Rising food prices = opportunity for India’s farmers

And the cost of lost opportunities

For all its rhetoric about protecting rural India, when the real opportunity came, the UPA government decided to deprive the farmer of a chance of making a better livelihood.

Now everyone knows that rising food prices are bad for the economy, and very much so for the poor. Yet it is possible to protect those at greatest risk through the use of targeted food subsidies and even direct cash transfers. Such an approach would have been doubly beneficial: first, farmers would have enjoyed greater incomes from high international prices and second, farmers would have responded to the price signal by growing more food-grains, thereby increasing the global supply and helping check inflation.

Barring exports was the dumb thing to do. It harms farmers. It prevents them from making more money at a time when they could have made more money. It prevents them from investing in better seeds, fertilisers and farming technology that could increase agricultural productivity (India’s is among the lowest in Asia). Capturing productivity gains would have had long-term benefits.

In its “new deal for global food policy” the World Bank says as much:

While higher grain prices are clearly a burden to poor net purchasers of food, they also present an opportunity to stimulate foodgrain production and enhance the contribution of agriculture to medium-run growth. For example, higher prices weaken the rationale for costly floor prices or import tariffs for grain, and may facilitate the implementation of politically difficult trade reforms. Higher grain prices can also help to reverse a generally declining trend in government, private sector and donor investment in the agricultural sector.

Agricultural producers such as Brazil, Malaysia and Thailand have made significant progress in agricultural commercialization in recent years, and have increasingly undertaken investments in research and extension necessary to promote increased agricultural productivity and reduced agricultural risk.

However, some of the short-run policy options discussed above may limit the scope for longer-term solutions. For example, policy responses that seek to control markets through mandated grain prices, export restrictions, forcible procurement, or direct government involvement in marketing activities are likely to lower the food supply response over the medium term. In contrast, alternative measures such as the piloting of market-based risk management tools in Malawi, and the improvement of publicly accessible market information systems in India and Mali, are all likely to mobilize significant new resources in the private sector to cut marketing costs and improve efficiency of grain markets over the medium term. [WB]

Related Links: In addition to the World Bank’s excellent backgrounder see this post by Alex Evans at the Global Dashboard. Update: Paul Collier’s op-ed in the Times makes some very good points.

5 thoughts on “Rising food prices = opportunity for India’s farmers”

  1. Regarding exports, One issue the government has to deal with is adequate supply. The factors that hamstring the government are
    1) Supply takes at least 6 months plus ( i.e Time to grow & harvest ) to respond to price signal,
    2) Any perception of short supply results in hoarding at the family level as well as hoarding by trade
    3) Any “run” on the commodity jacks up prices, further encouraging the vicious cycle of hoarding.

    So the government has to err on the side of caution ( which is what it is doing). I think we will scrape through this time without facing large scale food riots.

    My bigger concern is the long run. Energy & water shortage ( at least in the Sub continent , especially in the South ) is going to be a challenge. I do not see our state governments ( Agri is still mostly a state subject ) doing enough to mitigate this problem. Free power/Subsidized power is a short run sop. We are not doing enough on increasing the availability of water. Also as oil prices go up, cost of fertilizer is going to sky rocket. Diminishing yields ( due to lack of adequate water & fertilizer ) can potentially result in a Malthusian nightmare.

  2. The present rise in agri products has benefitted the investors in commodities market more than the farmers, I am afraid! Again, hardly a fraction of the rise goes to the farmer, the rest end up in the hands of the traders.

  3. But what about the large number of landless rural families who work as agricultural laborers. Surely these wage earners would be the ones most severely affected if the food prices rise.

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