Resource-poor farmers in South India: on the margins or frontiers of globalisation

It is often argued that an important reason why globalisation may lead to GDP growth but fail to reduce poverty is because the poor are unable to participate in new market opportunities and are thus marginalised. However, resource-poor farmers in the state of Andhra Pradesh in India participated aggressively in new opportunities that became available with trade reforms, but did not experience an increase in welfare. On the contrary, participation led to higher inputs costs, rising indebtedness, environmental degradation, and chronic poverty. This paper seeks to understand the processes by which increased market participation by the poor may lead, under certain conditions, to further deterioration of their wellbeing.In the Telangana region of Andhra Pradesh, as cotton prices increased sharply following the reforms, a number of poor farmers shifted to cotton cultivation. This crop requires much greater technical expertise, working capital, and marketing networks than the traditional crops. Under the reform processes, however, state support for farmers was withdrawn. In its place, a network of private traders rapidly expanded to meet not only the marketing needs of the new crops, but also to provide loans and technical expertise.The paper finds that it was this fast but largely unregulated growth of the private sector, even into areas traditionally reserved for the public sector (such as agricultural credit, research, and extension) that explains a large part of the problem. Increased participation in external markets exposed farmers to greater price risks and fraudulent dealings by the private traders. At the same time, the shrinking role of the state reduced the farmers’ ability to cope with these risks. The result was a decline in average incomes of the resource-poor farmers and rising levels of indebtedness, as costs of production grew sharply.The author argues that generally trade reform alone is not sufficient to reduce poverty. To address new challenges and risks there is need for complementary policies, such as those regarding provision of institutional credit, targeted safety nets, technical expertise, marketing support, and infrastructure that ensure that the poor are able to take full advantage of these opportunities.