Academic journal article Journal of Financial Management & Analysis

Significance of 'Minimum Marginal Cost Pricing' in the Context of Middle Men Elimination-Cum-Efficiently Administered Subsidisation of Peasant Farmers : Evidence from Developing Countries

Academic journal article Journal of Financial Management & Analysis

Significance of 'Minimum Marginal Cost Pricing' in the Context of Middle Men Elimination-Cum-Efficiently Administered Subsidisation of Peasant Farmers : Evidence from Developing Countries

Article excerpt

Introduction

As agriculture is the mainstay of economic development process and as more than a three-quarter of the population (especially in developing countries) derives its income from land to satisfy 'merit wants' (necessaries), this core and tradition-bound sector does not receive serious encouragement and has remained a neglected sector because of urban-bias developmental financing by international and national financial institutions and allied organizations. Poverty gap, as measured not only by income levels but also by socioeconomic conditions and well-being of people, has assumed serious proportions and all efforts by donor organizations and governments to attack this serious problem of poverty have proved in vain as a proper and correct diagnosis of the disease of poverty has not been carried out.

It is a sad but a sad commentary that peasant farmers (producing class) are trapped by a chain of middlemen (non-producing and, at the same time, exploiting class)* and the benefits like subsidies announced by competent authority and granted to peasant farmers are diverted for wrong uses by middlemen leaving middlemen richer and peasant fanners poorer. This infectious disease has remained non-cured for decades and rural-urban poverty gap has continued to widen. It is in this context, the words of Mahatma Gandhi are highly relevant and significant to recall for consideration and implementation by competent authority without further delay- -

Every village has to become a self-sufficient Republic

Productive-Non-Productive Fund Diversion (Based on Adam Smith's Growth Model)2

The words of Adam Smith are pertinent to quote here :

The annual produce of the land and labour of any Nation can be increased in its value by no other means, but by increasing either the number of its productive labourers, or the productive powers of those labourers who had before been employed. The number of its productive labourers, it is evident, can never be much increased but in consequence of an increase of capital, or of the funds destined for maintaining them. The productive powers of the same number of the labourers cannot be increased, but in consequence either of some addition and improvement to those machines and instruments which facilitate and abridge labour; or of a more proper division and distribution of employment. In either case an additional capital is almost always required3.

It may be argued that rational economic growth or economic self-reliance may be brought about by diverting about 75 per cent unproductive assets renteers and profiteers (R+P) to maintain and develop productive assets.Wage Fund (W). (see Chart 1) and this leads to sound financial management. On the other hand, by diverting 75 per cent of W to (R + P) : referring to profiteers, MNCs, middlemen, etc. the agriculture-based country, lands itself in unprecedented economic crisisby with overdependence on middlemen resulting in financial mismanagement. Thus, when W > R + P, investment cycle will be fast moving; when R + P > W, the investment cycle will be sluggish.

In a situation where total labour command (source of capital formation) is distributed in a way where W (referring to wage fund) - a highly productive asset - - is greater than (R + P) : non-productive asset, economies of scale are reaped via increases in productive investment; and, on the other hand, when (R + P) exceeds W, disinvestment occurs due to wasteful expenditure. Thus, in a situation where productive expenditure exceeds non-productive expenditure, budget deficit is conducive for economic development as expenditure generates income via multiplier effect, while budget deficit is a highly contagious disease in cases where unproductive (non-performing asset) expenditure exceeds productive expenditure and must be cut drastically as, otherwise, it would lead to serious structural maladjustment problems through middlemen activities.

CASESTUDIES

AGRICULTURAL PRODUCTS MARKETING BY MIDDLEMEN IN SELECTED COUNTRIES

(RENDERING THE- PRODUCERS POORER AND THE MIDDLEMEN RICHER)

Dhaka city was selected as the study area because it is the largest and main flower market place in Bangladesh. …

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