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On the political economy of corporate encroachment in agriculture: short term macroeconomic concerns

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Abstract

Macroeconomic interactions between agriculture and non-agricultural sectors of a developing economy are irreducibly linked to corporate encroachment in agriculture. In this paper we discuss some short run aspects of macroeconomic interaction between the agricultural and non-agricultural sectors of a developing economy like India with implicit and explicit policy support to the process of corporate encroachment in agriculture. We then set out a simple mathematical model to evaluate the macroeconomic consequences of policy support to the process of corporate encroachment in agriculture. An important component of inter-sectoral relationships in India has been the institution of a system of public procurement of agricultural commodities and its disbursal through a public distribution system. Policy support to corporate encroachment in agriculture has involved both these components for instance an attenuation of public procurement and a diminution of the public distribution system due to targeting. Though the Three Farm Laws have been repealed, the threat of further corporate encroachment into agriculture, through other means, remains.

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Notes

  1. (FAO, 2018) noted the importance of public procurement in increasing viability of small-holder cultivators, improve nutrition outcomes and hence food security by promoting dietary diversity of the vulnerable sections of the population and promoting ecological sustainability by focusing on (food) crops that often tend to (but not always) generate relatively lower greenhouse gas emissions.

  2. The agrarian trajectory in India has been dominated by the rural elite (Ramachandran, 1990; Mohan Rao and Storm, 1998) As a result, a system of public procurement of some agricultural commodities was instituted. The government has also created a buffer stock of foodgrains and a PDS, that was subsequently shrunk by targeting (Saratchand, 2018). These measures have strengthened the quest of the working poor to try to remain above the level of consumption corresponding to subsistence. We try to formalize some of these features in the macroeconomic model of this section.

  3. The moniker APMC mandis prevails in North India.

  4. Milk is another food item that is widely procured by cooperatives in India (Christie, 2020).

  5. A critique of the policy response of the government of India to the Covid-19 pandemic is set out by (Ghosh, 2020).

  6. It is arguable that the profit margin in the non-agricultural sector is an increasing function of the degree of capacity utilisation (Rowthorn, 1981) However, in the short run this link between changes in the degree of capacity utilisation and the profit margin is assumed away. We intend to reinstate this relation when we extend our short run macroeconomic model to the long run.

  7. If the agricultural commodity is used as an input in the non-agricultural sector then either the profit margin in the non-agricultural sector or the nominal wage of workers will become endogenous. What is more plausible is that in the short run, the profit margin becomes endogenous while the nominal wage rate is exogenous. But in the long run, the profit margin attains some target level while real wages get squeezed due to the burgeoning reserve army of labour that characterises developing countries such as India.

  8. In countries such as India, there were legal limits on stock-holding of agricultural produce by the private sector (before the Three Farm Laws that were imposed in 2020). We normalise that limit to zero to get the model of this section.

  9. In particular we assume that there is no import or export of agricultural commodities. According to (DES, 2020) for the year 2018–2019, the share of wheat exports in total domestic production is 0.22%, the share of wheat imports in total domestic production is 0.003%, share of rice imports in total domestic production is 0.006% and share of rice exports in total domestic production is 10.4%. In case, India imported foodgrains then that would not only undermine domestic policy sovereignty but also increase these import prices since Indian imports would tend to be large relative to world trade in foodgrains.

  10. (Patnaik, 1996) has argued that: “Experience has shown that larger investment in agriculture can call forth larger agricultural output (upon a socially narrow base of landlord capitalism), perhaps not indefinitely but certainly up to a point. What is essential is investment, and private investment here is complementary to public investment. More public irrigation for instance results not only in more private adoption of the seed-fertiliser technology, but also in more private irrigation”.

  11. The concepts of surplus value and its realization and its decomposition into profit of enterprise, interest, rent etc. is discussed by (Marx, 2010[1867], (2010[1884], (2010[1894]).

  12. Here we assume that different types of appropriators of realised surplus value among the rural elite save an identical fraction of their share of realised surplus value in the sector. Now \(p_a\) determines \(RS_A\) and \(p_a\) in turn is determined by Eq. (7). If there are two types of appropriators of \(RS_A\) who save different fractions of their share of \(RS_A\) then a redistribution of realised surplus value between these two will change the R.H.S of (7) and therefore \(p_a\) and consequently \(RS_A\).

  13. In principle, any price could be the numeraire. However, since the demand and supply in the private market for the agricultural commodity is equated by price changes, since agricultural output is fixed in the short run, it is theoretically more appropriate, to posit the price of the non-agricultural commodity as the numeraire in the model of this paper.

  14. Money is endogenous but implicit in the model. Since investment is given in the short run, the choice of capitalists between adding to fixed capital or hoarding money does not explicitly figure in the model.

  15. Since the expression \((p_x^1-p_x^2)\) does not seem to have a definite sign we are unable to express the condition given by Eq. (18) more compactly.

  16. A redistribution of realised surplus value between the rural elite and rural non-elite due to changes in the private procurement price will have a limited impact on \(RS_A\) as long as the share of the realised surplus that accrues to the rural non-elite is sufficiently small.

  17. \(\sigma\) may be affected by a rise in \(p_a\). A fall in \(p_a\) will induce private procurers to sell more if they expect the future level of \(p_a\) to be lower than at present and vice versa. However, we have assumed in the paper that \(\sigma\) is a parameter for two reasons: first, it is a short run model with a given a level of expectations about the future trajectory of the private market price of agricultural produce (namely \(p_a\)); secondly, \(\sigma\) depends on both expectations about \(p_a\) and government policies regarding corporate encroachment; we sought to capture this policy process through the use of \(\sigma\) as a comparative statics parameter in the model of the paper. We postpone a discussion of this process to a long run extension of this model that we hope to undertake in the future.

  18. It may be pointed out that the magnitude of private market sale of the agricultural commodity could also be expressed as \((1-\mu -\sigma )O_a\). But in this case, \(\sigma\) represents the share of total agricultural output that is added to the speculative stock of private procurers. Both definitions of \(\sigma\) are mathematically admissible.

  19. A theoretical discussion of such issues is contained in (Saratchand, 2018).

  20. Most developed economies have ensured adequate domestic food security through substantial subsidy based support to their agricultural sectors.

  21. Reliance on food imports may have deleterious consequences on policy sovereignty.

  22. A detailed survey of the literature on agricultural markets in India is undertaken in (Jan and Harriss-White, 2012).

  23. After 1947, India traversed a dirigiste trajectory of accumulation of capital where the domestic big bourgeoisie has entered into a contradictory alliance with the landlords. It this contradictory alliance between the domestic big bourgeoisie and the landlords that had been put under some stress by the Three Farm Laws.

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Authors and Affiliations

  1. Department of Policy Studies, TERI School of Advanced Studies, Delhi, India

    Shantanu De Roy

  2. Department of Economics, Satyawati College, University of Delhi, Delhi, India

    C. Saratchand

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Mathematical Appendix: Parameter Value Ranges

Mathematical Appendix: Parameter Value Ranges

All parameter values are positive. We set out below the ranges of those parameters which, in addition, have a positive upper bound.

$$\begin{aligned}&\mu <1 \end{aligned}$$
(63)
$$\begin{aligned}&\sigma <1 \end{aligned}$$
(64)
$$\begin{aligned}&h<f \end{aligned}$$
(65)
$$\begin{aligned}&\eta <1 \end{aligned}$$
(66)
$$\begin{aligned}&s_a<s_m<1 \end{aligned}$$
(67)

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De Roy, S., Saratchand, C. On the political economy of corporate encroachment in agriculture: short term macroeconomic concerns. Econ Polit 40, 869–897 (2023). https://doi.org/10.1007/s40888-023-00309-8

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