Shyam Ponappa: Grain Shortages & Fallow Land

discusses what ails wheat and rice farming, and how to fix production and distribution.

Mercifully, A Good Harvest...
With another lease of life, this is an opportunity to consider how to mitigate food shortages. Food supply and demand are closely matched. Sudden developments "" drought in Australia, pests in Vietnam "" create imbalances. Defensive national reactions exacerbate these imbalances. With fears of shortages receding in India after good wheat harvests and with record prospects for rice, now is the time to think and act for the future.

Farm Economics: Figure 1 shows the procurement or support price for rice with production costs and wholesale prices from 1980-2005.

The salient points:
a) Production costs ranged around Rs 2,000-2,500/ton in intensive cultivation areas (Punjab). Anectodal sources estimate lower costs for less intensive cultivation, e.g. in Coorg, Karnataka, with lower yields of 1.2 tons/acre, versus 3 tons/acre in more productive areas.

b) Market prices ranged around Rs 12,000-13,000/ton barring two spikes. However, India's farm prices were often below world prices adjusted for transport and marketing costs.*

c) Procurement/support prices were around Rs 4,000/ton, one-third the market price. Small farmers typically cannot hold out for better prices.

This, together with higher profits from cash crops, is why farmers stopped growing rice in fertile areas like Kerala and Karnataka. Many switched to cash crops. Many who didn't left their lands fallow, reducing supply potential.

From the 50s to 2000, India's production of wheat and rice turned from deficits to surpluses. Our approach has been confused by lack of clarity on food security objectives, the balance of interests of producers, suppliers (the market supply chain), consumers, and politicians indulging in populism "" 'acts of ecological suicide', in Prof. M.S. Swaminathan's phrase. Examples are free electricity in AP and Punjab by the Congress governments, and the rice-at-two-rupees-a-kilo ploy originally by the TDP, used more recently by the DMK and the Congress. There were also sins of omission: lack of organisation and marketing support, and lack of or attrition in extension capabilities, with R&D a question mark "" who knows what's there?

Food Security: It helps to be clear about the goal of food security. If this is not clear, market fundamentalism argues for reliance on imports. Imports appeal to consumers, but have been unreliable. Food security is therefore a conscious choice, heavily subsidised in America and Europe.

One way to rebuild is to choose what result we want. If it is food security, we might aim for farming without subsidies ultimately like New Zealand, but only after a period of many years of (a) market prices for producers, and (b) direct subsidies on a progressive scale to consumers, to the extent subsidies are affordable. These choices work best when the factors and their relationships are understood.

Low profitability of food crops results in small changes in demand having large effects on price (Figure 2). Historically, wheat and rice prices declined from the mid-70s.

From 1998 to 2002, India experienced wheat and rice surpluses together with declining per capita consumption. By 2006, however, there was a wheat deficit, with higher outlays for subsidies but declines in real terms in procurement prices between 2000 and 2006 (details in USDA report). Weak growth in production, relatively low yields, and low growth in consumption constrained by low income comprise the elements of the problem.

Meanwhile, the downward trend in global food and commodity prices changed by 2003 (Figure 3). Prices rose for wheat and rice, along with crude oil.

The IFPRI estimates rising prices through 2015 . Meanwhile, India's shift from sheltered domestic markets to an import-oriented stance coincided with this change in price trends.

What Should We Do?: The National Commission on Farmers chaired by Prof. M S Swaminathan recommended five areas of action for an end-to-end solution.*** A practical way to begin implementing this daunting charter is to disaggregate it and adopt a "ballooning" approach in phases: prioritise a subset of initial elements for the first phase; then a second, larger subset in the next phase; then a third subset, etc.

Phased Implementation: The government could start by giving farmers market prices for stocks, and directly subsidise consumers with lower incomes: give food to the poor. The most efficient way, although difficult to institute, would be to use smart cards. The next best would be food coupons. The distribution could be integrated through retail markets, disbanding the retail PDS and the NREGS. The CACP could structure progressive subsidisation so that, e.g. those whose basic food expenses comprise more than a certain percentage of income (60%?) get the most subsidies (100%?), and there could be a cut-off point for no subsidies, e.g. basic food expenses at 20% of income.

These issues need good decision support modelling to help determine gradation, cut-offs, and probabilistic inputs, e.g. weather conditions (with awareness that outcomes do occur beyond modeled assumptions).

A possible strategy premised on food security might include:

1. Market prices for producers;

2. Organise market access;

3. Distribute subsidised wheat/rice on a graduated scale directly to consumers (smart cards/food stamps through retail shops);

4. Dismantle the PDS retail system (and the NREGS, with trade and services [occupational] training, e.g. Bharti's retail training "" this is a major effort requiring considerable planning in itself);

5. Irrigation/water management schemes in a sustainable, evolutionary plan;

6. Soil, inputs and practices (i.e. timely credit/insurance/soil/seeds/nutrients/pest management at reasonable cost);

7. R&D "" Extension.

Items 1 and 3 substituting for 4 should be straightforward to implement, although execution on a large scale quickly (3 and 4) would not be trivial.

Item 2, organising market access, may be much more complicated.

The next three (5, 6, 7) are very complex and need new paradigms and cutting-edge design and technology (e.g. the medium: IT and broadband, as well as the content). Once given proper attention, they are likely to take years to develop and roll out. Occupational and services training for retail, hospitality services, construction, welding, equipment maintenance and repair... medical transcription ... would be a separate, major endeavour, ideally integrated as part of a systemic solution.

My next article will deal with energy, which is closely linked. That leaves manipulation, misappropriation, and political incentives, also closely linked, to be addressed.

* 'Indian Wheat and Rice Sector Policies and the Implications of Reform', Shikha Jha, P.V. Srinivasan, and Maurice Landes; Economic Research Report No. (ERR-41) 52 pp, May 2007: http://www.ers.usda.gov/publications/err41/err41b.pdf
** 'Rising Food Prices: Dimension, Causes, Impact and Responses', Joachim von Braun, Director General, International Food Policy Research Institute:
http://documents.wfp.org/stellent/groups/public/documents/
resources/wfp175955.pdf
*** See Shobha Warrier's interview on Rediff for a recap: http://www.rediff.com/money/2007/jun/07sld1.htm