VZCZCXRO8530
PP RUEHAST RUEHCHI RUEHCI RUEHLH RUEHPW
DE RUEHBI #0284/01 1651013
ZNR UUUUU ZZH
P R 131013Z JUN 08
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 6361
INFO RUEHNE/AMEMBASSY NEW DELHI 7593
RUEHBI/AMCONSUL MUMBAI 1481
RUEHCI/AMCONSUL KOLKATA 1594
RUEHCG/AMCONSUL CHENNAI 1786
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUCNIND/ALL INDO COLLECTIVE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

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