic. Years of neglect of this sector, especially at the back of neoliberal assault of least government intervention in terms of incentives and governance, provided for both the farm economy and markets, has left farmers at the mercy of middle-men and unfair market practices, with little institutional support from governments at the stage of production, transportation of goods from farms to markets, and markets themselves.

The farmer is the centre of food production. At the same time, the markets are where things reach consumers, both at the household and firm levels. Both lack proper institutional support, which means that on one hand farm productivity has continued to remain low, and supply chains as weak and unpredictable – especially due to presence of strong hoarding practices under weak governance – while on the other, there exists and persists a significant price differential between prices received by farmers and those for consumers; mainly due to arbitrary pricing set by middlemen, collusive practices of buyers, and high level of information asymmetries in the wholesale market.

Unlike what the proponents of Neoliberalism have us believe in terms of unfettered markets producing most efficient outcomes, it is in fact effective role of governments that incentivize such outcomes for both consumers and producers in the economy, including the agricultural sector. Having said that, the well-oiled propaganda machine of the wealthy and powerful – the collusion of the politico-economic elites – in manufacturing consent among economic agents in favour of least role of governments, and their little regard for dissenting public opinion through their ability to decisively influence public policy, have all meant immense increase in the hardships of farmers and retail buyers of their produce. Hence, a lack of proper incentives, and governance/regulation has meant that on one hand, the quality of agricultural products has fallen considerably, and resulted in increase in externalities, like rising greenhouse gas emissions from production practices, in turn, significantly contributing to climate change, while on the other hand farm activity stands neglected, transaction costs remain high for production and transportation, and prices are unfair for farmers and retail consumers.

Institutions – or ministries at the federal level, and departments in charge of agricultural affairs at the provincial level – have continued to remain extremely under-capacitated to provide the environment for the underlying organizations to deliver needed support to farmers in terms of production, and transportation of goods, and well-functioning markets. Moreover, overall macroeconomic policy has continued to take a highly imbalanced approach towards rural and urban economies. For instance, during many successive governments over the years there has been a disproportionate focus on developing construction sector primarily in the urban setting – for instance previously it was building road infrastructure, and currently in the housing sector, which are important endeavours but not aimed at developing rural sector. This among other consequences has been incentivizing migration of labour force from rural work spaces to urban centres, along with flow of finances, from an otherwise finite pool of savings, from significantly greater investment in the urban economy than in the rural.

While the governments talk of enhancing agricultural growth rates, and in an equitable manner for both small and big farmers, and in turn reducing rural poverty, and lowering food inflation, yet weak institutional support, and lopsided macroeconomic policies have continued to provide conflicting signals for enhancing production, lowering externalities, and in producing correct prices for producers and consumers of agricultural products.

A farmer has his land, but he has little support of government for instance in obtaining quality seeds, effective fertilizers, technical support from agricultural authorities in obtaining guidance on best production practices and in terms of regular field visits of technical staff of agricultural government organizations/departments to help in correcting farming mistakes or in breeding cattle for livestock. There are no proper laboratories where farmer can take and get checked a) quality of the seeds before he purchases them, b) underground water, or c) soil quality. At the same time, there is a lot of asymmetry in terms of skills that labour highlight in general, and what they actually have. This requires some kind of effective training and certified pool of labour, so that such asymmetries can be reduced. So when the PM talks of getting technology from China for instance to help farmers increase crop or milk production, or reduce the price differential between wholesale and retail markets, it is important to understand that without proper institutional support – appropriate incentives and governance/regulation – in all areas of farm activity and markets, there would not exist the right kind of environment for technology – which in any case covers only one part of the production process – to bring in the needed advantage that it is meant to bring in any case.

Handing cattle to poor households, giving direct cash handouts, or even providing subsidised loans are important welfare initiatives. Given a weak institutional context overall in the agricultural/dairy sector, these incentives, however, cannot bring much dividends if households do not have needed technical support from agricultural/livestock departments, or are not saved from exploitation in markets. This also provides reduced re-investment potential since for instance money earned from the first cycle of production activity does not have the right environment to allow it to purchase reliable seeds, or get technical support in the areas mentioned above, and others. For instance, in markets, government could introduce the concept of ‘hybrid markets’ which has attributes of both allowance of market forces of demand and supply to come to the fore but with introduction of regulatory hierarchical structures to provide needed governance structures to not just fix market structures, but to shape markets to bring allocative and production efficiencies; but since government’s economic policy overall has little recourse to ‘heterodox economics’ – in this case institutional economics –, such innovation is not even much talked about, let alone implemented.

Rather, policy discussion is mostly kept restricted to traditional debate topics of extent of agricultural taxation, which are important but given the challenges of rising food insecurity on one hand, especially in the wake of ‘food nationalism’ during the pandemic and overall unjust protectionist/trade practices under the World Trade Organisation (WTO), and the enhancement of farmer’s vulnerabilities/insecurities along with unwarranted high food prices for the consumers at no advantage to the farmer but the middleman and collusive practices of wholesalers, all mean that policymakers will need to actively discuss and work towards quickly tackling all these concerns, if the government genuinely cares about farmers in particular, since food production starts there.

(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund)

He tweets@omerjaved7

Copyright Business Recorder, 2021