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 The Price of Childhood 

 on the link between prices paid to farmers and the use of child labour in cottonseed production in Andhra Pradesh, India 

title page - contents - list of tables - section-I (introduction) - section-II - section-III - section-IV (summary/conclusions) - appendix - notes


SECTION-IV:
SUMMARY AND CONCLUSIONS

An attempt is made in this study to examine the debate over the issue of relationship between procurement price policy and use of child labour in hybrid cottonseed production in the state of Andhra Pradesh, India. The seed industry argues strongly that employment of child labour in cottonseed production is not linked to the procurement price policy adopted by cottonseed companies. It argues that cottonseed farmers have better profit margins compared to other farmers and that the procurement rates offered exceed the cost of production sufficiently to enable the replacement of all child labour with the employment of adult labour at adult wage rates. In contrast to this view, child rights advocacy groups and farmers’ organisations argue that procurement price policy is partly responsible for the extensive use of child labour in cottonseed production. With current procurement prices of companies, seed farmers cannot afford to pay the higher wages necessary to attract adult labour in sufficient numbers and still make reasonable profits. Farmers would certainly not been able to pay the official minimum wage of at least Rs. 52 a day, which makes the seed companies responsible for evading India’s minimum wage laws.

In order to address this debate we undertook a detailed study of the costs of cottonseed cultivation, wages, yields, prices and profits. We collected fresh data from 38 villages spread over 10 mandals in Kurnool district and Mahaboobnagar district. These two districts account for nearly 90% of the cottonseed production area in the state. A sample of 100 farmers engaged in cottonseed cultivation during the period 2002-03 to 2004-05 has been selected through a stratified random sampling method.

In section-II we identified the rise in cultivation costs by 14.6% over the period (2002-04). This rise is attributable to the 8.0% rise in input costs (rent, pesticides, fertilizers, interest payments) and to a 22.8% rise in labour costs, composed chiefly of cross-pollination costs which have risen 25.5% (+ Rs. 5959) over the period. Cross-pollination costs have risen as a consequence of wage inflation (16%, Rs. 3746) and as a result of a partial substitution of child labour with adult labour (9.5%, Rs. 2213). The impact of this substitution of child labour with adult labour was not merely in increasing wages, but also - because adults work much shorter days and less intensively than children (and family workers) - it has increased total labour needed per acre by 5%.

From 2002-2004, adult labour per acre increased from 31.7% to 49.5% and child labour fell from 68.3% to 50.5%. We cautioned against getting too optimistic about this partial replacement of child labour with adult labour for two reasons. Firstly, because we found that 70% of ‘adult’ labour in cottonseed production is comprised of 15-18 year old workers - probably kept on from when they were younger - who work for a lower hourly wage than adults over 18. Secondly, the upward pressure on cottonseed wages through the substitution of child for adult labour did little to equalize average wages in cottonseed with outside wages: even in 2004 cottonseed wages were below than wages in other agricultural activities.

Moreover, the increased costs due to this minor substitution of child for adult labour may be difficult for employers to sustain in the future because price-costs-output squeeze experienced by farmers. In addition to the rise in non-labour inputs and labour costs, over the period 2002-04, we identified:
  • Fluctuating yields and falling average profits: whilst profits were good in the years 2002 and 2003 (26.3% of income in 2002 and 22.0% of income in 2004) output and profits collapse in 2004 due to a pest attack and lowered the average profit to 15%. There is a substantial variability in yields due to pest attacks, which make it an incredibly risky venture. This variability necessitates huge savings in good years by means of extreme cost cutting exercises in good years - which falls on labour costs.
  • Declining profit margins: profits already began to fall 4.3% between 2002 and 2003, chiefly because a rise in costs outlined above.
  • Falling or slow rising buying prices: the buying price of lint (fell 30%) and of commercial cotton (fell 6.5%) since 2002. And whilst the seed price rose 8.5%, it was only ˝ of wage inflation (16.4%).
All these factors combine to put pressure on farmers to adopt a very conservative view on substituting cheap child for more expensive adult labour. It also encourages them to ‘cheat’ by hiring more teenagers who work longer hours and who are easier to control than adults over 18.

In the section-III, we estimated the cost of replacing child labour fully in the current price climate. Using wage and work output variation between children and adults we estimated the total cost of replacing children with adult labour as Rs. 7970 per acre. This additional amount raises the total cost of production by 12% and cost of production of per kilogram of seed by Rs. 37. We estimate that in order to cover this additional amount Rs. 7970, a 12% increase over present procurement price is required.

If minimum wages have to be paid to all the workers, the additional amount needed is Rs. 25,061. This will raise the total cost of production by 38.9% and cost of production of per Kg seed by Rs. 115.5. In order to cover this additional amount of Rs. 25,061, a 37.7 % increase over present procurement price is required15.

Who should shoulder the burden of this additional cost? We identified a vast difference between procurement price and market prices (with market prices varying between 3.6 and 12.1 times the procurement price). Looking at the effects of shifting the burden of these replacement costs onto consumers vis-ŕ-vis seed farmers vis-ŕ-vis seed companies, we concluded that the rise to consumers would be minimal (1%-3.5%) and the impact on seed companies would be small (profit margins will decline by a mere 1.3% to 3.9% to 6.8% or for minimum wages by a mere 4.2% to 12.3% to 21.3% depending upon type of hybrids). By contrast, the impact of additional costs laid on farmers would vastly reduce their profits 64.9% or even lead to a loss of 102%, if minimum wages are applied.

To sum up, procurement price policy is an important contributing factor for large-scale employment of child labour in the cottonseed sector. Unless this issue is addressed other interventions to address the problem of child labour in this sector will not be very effective.

The argument that low procurement price contributes to the persistence of child labour has to be seen in the specific context of recent developments in the industry viz. rising costs and declining yields. Before 2002, farmers employed children in even larger numbers despite the fact that they had a good profit margin. Farmers chose to employ children because they could control them well, pay them little and hence further maximize their profits. Back then, the use of child labour in this industry was not condemned by outsiders or by locals. But now, the situation has changed and farmers are under pressure from various actors (seed companies, NGOs and the Government) to replace child labour with adult labour. This pressure is coinciding with declining farm income attributable to rising input and labour costs and low and variable output.

To finance the total replacement of child labour in the cottonseed sector, at least a 12% rise in procurement price is needed (and further 8% rise to meet wage inflation costs yearly) if wages are to be on par with local market wages and thereby attract adult workers. If wages in the cottonseed sector are to be on par with minimum wages then a 37.7% rise in procurement price is necessary. This is not to suggest that once procurement price is increased the problem of child labour will be resolved automatically and farmers will shift to adult labour and pay better wages to the labourers. However, raising the price can at least address a part of the whole problem and other interventions will be more effective once it is resolved.

  APPENDIX


India Committee of the Netherlands / Landelijke India Werkgroep - October 25, 2005