Does India need a ‘New Deal’ for her farmers?

Does India need a ‘New Deal’ for her farmers?

Can a middle ground between farmers and the government on MSP be reached by reimagining a US ‘New Deal’ Farm programme? The US New Deal in the 1930s saved agriculture in the US from a multi-year slump. It involved production quotas, assured guaranteed incomes through price floors and non-recourse loans

The farm leaders from the Samyukt Kisan Morcha may have rejected the government’s proposal for guaranteed purchase of five agri commodities for five years, creating a new political deadlock between themselves and the government. But agriculturally speaking, all hope is not lost as the government’s preliminary proposal is the first step towards a ‘new deal’ for Indian agriculture.

The Great US Farm Crash

After a few great years at the turn of the 20th century, millions of American farmers face a silent economic meltdown post-World War I. Prices fell in June 1920 and for the next two years continued to plummet. For example, look at the difference between total value of agricultural products – In 1920 it was $18,328,000,000 which dipped sharply to $12,402,000,000 in 1921. By the time the meltdown started, thousands of farming families were foreclosed in states like Iowa and the American dream came crashing on its farmers all over the hinterland.

In the years since, rural unrest was rising in America and then came the big 1929 Great Depression, taking with it any hope of the American farmers to bounce back. There were big civil disobedience movements in Iowa called ‘Farmers’ holiday’, where they wanted to block off food supplies to the cities to gain leverage over the government.

The US ‘New Deal’

Seeing problems of overproduction, falling incomes and rural America on the precipice of economic meltdown, the FDR government that came to power in 1933 introduced a ‘new deal’ for its farmers. This new programme called the parity programme was a unique system of supply management. Farmers were given production quotas and assured guaranteed incomes through price floors for those crops.

This was done through two modes – first through agriculture co-operatives like the Burley Tobacco cooperative, which organised the farmers, acted as bulwark against over-production and provided the platforms where their produce could be traded at the price floors. In case the farmers could not sell it to a private buyer at the price floor or above, the co-operative would buy the farmers produce and adjust the growing quotas of the farmers next year.

Each season growing quotas were decided after taking stock of the carry over produce in the government godowns from last year, agri-climatic conditions and market requirements. The USDA recommended prices and the US Senate ratified it.

In a second mode of providing farmers assistance, the government for example in areas of Iowa sent farmers their production quotas ahead of the sowing season and also set the price floor for it too. At the time of harvest, the farmers merely had to go to the nearest private or government grain elevator or silo, deposit the grain, and get it sealed. It was then inspected by the government agencies and the farmers were issued a certificate which he/she could take to the bank and get a non-recourse loan of up to 90 percent value of the stored grain for nine months immediately.

The farmers in the nine months can sell the produce in the open market, and then pay back the bank the principal and interest accrued. In case the farmer is not able to sell it in the open market, then the government takes over the grain from the grain storage and commodity credit corporation (CCC) repays the bank involved the principal and interest.

This is the most successful agrarian programme in the history of the world. Between 1942 and 1952, the programme revitalised rural America. The net farm income saw a 115 percent increase ($248 billion) from the 1920-32 period (average $115 billion). Millions of Americans were saved from starvation and foreclosures due to this programme. And once the programme eroded under administrative mismanagement and corporate pressure, the decline of rural America started with it.

New Deal For Indian Farmers?

Although this is a US programme, it can be easily adopted in India by linking Kisan credit cards (KCC) to farm produce. The government should allow for crop produce of farmers to be used as collateral at banks or through KCC. This way farmers will have access to credit during the sowing seasons and by announcing price floors they will ensure farmers cash income.

The only investment the government needs to make is in decentralised grain storages and godowns, which in any case is in the government’s agenda. NAFED and FCI can also help the farmers get market access by exploring international markets for Indian produce.

It is about time India invests in supply management and creates a new mechanism that delivers fair price to her farmers, industry and consumers and brings food stability to the world.

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