This is a collection of papers emerging from a seminar organised by the Indian Council for Research on International Economic Relations (ICRIER) at the behest of the external affairs ministry. The aim was to address two issues — agricultural reform and prospects of business investment under the aegis of the USA-India Agricultural Knowledge Initiative. The volume specially “focuses on private-public partnership in agriculture for the benefit of the rural poor.”
In the chapter on “Reshaping Agriculture Trade Policy”, Surabhi Mittal and others assert that “India needs to move away from the production-enhancing self-sufficiency model to a trade-oriented agricultural growth model.” But abundant caution is advised. In dealing with the Doha round of trade negotiations which are supposed to take trade forward, the authors prefer a “market plus” approach which also takes note of “non-trade concerns such as the maintenance of the livelihood of the agrarian peasantry and the production of sufficient food to meet domestic needs, along with pro-active steps from the government, the private sector and civil society to protect those groups likely to be adversely affected by the reallocation of resources that would follow the liberalisation of the trade regime.” Also, the lack of an adequate safety net for the vulnerable requires a “systemic approach to devise ways to minimise the additional costs that may be imposed by trade liberalisation.”
Perceptions regarding trade liberalisation and agriculture have in fact lately undergone some change. The global food shortage, more people going hungry and the financial crisis have put agricultural policies in a different focus from what prevailed in the nineties in India. Self-sufficiency and food security never went out of fashion but an alternative had also emerged. If you had the money you could import the food you needed at an attractive price from those who produced it efficiently. Today, self-sufficiency and food security have gone up the priority ladder.
But to ensure long-term food security and banish poverty, India’s agriculture urgently needs fixing. It is marked by low-yield, low-farm incomes and endemic rural poverty. To address this and the widespread feeling in the countryside that farming does not pay, the government has over the last few years steadily upped agricultural support prices. The result is a new grain mountain and high food price inflation.
In outlining a policy route out of this dilemma, Maurice R Landes, in his key essay “Indian Agriculture and Policy in Transition”, makes extensive use of the research conducted by the Economic Research Service of the US department of agriculture on major sectors of Indian agriculture like cereals, oilseeds and products, poultry, apple and cotton. One option analysed is decentralisation of food procurement. The research findings are that it will have negligible impact on wheat demand, supply and prices. But the impact on the government will be dramatic. There will be a 29 per cent fall in procurement and a more than 20 per cent cut in government costs. There will be a negligible impact on the wheat and rice trade and greater scope for efficient private traders to participate and invest in grain marketing.
Research also analysed the impact of a cut in minimum support prices. Production and producer welfare may decline but there will be gains in consumption and consumer welfare. Wheat and rice procurement will drop significantly, along with decline in stocks. Lower domestic prices may boost the competitiveness of Indian exports in surplus years and higher consumption and lower stocks raise the potential for imports in deficit years. The research also came to the conclusion that “boosting wheat and rice minimum support prices above market clearing levels not only leads to lower total consumption but also to lower public and private agricultural investment which ultimately more than offsets any short-term price-induced gains in output.”
A good way to compensate farmers is through the deficiency payment system, as practised in the US, under which farmers will receive a direct government payment for the difference between the market price at which they sell their grain and the price supported by the government. But there is a danger in this of the payment not reaching all producers and fraud. Using producer price policy to try to both raise farm incomes and stabilise prices will make it difficult to contain costs. By extending price support to other produce, farming will become more diversified and stabilise farm incomes. Separate instruments like targeted food distribution and sound crop insurance can provide more income support. Landes concludes by saying, “These issues are not unique to India and have been prevalent in agricultural policy debates in the US and other countries.”
FOOD FOR POLICY
REFORMING AGRICULTURE
Ed Surabhi Mittal and Arpita Mukherjee
Foundation Books, Cambridge University Press India
263 pages; Rs 795
