Farming in Canada-The much hated Supply Management System distorting the market landscape

Why do Canadians pay two to three times more for their milk purchase compared to their counterparts in other countries? It might appear shocking that a developed country like Canada has in place a tightly controlled dairy sector held in a vice like grip by the bureaucrats endowed with the responsibility of sustaining the diary economy of the country. The archaic system does not permit the farmers to expand their cow population beyond a quota allowed by the government to prevent a milk glut and consequent price crash. While imports could be much cheaper a deliberate custom duty imposition make them as costly as the domestically produced milk. How this country can break this system to synchronize with that in other countries is a million dollar question. According to critics a cow in Canada can be costlier than an automobile because of the restrictions on the entry of new dairy entrepreneurs into the existing cozy club! Read further below to understand this ridiculous situation to decide whether to laugh or cry! 

"The reference price for milk is going up again today by 7.8%, forcing milk-using industries to pay more coast-to-coast for an important input. Soon, consumers will feel the price hike when they buy fluid milk or other dairy products at the grocery store. Given that productivity has been rising for centuries in agriculture, one might wonder why we keep paying more for milk instead of less. The reason: Theseproductivity gains are being wasted away in our inefficient supply management system. The creation of the Canadian Dairy Commission in 1966 produced Canada's first national agricultural supply management system. This system relies essentially on two major forms of government involvement in agricultural markets. Largely through a quota system that controls the quantity of milk offered, it sets up planning and administrative control over pricing and marketing. And it relies on customs tariffs that are set high enough to keep foreign products out. Through these measures, the government ensures a captive market for Canadian farmers. The establishment of quotas is equivalent to issuing rights to sell a certain quantity at administratively set prices. Milk quotas were initially distributed free of charge but later changed hands on centralized exchanges, becoming increasingly expensive.An average of more than $22000 was required to make use of a cow and sell its milk in Canada in 2002. In 2003, according to Statistics Canada, quotas amounted to an average of nearly $1.1-million per dairy farm and a total of almost $17.6-billion for all dairy farming operations in Canada. This represents close to half the entire permanent long-term asset base of milk producers. To set up a dairy farm, almost as much would have to be spent on quotas as on the assets truly required for milk production, such as animals, land, buildings, farm machinery and equipment. Thus quotas have become a barrier to entry for anyone wishing to start a new dairy operation. The paradox is that farmers already in the market have no interest in ending the quota system. Quotas constitute an "asset" that farmers can sell and that is often used to guarantee loans from financial institutions. Abolishing supply management would result in quotas losing their entire value, posing serious problems for farmers and their creditors. Supply management also deters adapting production to economic conditions. Efficient farmers who might wish, for instance, to raise their production cannot do so because they are not authorized to exceed their quotas. Instead of trying to win market share to the benefit of consumers through various strategies in areas such as pricing, quality, product differentiation, advertising, service or forms of marketing, Canadian farms under supply management must devote an increasing share of their resources to covering the cost of quotas. From a geographic standpoint, evolution of the system is blocked. It is very difficult to modify the proportion of quotas that each province receives. This rigidity is a source of conflict between provinces and of added uncertainty for farmers. Because of quotas, it is impossible to take advantage of more favourable production conditions in different parts of Canada if and when they arise. The costs of the supply management system are, of course, reflected in retail prices. These artificially high prices correspond in reality to an implicit tax that governments have authorized farmers to impose on consumers. The OECD estimates the assistance provided to Canadian dairy producers through supply management at $2.7-billion in 2003, equal to more than 60% of the value of total dairy production that year. It also found that Canadian milk prices have been two to three times higher than world prices since 1986. This has no doubt contributed to a drop of nearly 15% in per capita milk consumption in Canada between 1986 and 2003."

Whether it is the World Bank or the International Monetary Fund, the so called financial wizards in these august bodies never cease to chant the mantra of "economic liberalization" and WTO pressurize every country on this earth to ensure exports without restrictions levying practically no import duties! Yet here is a country which likes to preach to the poor countries about the virtues of free trade and open economy. Subsidy is supposed to be a dirty word to these wealthy countries but look what are they doing!.Canadian government is reported to be subsidizing its dairy industry to the tune of almost 1.5 billion dollars every year. While the dairy farmers are fattened by this subsidy, the per capita consumption of milk in Canada seems to be falling to the extent of 15% during the last two decades, which is not an encouraging sign! 

V.H.POTTY
http://vhpotty.blogspot.com
http://foodtechupdates.blogspot.com

LPG SUBSIDY AND AADHAAR CARD-A SKEWED CONNECTION!

The so called Direct Cash Transfer Scheme (now being rechristened as Direct Benefit Transfer, (DBT) is going to be one of the greatest scams this country has ever seen if many observers who have been warning the government of India not to go ahead with this madness are to be take seriously. With every citizen becoming allergic to every government agency in this country due to the insensitivity, callous disrespect to the sufferings of the citizen, inordinate delay in delivering services which are their right under the constitution and anarchy inherent in the system, will DBT be different? Even for reddressal of a simple complaint it takes ages and umpteen number of pilgrimage to the cozy office of the "Sarkari Babus" to get an attentive ear, let alone solving the same! How can DBT be different though tall promises are being made on the eve the forthcoming general election? The UIDAI which normally can be a good thing for a country like India for a citizen to prove his or her identity, the way it is being promoted raises many uncomfortable questions! Here is critic's commentary on DBT which is really incisive and eye opening.   

Is the DBT scheme driven by some such extraordinary popular (or perhaps unpopular) delusion? It would appear so. Alternatively, it could be legerdemain. The latter appears more likely. The 'madness of crowds' could be sensed in the queues that line up for enrolment in UID fearing loss of LPG subsidy. The prophecy of the UIDAI chief that the 'voluntary' UID, "would become ubiquitous" and "service-providers may ask for it" is being fulfilled right before our eyes. Voluntariness of UID has become a cruel joke. The government / UIDAI justifies or rationalises DBT using Aadhaar numbers linked to bank accounts  saying that crediting subsidies into bank accounts of domestic LPG consumers would prevent leakages of subsidies. This again, is an assumption without any 'aadhaar' (foundation). Subsidy leakages of the order of Rs 12,000 crore are sometimes bandied about, though no one has said how the figure was arrived at and why no action has been taken so far, if such large-scale abuse is a fact. Significantly, the minister for petroleum made no mention of Aadhaar in his speech at the launch of the LPG portal, but said, "the need to curb unauthorised use of LPG for commercial purposes has become acute." The LPG portal creates transparency, which would prevent unauthorised use of LPG. If so, what is the purpose of DBT?

Millions of people in this country are going to suffer because the so called electronic pay out towards subsidy is unlikely to work efficiently with hundreds of loopholes and "system failures" very often cited by institutions like banks for the delay to their customers. Where will the citizen go if the subsidy is not deposited promptly in his account in the earmarked banks? No where! Government may claim it has hot lines and toll free numbers for affected citizens to call and complain but past experience shows that these government phones are either dead or perennially "engaged"! Some people believe that the UIDAI is a simple ploy to reduce the subsidy burden on the government by default as many beneficiaries would get frustrated dealing with an unresponsive "babu net work", finally giving up on their eligible subsidy. 

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

TAXING THE FOOD-IS IT ETHICALLY AND MORALLY JUSTIFIED?

Taxation and other financial impositions by governments all over the world are borne by the citizens believing that the money so collected goes for developmental activities beneficial to the citizen. But this does not happen, especially in an over democratic country like India where silent tax players never ask the government about lack of development in spite of paying taxes at rates unbearable to many. On top of it natural resources like spectrum, coal etc are distributed at throw away prices creating huge financial scams, depriving the government the much needed financial inputs for various developmental activities. Added to this a small percentage of citizens, that too mostly from the salaried class who pay income tax while a bevy of taxes are "innovated", like sales tax, value added tax, excise duty, import duty, service tax, wealth tax, road tax, property registration fees etc to fleece the citizens. While all these are understandable, what is reprehensible is the tax levied on food and drugs by state governments making them more expensive. How can any one justify taxing a basic food like food grain which is the essential for any human being to lead a normal life. Here is a critique on this subject.

'High taxes, levied by major food grain growing states of Punjab and Haryana, have made the Centre's task of selling wheat at low rates in the open market difficult. The taxes, ranging from 4.7 per cent in Madhya Pradesh to 11.5 per cent in Haryana and still higher at almost 14.5 per cent in Punjab, are incurred by the Centre while procuring grains from farmers every year at a fixed minimum support price (MSP). It is difficult for the Centre not to pass on these taxes to consumers at the time of selling grains in the open market as then its food subsidy burden will further inflate. According to some estimates, around 10 per cent or Rs 7,000 crore of the total food subsidy in 2011-12 was due to state taxes and levies, which the Food Corporation of India (FCI) paid by way of levies and taxes to different states".

Government of India generates inflation index periodically and one is not sure how reliable these figures are. Still a major contributor to inflation is the taxes levied on every conceivable consumer material the government can set its yes on! How can the private vendors and shops can be faulted if they also indulge in raising the prices on their own. Look at the hotel sector which has seen price hikes to the extent of 100% during the last two years as they are not covered by the rule of compulsory MRP declaration. Even those covered under MRP regulations consumers have learned long ago that the MRP declaration does not serve much of a purpose because, till recently, consumer products industry has been practicing fraudulent means in keeping the price line steady but progressively reducing the quantity within a pack! A honest government if it has any consideration for the sufferings of its people must exempt all foods, especially the basic ones, from the purview of punitive taxation!  The excuse that federal government in India cannot prevent the states from imposing tax on foods is just an excuse which the citizens cannot accept.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

   

THE MEGA FOOD CORRUPTION-SQUANDERING PUBLIC MONEY?

What is the best way to please a citizen whose vote is important in a democracy? Normally answer would be to serve the voters through developmental projects and help to make life easier but in India the political parties with all hues have discovered that populist measures with huge financial commitment from the exchequer are the surest bet! The ever vigilant Election Commission is trying its level best to prevent direct "bribing" of the voters through cash payment, obviously with the ill-gotten black money though those caught are minuscule of the vast amounts deployed during election time. In the US the government makes payment to the tune of billions of dollars to its super rich farmers who in turn fund the election of many law makers there. The not so "brand new" program for mass appeasement through the proposed Food Security Bill which is yet to be enacted into a law has the flavor of a massive corruption in the name of citizen welfare. In stead of identifying and supporting those who are in dire need of food, lacking the necessary purchasing power, here is a government trying to give food grains at literally throw away prices with hope that voters will be grateful to it and support the ruling political party in coming elections. Here is a take on this national folly which can cause irreparable damage to the working morale of the population at large! 

'The new Food Security Bill would provide subsidised grain to 75 percent of people in the countryside and half the urban population -- about 810 million -- who cannot afford to eat properly. The extra annual requirement for rice and wheat under the draft law will be at least 45.6 million tonnes -- doubling current levels handed out by the world's second-biggest rice and wheat producer. The food ministry is assuming it will need about 30 percent of total wheat and rice output which tops 180 million tonnes to cover the subsidised food, relying on increased yields and lower wastage to meet demand and keep exports on the agenda".

The investment by its sheer size is astronomical but what is of concern is that such ostentatious spending cannot be considered an investment at all because it is going to be a regular commitment from which no future government will have the courage to backtrack if required. Though it is suggested that this policy will continue till the people are brought out of the poverty cycle, this will be almost like the reservation policy for which the constitution had laid a time limit of twenty years but politicians found it expedient to perpetuate this policy indefinitely for enriching their vote banks. Imagine how effective it would have been if this amount were to be invested on creating permanent assets that will benefit all segments of population. After neglecting agriculture for decades and creating a situation for mass suicides of poor farmers, here comes a policy of appeasing the voters through  supply of food grains practically free without bothering to look at the logistics of producing the expanded need under the new Bill. Government's priority ought to have been to modernize the PDS regime making it pilfer proof and delivering the food to the really needy and deserving consumers in "decent" condition. What will be the future of a country where people do not have to work and earn to get their "daily bread" when it is offered on a platter, practically free of cost!

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

FOOD SECURITY BILL-WILL IT CHANGE THE PRESENT GROUND REALITIES?

Here is a take on the line of thinking of GOI regarding food security assurance to its people as enunciated in the proposed food security bill. While on paper it looks impressive one cannot be sure about the strategy and practical steps that are needed to implement it at the ground level and ensure that the targeted beneficiaries are really benefited

"The draft Food Security Bill makes it compulsory for state governments to pay a food security allowance to targeted sections in case of failure to supply food grain through a sweeping welfare scheme targeted at nearly three-fourths of the population. The amount will be decided by the central government. The draft bill also presses for a radical overhaul of the food distribution system by giving incentives to independent agencies that procure food grain, according to a the draft, viewed by ET. The bill calls for improved "modern and scientific" storage and doorstep delivery of grain to targeted public distribution system outlets. The National Food Security Act 2011 is the most expansive - politicians have called it showpiece-legislation of the UPA government in its second term in office. It covers all India, except Jammu and Kashmir. The priority households, the main beneficiaries of this bill, will be selected from the poorest 46% in rural areas and 26% in urban areas. Another 29% and 22% of the population from rural and urban areas, respectively will be treated as general category". "The bill also guarantees 7 kgs of grain to every person belonging to priority households and 3 kgs to individuals from general households every month at subsidised prices. The draft has cast the so-called National Food Security Bill 2011 into the mother of all welfare schemes by providing free food to children and pregnant women and encompassing swathes of people such as the destitute, the homeless and migrant workers, as ET had reported on Sunday. The draft bill also envisions a radical change in welfare schemes by making women of 18 years and above as head of selected households that can access rice, wheat and nutri-cereals with ration cards. The draft bill is that it pushes for the creation of an advisory body called the National Food Security Commission to help the central government implement the landmark welfare scheme. The commission will advise the central government on "synergising existing schemes and framing news ones for entitlements". It will also recommend steps for effective implementation of schemes through greater government oversight by dramatically overhauling the nation's food distribution system, says the draft". "Under the food commission's watch, guidelines will be issued for the training, capacity building and performance management of people involved in the implementation of welfare schemes, says the draft. The commission will also prepare annual reports on implementation of the Act. The commission will be headquartered in Delhi and comprise a chairperson, a vice-chairperson and five other members, provided that there at least two women and at least one person each from the scheduled castes and scheduled tribes. The centre will pay the salaries of the commission's bosses, support staff and administrative expenses, says the draft. The emphasis on women and 'vulnerable' groups is a common thread running through the draft bill, which largely follows a script laid out by the National Advisory Council (NAC) led by UPA chairperson Sonia Gandhi. For example, the draft bill's guidelines to identify the so-called priority and general households sharply resemble an NAC explanatory note on the bill". "The draft bill says that the centre must periodically prescribe guidelines to identify households selected for the food schemes, including exclusion criteria. It also says these households must be reviewed and updated through periodic surveys, which happens to be another key NAC recommendation to the food ministry, which has prepared the draft and is tasked with the Act's implementation. The draft bill also fixes responsibilities on the central and state governments. The centre must allocate "required quantity" of food grain to state governments under targeted PDS from a central pool of stocks. This allocation must be revised annually based on actual or estimated population counts. And in case of short supply of food grain, the centre must give states funds equivalent to the deficit at prices it fixes, says the draft. States must implement and monitor schemes to ensure "actual delivery and supply of grain to entitled persons". States are to also establish food security commissions under the ambit of the national advisory body, says the draft. State governments are to support breastfeeding for six months from birth through "counselling and related assistance".

How far the new policy will alleviate the hunger and poverty in a country, notorious for corruption and misuse of public resources, remains to be seen. While the thinking behind the Bill is laudable, logistical problems and hang over from the past can derail the new approach. Another imponderable thing is whether this Bill will remain on paper or be implemented. With the food subsidy expected to go up from the present Rs 60,000 crore to 100,000 crore a year if and when the new policy is implemented, the country can ill-afford to waste such a huge public money through mismanagement and inefficiency.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

AGRICULURAL SUBSIDY-IS THERE A WAY OUT?

Subsidy in any form is a dirty word for some but it is practiced world over by each country to protect the interests of its citizens in some critical areas of economy. Billions of dollars being spent on agricultural subsidies by the US and the EU are nothing short of a scandal, hitting the very foundation of a free and fair world trade. Imagine a country like the US even subsidizing its ultra rich farming families not to grow food crops in government lands leased out to them, the intent being to prevent instability in the market due to excess production! GOI provides massive subsidies, direct as well as indirect, to millions of farmers in India for buying fertilizers, through free and/or low cost power and water, interest waivers on loans and periodic loan waivers. A nation of huge population like India cannot afford to ignore the interests of the growers because the farming community, forming more than 70% of the population determines whether there is famine or glut of agricultural crops. Financial experts always frown on subsidies and alternatives are suggested from to time to wean away the country from such profligacy.

"Instead of providing subsidy through free electricity and cheap fertiliser, an international food policy research institute has advocated gradual withdrawal of the subsidy regime by providing short-term compensation to farmers and investing the subsidy amount directly for increasing farm yield. A senior official with Washington-based International Food Policy Research Institute (IFPRI) told FE that the agriculture growth could be achieved by gradually removing farm subsidy. "The government must cut down on subsidy in agriculture such as electricity and fertiliser and compensate farmers in short run after withdrawing the subsidy so that they do not get hurt due to change in the policy regime," Mark Rosegrant, director, environment and production technology division, IFPRI, told FE. He also suggested that the government must invest the financial resources saved because of subsidy cut into the agriculture sector so that it becomes viable".

Sitting in Washington and giving a prescription for India may look far-fetched, especially from persons not familiar with the peculiarities of Indian agricultural situation but there is some substance in the argument. A farmer used to subsidies and assured minimum support price for his product can never be expected to be an efficient producer and his operations may never be viable as an economic activity with business potential. Unless there is consolidation of agricultural holdings, most of them having less than 5 hectares currently, farming sector cannot sustain itself for long.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

"GREEN" ENERGY-ECONOMICALLY SUSTAINABLE?

It is well known that most forms of green energy cannot compete successfully with that generated using fossil fuels and long term policies to establish alternate energy systems must subsidize entrepreneurs venturing into this field in order to bring down their market price. This obviously does not mean that alternate energy industry must be on a perpetual subsidy "diet" for survival. With fossil fuel sources declining continuously, the cost of drilling and distribution may make them increasingly costlier in the coming years. But how a subsidy regime can go terribly wrong is borne out by the experience of Spain which was in the fore front in 2008 by installing half the global solar energy installations in the world.

"But as low-quality, poorly designed solar plants sprang up on Spain's plateaus, Spanish officials came to realize that they would have to subsidize many of them indefinitely, and that the industry they had created might never produce efficient green energy on its own. For now, electricity generation from the sun's rays needs to be subsidized because it requires the purchase of new equipment and investment in evolving technologies. But costs are rapidly dropping. And regulators are still learning how to structure stimulus payments so that they yield a stable green industry that supports itself, rather than just costly energy and an economic flash in the pan like Spain's".

Probably there are lessons to be learned from Spain's experience by other countries because solar energy is still the most attractive option in any alternate sustainable energy plan or program. Italy, where energy cost is one of the highest in the world, working out to almost 45 cents a unit, is probably the only country where solar energy can compete successfully using modern technology. Increased cost of fossil fuels and depleting global sources may make fossil based energy increasingly costlier while solar power plants may see progressive reduction of cost of generation with continuous improvements in technology.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com