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Fundamental Farm Solutions

Published: 04 Jan. 2003, 19:38

Farmers rose up across the nation on Tuesday, blocking a number of highways. They are demanding that special legislation be enacted to slash their debts. There are many elements that merit our attention in the assertions of farmers'' groups. They claim that farm debt has snowballed and the rural economy is in ruins because of indiscriminate imports of agricultural products and haphazard agricultural policies. Still, we believe the method they used ?the physical blockade ?and their demand to cancel their debts are problematic in many respects.

The whopping loans, amounting to 38 trillion won, would indeed be difficult for the farmers to settle themselves. While an average farm household makes less than 23 million won a year, the debt stands at 20 - 30 million won per household. Debts have grown because farmers have taken out more loans to pay previous loans and interest. Domestic farmers do not have many means at their disposal to raise their income because they have little competitive edge in the era of the open market. In addition, agricultural management has failed: many farms have suffered losses due to excessive production as a result of large-scale government assistance to floriculture, special products and livestock raising, all implemented according to a blueprint to improve the economic structure of rural areas. Other reasons for rising farm debt include decreased domestic consumption since the foreign exchange crisis of late 1997 and dwindling farm profits due to soaring expenses for fertilizer and pesticide.

However, these factors do not justify agricultural organizations'' demand for unconditional cancellation of debts. Given that it is the rather high-income farms that have incurred the greatest amount of debt, the question of inequality presents itself when we consider the marginal farmers who were not eligible to take out loans in the first place or those who have faithfully paid their debts all along. Side effects might present themselves if a moratorium is put on principal and interest or they are canceled altogether. If agricultural cooperatives are made to take the responsibility for providing assistance, there is concern that public funds are liable to go to the cooperatives, for their financial health is shaky as it is. Providing financial assistance is problematic since the national debt is huge at present and there is not much latitude to extend help in the face of the potential for another economic crisis.

Therefore, farmers should exhibit a mature attitude, following the principle of sharing pain. The government, for its part, should break away from the questionable practice of "giving one more rice cake to those who whine" and come up with fundamental solutions. Up to now, the government has offered measures to reduce farm debt as many as six times. The government has failed to do its share, excessively emphasizing that realistic constraints exist in the face of market opening and that the current situation was inevitable after the foreign exchange crisis. We suggest that the concept of restructuring based on transparency and responsibility be introduced into the agriculture sector. Above all, the government should make distinctions between the farms that could survive with reduced loans and those that would fail anyway. Then it is necessary to introduce the principle of financial debt restructuring: farms that receive assistance should be required to pay back some part of their debt, while the unsalvageable ones should be liquidated.

It goes without saying that the government must be steadfast in promoting agricultural technology and profitable products as well as renovating distribution networks.