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Chakrabarti CritiqueInclusiveGrowth 2014

The document critiques the concept of inclusive growth in agriculture, arguing that the integration of third-world agriculture into the global market often leads to the exclusion and immiserization of rural economies. It highlights the contradictions in the World Development Report 2008's assertion that globalization will benefit the poor, emphasizing that the shift towards high-value crops can displace traditional subsistence farming and disrupt rural non-farm economies. The author calls into question the feasibility of achieving truly inclusive growth when such processes inherently create both inclusion and exclusion.
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0% found this document useful (0 votes)
25 views21 pages

Chakrabarti CritiqueInclusiveGrowth 2014

The document critiques the concept of inclusive growth in agriculture, arguing that the integration of third-world agriculture into the global market often leads to the exclusion and immiserization of rural economies. It highlights the contradictions in the World Development Report 2008's assertion that globalization will benefit the poor, emphasizing that the shift towards high-value crops can displace traditional subsistence farming and disrupt rural non-farm economies. The author calls into question the feasibility of achieving truly inclusive growth when such processes inherently create both inclusion and exclusion.
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A Critique of Inclusive Growth: Problems of Modernization of Agriculture

Author(s): Saumya Chakrabarti


Source: World Review of Political Economy , Vol. 5, No. 3 (Fall 2014), pp. 372-391
Published by: Pluto Journals
Stable URL: https://www.jstor.org/stable/10.13169/worlrevipoliecon.5.3.0372

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A CRITIQUE OF INCLUSIVE GROWTH
PROBLEMS OF MODERNIZATION OF AGRICULTURE

Saumya Chakrabarti

Saumya Chakrabarti is an associate professor of economics and the honorary


director, Agro-Economic Research Centre at Visva-Bharati (University),
Santiniketan, India. He has undertaken research and higher degree supervision
in the fields of development economics and macroeconomics of developing
countries with a focus on the agriculture–industry linkage, rural–urban
informal sectors and formal–informal relations. He obtained his MSc, MPhil,
and PhD from Calcutta University and has published in the Review of Radical
Political Economics, International Critical Thought, Cambridge Journal of
Economics, and Economic and Labour Relations Review. Email: saumya.
[email protected]

Abstract: Diversification of agriculture and allied production processes intended for the
high-value domestic and export markets create the scope for intervention of big capital in
agriculture through variety of contracts. However, this intrusion of capital in the fields of
agricultural production and distribution displaces the petty production-based rural non-farm
economy (RNFE), having a symbiotic relation with the traditional subsistence agriculture. The
change in the cropping pattern in favour of high-value-crop and diversion of resources toward
the modern animal husbandry initiate an inclusion of the relatively advanced and asset-rich
parts of agriculture and allied activities into the growing global economy, but it breaks the
close links between the subsistence agriculture and petty RNFE. Furthermore, the population
engaged in urban food retailing is also displaced by the intrusion of the supermarket chains.
Last but not the least, if crop-diversification is undertaken through large-scale substitution
of basic cereal production, it seriously affects the micro- and macro-food-security leading to
immiserization of the rural and urban poor.

Key words: crop-diversification; firm–farm contracts; rural non-farm economy; food security

1. Introduction

Agriculture is a vital development tool for achieving the Millennium Development Goal
that calls for halving by 2015 the share of people suffering from extreme poverty and
hunger. That is the overall message of this year’s World Development Report (WDR),
the 30th in the series. Three out of every four poor people in developing countries
live in rural areas, and most of them depend directly or indirectly on agriculture for

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A CRITIQUE OF INCLUSIVE GROWTH 373

their livelihoods. This Report provides guidance to governments and the international
community on designing and implementing agriculture-for-development agendas that
can make a difference in the lives of hundreds of millions of rural poor. (World Bank
2008, xiii)

The target of this note is to address the issue of “inclusive growth” from a critical
standpoint. It is argued in the orthodox literature that the ongoing course of
globalization can be a harbinger of a growth process which is inclusive in nature.
Thus, globalization not only induces growth of national income and brings in
prosperity in the lagging least developed countries (LDCs), but also ensures an
overall uplift of the standard of living of the vast majority of the poor who live
in these countries. However, we, on the contrary, argue that this very project of
“globalization and inclusive growth” is mired with contradictions. Our objective
in this article is to bring out such incongruities by investigating a major policy
prescription that is supposed to ensure broad-based growth by linking the local
economies, in particular, agriculture with the global market.
The orthodox school argues that the significant progress in the spheres of trade,
finance, industry, and other services in the LDCs is due to the fact that these sectors
of the developing world have achieved considerable extent of global connectivity.
This integration with the global market is thought to bring in substantial gains
also for the population engaged with these so-called modern sectors. Contrarily,
it is contemplated that, by and large, the agricultural sectors of the LDCs remain
outside this globalizing world, and hence, due to this lack of global connectivity,
the third-world agriculture lags behind. Furthermore, as the vast majority of the
people of the developing world have to live on this sector, they are unable to come
out of the poverty trap. Consequently, a program of “inclusive growth” cannot
neglect the issue of inclusion of the third-world agriculture into the globalizing
modern market-economy. This global integration is supposed to be the solution
of the dual problems of lagging agriculture and also impoverishment of the vast
majority of the third-world population. In fact, this integration of the third-world
agriculture is considered to be the new panacea for inclusive growth.
In this context, the WDR 2008 (World Bank 2008) has been introduced with
the title “Agriculture for Development.” Its fundamental proposition is that,
agriculture of the LDCs should be so designed that it could engender growth, and
more importantly, this growth could be broad-based in nature. The World Bank
President observes that “[t]oday, rapidly expanding domestic and global markets;
institutional innovations in markets, finance, and collective action; and revolutions
in biotechnology and information technology all offer exciting opportunities to use
agriculture to promote development” (World Bank 2008, xiii). Thus, the inherent
logic of this WDR 2008 is to attach agriculture with the globalization process

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374 Saumya Chakrabarti

which could ensure access to all these opportunities. It is proposed that, with the
incorporation of the third-world agriculture within the global economy, not only
new growth opportunities are created, but also the benefits of this growth percolate
to the rural poor; and thus, an inclusive growth process is ensured.
However, we critically analyze this claim of the WDR 2008 by interrogating
a very crucial policy prescription proposed by this report. In fact, through
our enquiry, we raise the fundamental question: whether an all-encompass-
ing inclusive growth is at all possible. We try to show that the phenomena of
inclusion and exclusion operate side by side. Thus, contrary to the orthodox
position, we argue, the growth process ensured through an inclusion of certain
parts of the local economy within the expanding global market invariably creates
exclusion somewhere else. Exclusion and inclusion are the two moments of the
same process, i.e., the process of generation of economic growth through global
(capitalistic) accumulation and integration. In our following analysis, we try to
show that, specifically, an inclusion of certain parts of the third-world agriculture
may generate exclusion and immiserization (and even eviction) within the broader
rural and urban economies of the LDCs.

2. WDR 2008: A Major Policy Suggestion

It is noted in the WDR 2008 that

[f]ar-reaching changes in domestic and global markets are creating big opportunities
for farmers and agribusiness entrepreneurs. The demand for high-value primary and
processed products is rapidly increasing, driven by rising incomes, faster urbanization,
liberalized trade, foreign investment, and advancing technology. These developments
are expanding market opportunities, which is important for faster agricultural and
non-farm growth and for greater employment and rural incomes . . . (World Bank 2008,
118; emphasis added)

Consequently, the WDR 2008 prescribes for extensive “diversification” in


the LDCs shifting agricultural and allied production away from the traditional
subsistence crops to the “high-value-crops” (HVC), i.e., high-value cereals, fruits
and vegetables, flower, and agro-fuel feedstock as also modern livestock products:

High-value markets for domestic consumption are the fastest-growing agricultural


markets in most developing countries, expanding up to 6–7 percent a year, led by
livestock products and horticulture. Fresh and processed fruits and vegetables, fish
and fish products, meat, nuts, spices, and floriculture now account for 43 percent of

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A CRITIQUE OF INCLUSIVE GROWTH 375

agro-food exports from developing countries, worth about $138 billion in 2004. (World
Bank 2008, 12)

Agricultural exports diversified significantly in the last two decades, particularly into
high-value fresh and processed products, fueled by changing consumer tastes and
advances in production, transport, and other supply-chain technologies . . . Continued
growth of these high-value exports will require efficient value chains, particularly
domestic transport, handling, and packaging, which make up a large share of the final
costs. (World Bank 2008, 128–29)

In fact, the argument is that the traditional subsistence crop farming is no more
profitable as, on the one hand, costs are steeply rising due to withdrawal of the
state supports and, on the other, prices are not that remunerative in the absence
of “support-prices” and also due to increased global competition. There are
serious ecological costs as well. Nonetheless, both the domestic and international
“higher-value” markets for the high-value commodities (both primary and
processed products) are expanding very fast which is creating a unique opportunity
for the third-world agriculture, because a large part of the developing world has
comparative advantage in these items. Many of the LDCs have economic and
agro-climatic conditions that are favorable for production of HVC and modern
livestock products. But most of the HVC, especially fruits, flowers, and vegetables,
and the livestock products are highly perishable and hence require sophisticated
“supply chain” consisting of modern handling, grading, storing, processing,
transportation, and quick delivery mechanisms. The advancement of technology
and entry of big players in a globalized world have made this modern supply chain
commercially available:

Rising incomes, urbanization, greater female participation in the workforce, wider media
penetration—all are driving the demand for higher-value products, semiprocessed and
processed products, and convenience foods. They are also increasing consumer attention
to food quality and safety. Diets are globalizing too, with local consumer preferences
influenced by international tastes. These trends open new markets for a wide range of
higher-value agricultural products and propel the evolution of the marketing system in
many developing countries, with the entry and rapid growth of supermarket chains and
the food processing and food service industries . . . For many developing countries, the
supermarket revolution began in the early to mid-1990s. By the early 2000s, retail food
sales in supermarkets exceeded 50 percent of total retail food sales in many countries
in Latin America and in major urban centers elsewhere. Accelerating the expansion:
significant foreign direct investment by multinational supermarket chains in developing
countries, either directly or through joint ventures with local firms. Changing consumer

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376 Saumya Chakrabarti

demand is also driving the growth of the food processing and food service industries.
Processed foods account for about 80 percent of global food sales, estimated at
$3.2 trillion in 2002. Although spending on processed foods is still low in developing
countries ($143 per capita per year in lower-middle-income countries and $63 per
capita in low-income countries), it is growing fastest in these countries—28 percent a
year in lower-middle-income countries and 13 percent a year in low-income countries.
“Eating out” is also becoming popular. For example, spending on food services now
accounts for 22 percent of food budgets in Brazil and Indonesia and 15 percent of urban
food spending in China. (World Bank 2008, 124–25)

Hence, it is argued that in the presence of all these demand- and supply-side
supports, extensive HVC and modern livestock farming have become feasible and
profitable for the LDCs, and the agricultural sectors of many of the developing
countries should be reoriented to capture these opportunities. If the expanding
domestic and international markets for the primary and processed HVC and
livestock products could be captured by the third-world agriculture by using
the modern supply chain, growth could be generated, and the fruits of this
growth would percolate to the rural poor. Thus, to reiterate, a reorientation of
the third-world agriculture and allied activities is proposed to be necessary to
attach it with the global market so that a process of “inclusive growth” could
be engendered. Diversification of production toward the HVC and advanced and
high-value livestock products is thus argued to be an instrument of “inclusive
growth” in a globalizing world.
However, the crucial point in this course of global integration of the “diversified”
agriculture and allied activities is that the opportunities of expanding “higher-value
market” for the HVC and livestock products could be realized only through an
appropriate utilization of the modern supply chain, i.e., only through the use of
modern processing, storing, transportation, and delivery mechanisms. Thus, the
fundamental question is how to get the access to these modern facilities and
thereby how to integrate the diversified third-world agriculture with the expanding
global market. Let us look at the experiences of many of the developing countries.
But before going into this account and the subsequent analyses on that, let
us introduce a very critical political-economic aspect of this whole debate. The
prescription of “diversification” toward the HVC and modern livestock products
not only comes from the World Bank, but from the USA itself. Crop-diversifica-
tion and “Evergreen Revolution” have been considered as a crucial area, so far as
the Indo-US bilateral relations are concerned. Let us quote at length,

And together, we can resist the protectionism that stifles growth and innovation. The
United States remains—and will continue to remain—one of the most open economies

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A CRITIQUE OF INCLUSIVE GROWTH 377

in the world. And by opening markets and reducing barriers to foreign investment, India
can realize its full economic potential as well. As G20 partners, we can make sure the
global economic recovery is strong and is durable. And we can keep striving for a Doha
Round that is ambitious and is balanced—with the courage to make the compromises
that are necessary so global trade works for all economies.
Together, we can strengthen agriculture. Cooperation between Indian and American
researchers and scientists sparked the Green Revolution. Today, India is a leader in using
technology to empower farmers, like those I met yesterday who get free updates on
market and weather conditions on their cell phones. And the United States is a leader in
agricultural productivity and research. Now, as farmers and rural areas face the effects
of climate change and drought, we’ll work together to spark a second, more sustainable
Evergreen Revolution.
Together, we’re improving Indian weather forecasting systems before the next
monsoon season. We aim to help millions of Indian farmers—farming households save
water and increase productivity, improve food processing so crops don’t spoil on the
way to market, and enhance climate and crop forecasting to avoid losses that cripple
communities and drive up food prices.
And as part of our food security initiative, we’re going to share India’s expertise
with farmers in Africa. And this is an indication of India’s rise—that we can now
export hard-earned expertise to countries that see India as a model for agricultural
development. It’s another powerful example of how American and Indian partnership
can address an urgent global challenge. (The Indian Express 2010; emphasis added)

However, if we read between the lines, we should be able to recognize that


within this major shift in the economic processes and policies, there is significant
presence of American political-economic interest. These shifts open up the room
for use of American technology, inputs and investments; on the other hand, the
resultant knowledge could be appropriated for use even in Africa and elsewhere.
Furthermore, the products of Evergreen Revolution could form important items
of export to the West which is not endowed with such agro-climatic diversity and
potentials like those of India. Conversely, manufacturing products, knowledge,
technology, and associated services could be imported to India, through opening up
of the economy. However, most strikingly, this reminds us of the colonial pattern
of trade, where primary products were exported from the colony in exchange of
finished manufacturing items from the West.
With this crucial note/digression, we come back to our particular issue of
concern for this article.
It is found that the linking of the diversified agriculture and allied activities with
the global market has been possible with the entry and rapid growth of supermarket
chains and the food-processing and food-service industries. Obviously, this implies

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378 Saumya Chakrabarti

the entry of big capital in the stages of handling, storing, processing, transportation,
and retailing of the primary and processed HVC and livestock products. The specific
character of perishability of these products necessitates the entry of sophisticated
supply chain replacing the traditional mechanisms that were appropriate for the
basic traditional crop economy. Furthermore, high-value domestic and international
markets impose stringent food-quality and food-safety norms. Adherence to such
global standards is possible only with the use of modern capital-intensive techniques.
Thus, product-diversification toward fruits, vegetables, flowers, and agro-fuel
feedstock and modern livestock, on an extensive scale, have been commercially
viable with the intervention of modern capital in the areas of food processing, food
service, and food marketing. In fact, in many cases, the very process of extensive
crop-diversification and livestock production has been driven by the entry of big
capital. To capture the opportunities of expanding, high-value market capital has
entered in large scales in food processing, retailing, and other services.
However, as the modern supply and retail chain is appropriate for the HVC
cultivation and modern livestock production and as it is much more efficient than
the traditional indigenous processes, the latter has been replaced with the former.
Thus, large-scale diversification of agriculture and allied activities has opened
up scope for replacement of traditional supply and retail chain with the modern
one through the intervention of big capital capable of reaping the economies of
scale, reducing transaction costs through vertical integration of different stages of
production and distribution and maintaining the global standards.

The perishability of most high-value agricultural products requires careful handling,


special facilities (packhouses, cold storage, and refrigerated transport), and rapid delivery
to consumers to maintain quality and reduce physical and nutritional losses. In many
developing countries, the long supply chain, poor access to roads and electricity, and
inadequate infrastructure and services in physical markets add to the transaction costs
and cause quality deterioration and high spoilage losses . . . Significant inefficiencies in
the traditional wholesale marketing systems and competition encourage supermarkets,
food processors, and food service providers to use supply chains to reduce coordination
costs, capture economies of scale, and increase food safety and quality. This is
profoundly changing the structure of production and wholesale marketing in many
developing countries. (World Bank 2008, 125–26)

3. WDR 2008: Some Pros and Cons of Large-Scale Diversification of


Agriculture and Allied Activities

As is recognized by the WDR 2008 itself, the intervention of efficient capital in


the process of “diversification” is inducing profound changes in the structure of

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A CRITIQUE OF INCLUSIVE GROWTH 379

agricultural and allied production and distribution. Let us now turn to the probable
effects of diversification supported by the expansion of high-value markets and
complemented with the modern supply and retail chain provided by big capital.
First, we look at the income and employment inducing effects.
As both primary and processed diversified outputs are remunerative, the
farmers who are able to undertake this diversification gain significantly. The WDR
2008 reports that “(p)articipation in modern supply chains can increase farmer
income by 10 to 100 percent (Guatemala, Indonesia, Kenya). Recent studies of
contract farmers show that they have significantly higher incomes than other
farmers.” (World Bank 2008, 127). On the other hand, as HVC and livestock
production is much more labor-intensive compared to the traditional crops, it
enhances the employment generation potential of the third-world agriculture and
allied activities. A sizeable part of surplus labor could be utilized in these modern
farming activities. Moreover, even those farmers, mostly the small and marginal
ones, who are not able to participate in HVC cultivation can have the advantage of
being employed in others’ farms. Thus, it is noted that

[p]articipating farmers use much more labour-intensive practices because of


requirements for field practices, sorting, and packing. Because they are more likely to
double-crop over the year, participating farmers hire 2.5 times more labour (typically
from local asset-poor households). So even if small farmers do not participate directly,
they can benefit through farm employment . . . (World Bank 2008, 127)

Next, we turn to some of the offsetting effects of extensive agricultural diversifi-


cation induced by the entry of big capital in agricultural production and distribution
intended to capture the high-value food markets. Few adverse effects are even
noted in the WDR (World Bank 2008, 127) itself. First, it is seen that in general
the small and marginal farmers are not capable of undertaking extensive crop-
diversification on their own because HVC farming requires high-cost inputs of
production and access to modern supply and retail chain. The small and marginal
farmers are unable to meet these conditions. Not only the inadequate farm size but
also the lack of access to physical, human, and social assets, such as education,
irrigation, transport, roads, and such other physical assets as wells, cold chains,
greenhouses, good-quality irrigation water (free of contaminants), vehicles, and
packing sheds, constrain the small and marginal farmers from venturing into
large-scale diversification toward HVC and livestock farming. On the other hand,
in case of supermarket-driven and large-processing-firm-led “diversification,”
it is found that these big players generally prefer the large farmers as suppliers
of HVC rather than the smaller ones to reduce transaction cost. Thus, extensive
HVC farming can take place through firm–farm contract, but the small farmers

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380 Saumya Chakrabarti

are generally kept out of such “contract farming.” Consequently, the asset-poor
farmers are excluded from these processes of diversification, and the benefits
are generally appropriated by the wealthy ones. Hence, we may have increasing
inequality within agriculture:

The modernization of procurement systems affects farmers differently across countries


and products. Some recent studies of selected commodities find that the modern
procurement systems exclude asset-poor farmers. Supermarket buying agents prefer
to source from large and medium-size farmers if they can (for example, for tomatoes
in Mexico and potatoes in Indonesia); if large and medium-size farmers have sufficient
quantities, smallholders are not included . . . The most important determinant of small
farmers’ participation is not always farm size. Instead, it can be access to physical,
human, and social assets: to education, irrigation, transport, roads, and such other
physical assets as wells, cold chains, greenhouses, good quality irrigation water (free
of contaminants), vehicles, and packing sheds . . . Most farmers lacking these assets
are excluded. In Guatemala, lettuce farmers participating in modern supply chains have
twice the farm size (two hectares versus one) and 40 percent more education than non-
participating farmers, and are nearly twice as likely to have irrigation, four times as likely
to have a truck, and twice as likely to be close to paved roads . . . (World Bank 2008, 127)

Second, it is seen that even the small processing firms are unable to compete
with the large modern ones. Moreover, the supermarkets prefer to collect
the processed food products from the large processing companies having the
capacity for bulk production. Large firms are also preferred for long-term stable
contracts. Thus, small, labor-intensive food-processing firms are replaced with
large corporations increasing concentration in food-processing sector. On the
other hand, it is also observed that the supermarket revolution creates large-scale
displacement of the petty retailers. Although initially the supermarkets enter into
the large cities, gradually they spread their operations to rural towns. Similarly,
though supermarkets start their business with processed food, they increasingly
target the fresh food market as well (World Bank, 126). This gradual expansion of
supermarket chain may cause mass eviction of the petty retailers:

Some studies have found that smaller processing firms were left out of the supply chain,
with medium-size and large processors preferred for long-term contracts. The number
of small retail stores often declined with rising market share for supermarkets—with
implications for employment. In urban Argentina, from 1984 to 1993, the most intense
period of supermarket takeoff, the number of small food shops declined from 209,000
to 145,000. (World Bank 2008, 127)

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A CRITIQUE OF INCLUSIVE GROWTH 381

4. Crop-Diversification and the Rural Non-Farm Economy

The literature on farm–non-farm linkage notes that the pattern of agricultural


growth has significant influence on the course of development of rural non-farm
economy (RNFE). Hence, it seems quite likely that crop-diversification as well
should have serious implications for non-farm progress. We here try to put forward
a few propositions regarding the probable effects of crop-diversification on the
dynamics of RNFE. We propose, contrary to the usual belief, that the particular
type of agricultural growth based on diversification toward HVC can affect the
labor-intensive rural non-farm (RNF) activities adversely:

Rural non-farm enterprises are transforming the employment structure in rural areas.
Most enterprises are small, with 80–90 percent relying exclusively on family labor . . .
In Sri Lanka, the average number of workers in a rural non-farm enterprise is 2.4, with
79 percent of firms having only one or two people. In Tanzania, 58 percent of the firms
are one-person enterprises, and in Bangladesh 45 percent are . . . (World Bank 2008,
209–10)

In India, at present the agro-processing is majorly done by small-scale, non-farm


units (99.4%) where 86.8 percent of total processing sector employment is
generated (Dev and Rao 2005).
We have argued above that HVC and modern livestock farming could serve
well the course of globalization by providing (primary and processed) food to the
relatively well-off population engaged in modern sectors and through supply of raw
material for sophisticated processing meant primarily for exports (see also, Singh
2004; Sidhu 2005). On the other hand, we have also seen earlier that high-value-
generating cultivation could be a better option for the large farmers (see also, Sen
and Raju 2006) either having access to modern storage–processing–transportation
facilities or having the ability to get attached with the big agri-business firms
through corporate contract farming. Thus, the HVC cultivating and modern animal
husbandry segments can easily get integrated with the so-called modernization
process. Nevertheless, it may de-link a large part of agriculture and allied activities
from the rural, labor-intensive, non-farm sector with far reaching implications.1
The whole chain of crop-diversification, processing–packaging–retailing, can
be organized through firm–farm contract. However, it is seen above (World Bank
2008) that, generally, the large processing companies and the supermarkets favor
big farmers for undertaking contract farming, perhaps due to high transaction cost
involved in case of the smaller counterparts (see also, Singh 2004; Dev and Rao
2005; Kumar 2006). Conversely, the large farmers happen to use finer (modern)
products produced in formal industry for production and consumption purposes.

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382 Saumya Chakrabarti

Contract farming itself ensures use of modern inputs and modern farm services
creating diversion of purchasing power in favor of “big city” products and thereby
initiating substantial leakage of potential demand away from the labor-intensive,
non-farm sector. Crop-diversification may induce agricultural output and income
growth; it can also act as a boost to formal non-agricultural sectors, but it does not
necessarily guarantee increased demand for local non-farm products.2
It has been noted in the literature that there is a very close relation between the
small farming–based agriculture engaged in traditional crop farming and the labor-
intensive RNFE. In fact, there is mutual interdependence between the two sectors
through demand-side as well as supply-side channels (Radhakrishna 2002; World
Bank 2008). Small and marginal farmers both consume and use in production
the local non-farm products (implements, raw material as well as farm related
services) and simultaneously provide the RNFE with basic food items and other
agro-products used as raw materials. Consequently, with crop-diversification, if
agriculture shifts away from traditional food crop production, it may adversely
affect the vast non-farm economy as many of the demand- and supply-side
channels may get constricted/blocked.
When the small and marginal farmers get involved in the process of crop-
diversification as a survival strategy, they have to face great hurdles/uncertainties
(Sen and Raju 2006) due to the lack of access to modern inputs, technology, and
knowledge, and, most importantly, due to the lack of access to market and modern
supply chain. This creates the scope for intervention by the big capital. Only huge
investments in collection, transportation, storage, processing, packaging, and,
finally, retailing could effectively realize the potentials of crop-diversification
(Rao, Birthal, and Joshi 2006; Sen and Raju 2006).3 Hence, the intrusion of big
capital in this elaborate chain of activities becomes imminent either through spot
contracts or through the integrated institution of contract farming.4 The diversified
HVC and modern livestock products are siphoned off for “big city” consumption
and/or for exports, and on the other hand, modern inputs and modern farm services
are introduced into the agricultural sector. The same channel could even be used
to sell “big city” products in rural areas. Thus, non-farm sector faces challenge
from the introduction of modern industrial commodities. The insertion of capital
displaces the non-farm population, only a part of which could be internalized into
the agricultural modernization process (see Chakrabarti 2005; Chakrabarti and
Kundu 2009; Chakrabarti, Kundu, and Nandi 2011, for different theoretical and
empirical dimensions related to these issues).
Agricultural diversification may also jeopardize macro-, micro-, and, especially,
local- and household-level food security. It could really be a problem for the petty
producers of agriculture and allied sector—producing high-value-adding products
(shifting away from basic cereals) as also of the non-farm sector getting displaced

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A CRITIQUE OF INCLUSIVE GROWTH 383

due to agricultural resource reallocation. Food insecurity at local as well as at


household levels makes the small and marginal farmer households dependent on
external sources. However, as the non-farm households lose their work, they are
doubly affected. They neither have the access to local food supply nor do they have
sufficient entitlement to exchange with. Erosion of local-level food security may
seriously affect the very existence of RNFE as it depends significantly on local
supply of cheap food. Diversification toward high-end products not only reduces
demand for locally produced labor-intensive, non-farm goods, and services but
also constricts the crucial food supply to RNFE.5
One may argue that as cropping pattern changes, RNFE survives on this
high-value-product cultivation itself. Evidently, it would not be possible since
small farms would be tied up with the big agro-based multinational companies
through contract farming–diversification–processing–retailing chain both for
inputs and market. Even the small and marginal farmers for sheer survival could
accept this arrangement as product-diversification becomes unviable without
such contracting. This whole agreement between the small and marginal farmers
and big agri-business firms would drive out petty non-agricultural activities by
squeezing the demand-side as well as the supply-side channels. Although the huge
population engaged in different types of RNF activities gets immiserized and/or
evicted, only a minor fraction of it would be able to attach itself with the so-called
modernization process involving the modern formal sector and HVC-based
modern agriculture.
This course of outcomes originating from a process of diversification away from
basic/subsistence production can be captured through a flow chart (see Figure 1).
This flow chart hypothesizes a contraction of the labor-intensive rural non-farm
sector—that is closely linked with the traditional farming economy—owing to
diversification of agriculture and allied activities toward modernized farming and
related activities. Diversification displaces the traditional informal activities of
the rural economy through implantation of the modern production processes and
advanced supply chains.
This hypothesis is corroborated by a simple empirical exercise on India.
We take up the target/dependent variables like aggregate value added (va) and
aggregate employment (wk) for the rural (rl) and urban (ur) unorganized (a
proxy for informal) manufacturing at the state level. Thus, the variables are as
follows: value added in rural unorganized manufacturing (vaumrl), value added
in urban unorganized manufacturing (vaumur), employment in rural unorganized
manufacturing (wkumrl), and employment in urban unorganized manufacturing
(wkumur), respectively. On these variables, data are collected for the Indian states
and union territories and pooled over the three post-liberalization (post-1991)
rounds (i.e., 1994–1995; 2000–2001, and 2005–2006), for which comparable

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384 Saumya Chakrabarti

Endogenously created
Export of HVC surplus population
through eviction of
RNFE

Capitalistic
formal RNFE
industry

Large farms
producing high Basic “food”
value crops under produced by mostly
Contract Farming small farmers.

Diversification of
AGR. & allied sector

Figure 1 Effects of Diversification of Agriculture and Allied Sectors


Notes: RNFE: rural non-farm economy; HVC: high-value crops.

statistics are available from the National Sample Survey Organization (NSSO),
Government of India. We also take corresponding data for net state domestic
product (ndp), ndp from agriculture (ndpagr), and, most importantly, calculate
the values for the Simpson Crop-Diversification Index (sdi); all these data are
collected from the Centre for Monitoring Indian Economy (CMIE, Economic
Intelligence Service). Corresponding dataset for ndpagr as a share of ndp (ndpagr_
ndp) is also calculated. We convert all the nominal values into real ones through
appropriate deflation.
With these data, simple pooled regressions are run using ordinary least squares
(OLS) method with robust standard errors. The question that is addressed is
whether the Crop-Diversification Index, sdi, can adversely affect the rural informal/
unorganized manufacturing activities, i.e., vaumrl and wkumrl, respectively,
controlling for the state-level aggregate output, agricultural output, and urban
informal/unorganized manufacturing activities. Our above-mentioned hypothesis

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A CRITIQUE OF INCLUSIVE GROWTH 385

is supported by the following two pooled regressions (the second one is run for
the major 15 states of India, though the first one is an all-India exercise). Diver-
sification of agriculture adversely affects the activities of the RNFE, even after
controlling for the state-specific aggregates:

Regression 1. regress vaumrl on vaumur, ndpagr_ndp, ndp, sdi; with robust standard
errors (for all states and union territories of India)
Dependent variable:
vaumrl
vaumur -0.3374872**
(0.1355174)
ndpagr_ndp 665.328*
(350.9548)
ndp 0.0226779***
(0.0031033)
sdi -474.3701*
(253.9845)
Constant 131.2802
(143.9889)
R2 0.6783
No. of observations 85
Notes: 1. Robust standard errors are in parenthesis.
2. ***, **, and * denote levels of significance at 1%, 5%, and 10%, respectively.

Regression 2. regress wkumrl on wkumur, ndpagr_ndp, ndp, sdi; with robust standard
errors (for major 15 states of India)
Dependent variable:
wkumrl
wkumur -1.483466***
(0.4711782)
ndpagr_ndp 945885.9
(2331159)
ndp -5.618437
(7.69523)
sdi -2915967**
(1368462)
Constant 2302342
(1578384)
R2 0.4322
No. of observations 45
Notes: 1. Robust standard errors are in parenthesis.
2. ***, **, and *denote levels of significance at 1%, 5%, and 10%, respectively.

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386 Saumya Chakrabarti

5. Crop-Diversification and Food Security

Now we turn to the next issue of impact on food security due to production-
diversification in agriculture and allied sectors. That diversification may lead to
erosion of micro-food-security especially for the small and marginal farmers could
easily be hypothesized, given the following observations. Lanjouw and Shariff
(2004) note that marginal expenditure on local products is about 80 percent in all
Asian countries surveyed. Of this, 45 percent is spent on local food. The remarks
of the NSSO report 424 (National Sample Survey, Government of India) could
also be noted in this context: Proportion of growers’ consumption out of own
produce is found to be 64 percent for rice, 69 percent for wheat, 53 percent for
jowar and bajra, and 68 percent for maize considering India as a whole. For each
of these crops, the proportion of growers’ consumption of “other cereals” from
home produce works out to about 55–65 percent at the all-India level. Similarly,
NSSO report 474 points out that the proportion of all rural households consuming
only from home-grown stock is relatively high for rice (24 percent) and wheat
(30 percent), and it is also noted (NSSO report 512) that in rural areas the
households self-employed in agriculture shows the lowest percentage of seasonal
inadequacy of food. All these indicate that a major objective of traditional food-
crop-based agriculture is self-consumption. The farmers depend for food to a large
extent on their own production. Hence, market-driven crop-diversification may
generate serious problems for micro-food-security.
It is evident from Table 1 that crop-diversification is bound to affect the food
security of low-income earning farmer households who spend a large part of their
income on basic food items such as cereals, pulses, etc. It is clear from the table
that with falling income (monthly per capita consumer expenditure (MPCE)), the
share of expenditure on basic food rises consistently and just a reverse trend is
observed for the high-value items.
Across the Indian states, we find an interesting observation from the subsequent
diagram and the corresponding correlation matrix. We find out that poorer the
state, larger the share of total expenditure of the farmer households on cereals—
the basic food crop. Hence, we find once again that the poor largely depend on the
basic crop rather than the high-value items (Figure 2). Consequently, a process
of large-scale crop-diversification may lead to a major food-security problem, as
mentioned earlier.
Furthermore, the corresponding correlation coefficients are highly significant,
as shown in the box Correlation 1.
Crop-diversification not only erodes the (micro-)food-security of small and
marginal farmers and of those engaged in RNFE, it may also create a significant
loss of macro-food-security by shifting resources from subsistence crop production
toward HVC and modern livestock. The expanding market for primary and

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A CRITIQUE OF INCLUSIVE GROWTH 387

processed high-value food is inducing such a shift in agriculture. Thus, crop-diver-


sification is taking place largely through crop-substitution rather than increase in
cropping intensity. For example, in India, crop-substitution’s contribution to diver-
sification is 63.37 percent, whereas for whole of South Asia it is 57.02 percent

Table 1 Monthly Per Capita Consumer Expenditure (MPCE) (along with the Corresponding Shares
(%) over Two Groups of “Food” Items for Farmer Households across Different MPCE Classes
(All-India) (in Rs) (January–December 2003)

Items/MPCE class (Rs) 0–225 225–255 255–300 300–340 340–380 380–420

Cereals, cereal substitutes, gram, 75.05 88.18 96.86 103.76 108.93 114.45
pulses, and their products (61.61) (57.59) (55.13) (52.18) (49.38) (47.01)
Vegetables, fruits (fresh), fruits 17.88 24.76 29.19 34.19 39.19 44.19
(dry), beverages, refreshments, and (15.55) (16.84) (16.61) (17.19) (17.76) (18.15)
processed food

Items/MPCE class (Rs) 420–470 470–525 525–615 615–775 775–950 950+

Cereals, cereal substitutes, gram, 119.1 126.1 130.97 137.8 145.23 158.53
pulses, and their products (44.65) (42.92) (39.94) (36.33) (32.69) (27.87)
Vegetables, fruits (fresh), fruits 49.22 54.49 63.41 74.14 87.79 52.07
(dry), beverages, refreshments, and (18.45) (18.54) (19.34) (19.55) (19.76) (18.68)
processed food

Source: NSSO 59th round report no. 495, p. A84.


Note: Numbers in the parentheses represent the corresponding shares (%) (calculated by author).

70
60
50
40
30
20
10
0
Pu a

nd ary b
a P ana

ja h

A n
K ssam

tB u

ar h
M Jha htra
r P at

h
rh

a
a P nd
K ir

O r
ga

ha
Ta atak
al

sh
es ad
H ja

Ra des

ah es

Ch des
hm

ar

ga
sth

hy ha
er

en
n

Bi
M rad

di
W il N

U Guj

as

tis
ra

ra
as

ad rk
n
ar

at
K

m
d

tta
hr
an
u

A
m
m
Ja

pov_rt_rural percentage share of cereals in total expenditure pov_rt_total

Figure 2 Percentage Share of Cereals in Total Expenditure of Farmer Households


and Rural and General Poverty Rates by the Major 18 States of India during 2003 and
2004–2005, Respectively
Sources: NSSO report no. 495: Consumption Expenditure of Farmer Households 2003, pp. 13–14.
And Planning Commission, Government of India 2004–2005 (Tendulkar Methodology) (diagram by
author).

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388 Saumya Chakrabarti

Correlation 1. Correlations of poverty: rural rate (pov_rl_rt) and overall rate (pov_tot_rt)
with the share of cereal in total expenditure of farmer households (sh_crl_texp) for 18
major Indian states, at 1% level of significance

sh_crl_texp

pov_rl_rt 0.6974***
pov_tot_rt 0.7198***

Note: *** denotes 1% level of significance.

(Joshi et al. 2004). This diversion of resources away from subsistence crop
cultivation may adversely affect the macro-food-security of a country and may
lead to immiserization for the net buyers of food. It particularly affects the small
and marginal farmers, the poor engaged in the RNFE, and the urban poor engaged
in the informal activities. And it has been found that the basic cereal production
is a key determinant of the level of poverty in the LDCs. Thus, it is noted that
“increasing staple crop productivity usually reduces poverty overall, because in
addition to the urban poor, more than half of poor rural households are typically
net food buyers” (World Bank 2008, 32).

6. Concluding Remarks

Diversification of agriculture and allied production processes intended for the


high-value domestic and export markets create the scope for intervention of big
capital in agriculture through variety of contracts. In fact, in many cases, product-
diversification away from subsistence farming occurs through the inducements of
supermarket chains and large agri-business corporations. However, this intrusion
of capital in the fields of agricultural production and distribution displaces the
petty production-based RNFE, having a symbiotic relation with the traditional
subsistence agriculture. Extensive production of HVC and modern livestock
necessitates the entry of modern capital-intensive supply and retail chain
as the labor-intensive RNFE is not capable of providing many of the inputs
of HVC production and modern animal husbandry and the complementary
chain of sophisticated handling–storing–processing–packaging and retailing.
Consequently, the economic space of the labor-intensive RNFE is engulfed by the
big capital which displaces a very large section of the rural poor.
The change in the cropping pattern in favour of HVC and diversion of resources
toward the modern animal husbandry initiates an inclusion of the relatively
advanced and asset-rich parts of agriculture and allied activities into the growing
global economy, but it breaks the close links between the subsistence agriculture

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A CRITIQUE OF INCLUSIVE GROWTH 389

and petty RNFE. Thus, inclusion of a part of the rural economy into the expanding
global market creates exclusion and eviction elsewhere. Furthermore, the
population engaged in urban food retailing is also displaced by the intrusion of
the supermarket chains. Last but not the least, if crop-diversification is undertaken
through large-scale substitution of basic cereal production, it seriously affects the
micro- and macro-food-security leading to immiserization of the rural and urban
poor as well.
The overall “balance sheet” owing to diversification of agriculture and allied
activities toward HVC (horticulture, agro-fuel feedstock, etc.) and animal
husbandry products can be represented succinctly as below (Figure 3):

Crop Diversification: Inclusion vs Exclusion

Inclusion:
• Farmers’ income rise
• Rise in employment at the production stage

Exclusion:
• Exclusion of asset-poor farmers
• Crop substitution → Exclusion in production as HVC is more modern input dependent
compared to subsistence crop
• Crop substitution → Net exclusion in processing as HVC processing less labour-intensive
compared to subsistence crop
• Net exclusion in retailing as supermarkets replace small shops
• Immersization of net buyers of subsistence crop

Figure 3 Crop-diversification: Inclusion vs Exclusion


Notes: HVC: high-value crops.

Acknowledgements

This is a substantially revised version of a paper presented at the SAP Seminar


on “Globalization and sustainable development” organized by the UGC-DRS
(Government of India); Centre of the Economics Department, Calcutta University,
Kolkata, India, March 29, 2008; and published in a locally circulated magazine
Nrtattv: The Anthropology, vol. 3, no. 1, January–June 2013, by the Anthropology
Department of Visva-Bharati, Santiniketan, India. I am indebted to Arup Mallik
for his valuable suggestions. I am also grateful to the referees of this journal.
However, the usual disclaimer applies.

Notes
1. In fact, in various studies, it is found that the regions practicing intensive HVC cultivation in India
have concentrated in urban and semi-urban areas (Rao, Birthal, and Joshi 2006). This corroborates
our claim that there is a close link between diversification of agriculture and urban economy.

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390 Saumya Chakrabarti

2. Thus, the impact of diversification as pursued by the big farmers is undoubtedly contractionary
for the non-farm sector engaged in petty production. We can refer in this regard to a study on
Africa where small and very big farm growth is found to generate identical local growth multipliers
indicating the inability of big farms to boost the local non-farm activities (Haggblade, Hazell, and
Brown 1989).
3. Production, especially processing of HVC, seems to be more capital-intensive even across Africa.
In fact, Haggblade, Hazell, and Brown (1989) report that activities like oil extraction, sugar
production, tea drying, and packaging are often performed in rural areas by large-scale enterprises.
WDR 2008 notes that “[m]ost food products in this new agriculture are perishable, and quality and
safety standards are tighter, thus increasing the vertical integration of food systems . . .” (World
Bank 2008, 58).
4.
The horticulture revolution, unlike the green revolution, has been driven largely by the
private sector and the market. This has implications for the organization of value chains, with
specialized agribusinesses and supermarkets increasing their share in these markets, especially
in the urbanized countries. Grades and standards make it more difficult for smallholders acting
alone to participate in these markets, giving rise to contract farming and collective action by
producer organizations . . . (World Bank 2008, 59)
5. In fact, crop-diversification may even lead to land alienation adversely affecting micro-food-
security and hence reducing the scope for participation in local non-farm activities (West Bengal
Human Development Report 2004). In this context, we can note the observation that
(t)his high-value revolution and export expansion are also changing the structure of employment
in agriculture. In Chile the reforms of the 1970s were accompanied by an increase in agricultural
wage workers to 68 percent of the agricultural workforce, a percentage that has been rising
since 1990 and currently exceeds that for wage workers in the nonagricultural economy. The
proportion and rate of increase of wage workers in the agricultural labor force are highest in
regions enjoying the export-oriented horticultural boom . . . (World Bank 2008, 208–9)

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