Months after receiving preferential government loans, Indian farmers soon will be allowed to walk away from their debts without repayment of either principal or interest, according to a Dec. 9 article by Bloomberg.
The outlet explained how some well-heeled agribusinesses in India are using the free money to expand at a time when many global commodity markets are awash in a glut of subsidized surplus.
Bloomberg noted:
“Vattikuti Prasad grows rice, bananas and sugar cane on his farm as big as 27 football fields in a part of southeastern India, where most farmers own plots the size of just one. He has two homes, including a four-bedroom house he rents out in a nearby town.
“This year Prasad took out…cheap farm loans from State Bank of India and said he planned to use them to open a third branch of his pesticide and seed business in the state of Andhra Pradesh. And for the second time since 2008, he won’t be paying the money back: The government has offered to forgive $5.6 billion in agricultural loans, according to a report seen by Bloomberg News.
“It is easily available, so I’m taking it,” Prasad, 37, said while counting a wad of 1,000-rupee notes from his shop’s cash drawer under a noisy ceiling fan in the punishing heat. As many as 80 percent of fellow businessmen in his town of Tanuku, a 250-mile drive from Hyderabad toward the Bay of Bengal, have spent their farm loans on all kinds of things, especially buying more land, he said, with the confidence the money is free. “Why should we repay now?
“As part of campaign promises to win re-election earlier this year, officials in Andhra Pradesh as well as neighboring Telangana state promised farmers debt relief. Andhra Pradesh offered to waive as much as 150,000 rupees per farmer, Telangana 100,000 rupees. Both states are following a 2008 precedent, when the central government forgave $11.4 billion in loans to 40 million farmers nationwide…”
Subsidizing sugar is nothing new for India, which has combined the no-pay-back loans with controversial export subsidies, government market mandates, and cane mill bailouts to pull ahead in a three-way sugar subsidy race with Brazil and Thailand.
Unfortunately, these nations’ race to subsidy supremacy has gutted global sugar prices and harmed farmers in many developing nations as a result.
Of course, it’s not just India and it’s not just sugar involved in loan-to-subsidy schemes and other hard-to-follow government programs.
Unlike the United States, which has a transparent Farm Bill process and clearly defines its agricultural policies, many foreign countries rely heavily on indirect subsidies that often go unreported to support agricultural producers.
DTB Associates, a D.C.-based trade consultancy, first reported on the rapid growth of foreign farm programs back in 2011. Their report detailed programs in India, Thailand, Brazil and China, and showed those countries to be in direct violation of agreed-upon WTO subsidy limits.
And since 2011, the situation has only deteriorated. Thailand, for example, created an unprecedented market mess with its recent policy decisions.
In an attempt to win political favor with powerful rice farmers, the Thai government started a massive stockpiling program and purchased rice from growers at a 50 percent premium. Now the government has way too much rice on its hands and it is offering preferential loans (which may be forgiven) and one-time cash payments to farmers in exchange for not marketing this year’s harvest.
Thailand is also offering incentives, including access to state land, for rice farmers to convert to sugar production in hopes that lower production will ease the market depression caused by Thailand’s failed stockpiling policy.
China, too, has massive stockpiling programs to artificially manipulate markets. Such stockpiling, which is notorious in cotton circles, extends to other crops as well.
And Brazil is eyeing higher ethanol usage mandates to complement the recent announcements of $2 billion in loans, $620 million in state investments, and a $480 million bailout package to bolster its struggling sugar-ethanol sector.
With this kind of subsidy escalation and no end in sight, it makes you wonder why anyone would listen to the likes of Brazil, India, Thailand, China, or any of their backers when they attack U.S. farmers and the 2014 farm bill.
Editor’s note: Hayes is the director of media relations for the American Sugar Alliance. Email him at phillip@sugaralliance.org.