High food price stalls the expansion of the non-agricultural sector. It also impacts the future of agriculture in ways not recognised
As the farmers’ protest continues, there is a case for convening the National Development Council, a forum of state chief ministers and the central government. A lapse in the passing of the farm laws was that the views of the states were not sought directly. Given that agriculture is a State subject under the Constitution, and there exists considerable variation between the states in the cropping and the land-holding pattern, this lapse ended up deepening the political divide. However, consulting the states on the question of the recently-enacted farm laws cannot be a substitute for a thorough review of agricultural policies in India.
In a way, the government and the protesting farmers have one thing in common. They are both concerned with achieving higher farm prices. The government claims that the new laws will lead to farmers realising a higher price for their produce. Indeed, they are part of the government’s stated objective of doubling farm income. The farmers, on the other hand, are concerned that the new farm laws will have exactly the opposite effect — of lowering the prices they will receive as the entry of corporates will lead to a buyer’s market.
However, for at least a third of India’s population, the price of food is already too high. We can see this in the share of food in the expenditure budget of households. In the National Sample Survey (NSS) report for 2011-12, this share ranged from close to 60% for the poorest 5% of households to a little less than 30% for the richest 5%. Actually, even 30% is high in an international comparison. For instance, the share of household expenditure on food in China is substantially lower than this figure.
The “food problem” needs to be understood in terms of a population’s access to food, not merely its availability. Before considering the relevance of this, it is important to note three things. First, the expenditure on food referred to includes processed food, or food that has gone through a manufacturing process. Second, farmers do not receive the entire price paid for food by consumers. There is a margin due to intermediation and the movement from farm to home. Finally, cereals are only a part of household expenditure on food, so high minimum support prices for wheat and rice are only part of the food problem in India.
The price of food has implications for both well-being and economic growth, and thus livelihoods. It is one factor determining access to food. The stubborn prevalence of malnutrition is revealed in the most recent report of the National Family Health Survey. The high price of food contributes to it. Of course, a rise in non-farm incomes can overcome this failure, but the price of food is also a determinant of non-farm income. The greater the share of household income spent on food, the less there is of it to spend on other goods and services. In this way, a high price of food stymies the expansion of the non-agricultural sector, notably manufacturing.
This impacts the future of agriculture in a way that is not readily recognised. When opportunities outside agriculture are limited, there is a pressure of population on land, which leads to the fragmentation of land-holding through partitioning of the farm. This leads to unviable farm size, reflected in the response of a significant section of rural households in the NSS that they would leave agriculture if they had an option. The agrarian constraint can be overcome through exports, but to compete in the world market, a country must first grow a dynamic domestic manufacturing sector.
Globally, the path to economic prosperity has been via a prosperous agricultural sector, but it has been accompanied by improving yields and a declining relative price of food — ie, of food becoming cheaper in relation to other goods. As food becomes cheaper, the non-agricultural sector expands as household expenditure is released, providing employment to some rural households. Farms do not fragment and their profits rise, for yield would have increased. Raising the yield of land would require public intervention and funding. Some of this funding will come from re-configuring the agricultural policy of the government of India.
A group of economists have shown that, contrary to claims, the procurement of foodgrains in India is not confined to either the farmers of Punjab and Haryana nor large farmers. Actually, from the point of view of provisioning the public distribution system, for which purpose alone procurement exists, geography and the size of farm-holding should not matter. We are one country after all, and if the providers are from Punjab and Haryana, or even large farmers, so be it; we should be grateful to them.
However, public intervention must be justified in the public interest. We are procuring far too much wheat and paddy in relation to what is needed. Public stocks have at times been more than twice the official norm, with some of it rotting while in “storage”. This ties up funds which can be used for the public expenditure needed for increasing yields, which ranges from extension services to the marketing infrastructure.
The debate on the farm laws must be used as a moment to have a larger debate on the inter-linkages between farm holdings, farm incomes, access to food, enhancing the productivity of agriculture, and creating enough room for the growth of other sectors.Pulapre Balakrishnan teaches economics at Ashoka University, Sonipat, Haryana
The views expressed are personal