Opinion The problem with prices

That may be part of the story. But the real roots of the recent food security crisis go back almost 30 years,when investment in agriculture started to decline because of the growing perception that agriculture was unprofitable. Public investment in agriculture shrank to 2 per cent of GDP. Many policy-makers expressed serious concern regarding declining investment in agriculture during the ’80s. The demand-supply disambiguation and unbalanced development are the products of stagnant capital formation in agriculture.

Public investment is a powerful ingredient for capital formation in agriculture. In the process this may sustain private investment. The indirect consequence of a fall in agricultural growth will be felt in all sectors of the economy,given the importance of agriculture in India.

Take the case of eastern India and some parts of the south. The basic unit for organising production in rural areas is either the farm or the village,depending on how rural society is structured. In these regions,agriculture is characterised by small farms in alluvial lowlands; too many people on too little land; production largely for subsistence; and a heavy dependence on cereals and other food staples. Farming with simple handheld tools or ploughs pulled by animals is common. Many farmers are owner-tenants and tenants.

Rice,usually grown under wet conditions,is the staple food crop in these regions. Controlled irrigation facilities are poorly developed,yields are often low,and double-cropping (planting and harvesting two crops in one calendar year)

is not universally practised.

Although high-yield varieties of wet rice have been introduced since the ’60s,this has not increased production as much as predicted.

In northern India,assured irrigation schemes have helped stabilise annual yields and increase overall production,but the average rice yield per hectare in the mid-’90s was only about half that of Japan. Nevertheless,Asian countries produce about 90 per cent of the world’s rice. China and India alone account for nearly 60 per cent of the world total.

The average rice yield is 2.9 tonnes per hectare in India. In comparison,the average rice yield (in tonnes per hectare) is 6.8 in South Korea; 6.2 in Japan and 6.3 in China. Even in North Korea,it is 3.8 tonnes per hectare.

The key issue is: why has productivity remained so low in India,particularly in the rice belt,despite the availability of modern rice technology? Most experts argue that the startling differences in yield I listed are a consequence of poor water management. Irrigation,drainage and flood control investments can alter the water regime and,in the process,the plight of millions of small farmers. The high magnitude of poverty in this region is partly explained by poor water management.

Historically,achieving food security has been the overriding goal of agricultural policy in India. This has many achievements to its name. The introduction and rapid spread of high-yielding rice and wheat varieties in the late ’60s and early ’70s resulted in steady output growth for food grains. Public investment in irrigation and other rural infrastructure and research,together with improved crop production practices,has also helped significantly increase food grains production.

At a later stage policy entrepreneurs went in for completely linear solutions — such as shrinking investment in agriculture because they expected private investment would somehow take up the slack — even though there was no way of expecting capital to flow to the farm sector. Of course,at that point,as now,the reduction of the fiscal deficit was a major target. Unfortunately,policy-makers went ahead and acted in the name of fiscal consolidation without thinking about the long-term consequences.

In the absence of supportive policy,and given the sudden vacuum in investment,the growth rate of agricultural productivity began to drop,from some 3.5 per cent in the ’80s to about 1.5 per cent today. Interestingly global food stocks have also diminished — by about 3.4 per cent a year since 1995.

The development of agriculture in India needs the right signals to be sent out. And a renewed commitment to ensuring that the supply side,and in particular,productivity in the farm sector,must be evident. Once the correct infrastructure,particularly in water management,exists in the sector,supply constraints will begin to fade away,and inflationary pressure will ease. When compared to those overarching needs,words such as fiscal consolidation,speculation,corporate participation in agriculture are nice theories but all marginal in the current context.

The writer is Professor of Economics at the International Management Institute,New Delhi

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