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Price of food must figure in the policy

  Jan 02, 2022

Price of food must figure in the policy

Q Why is it in News ?

A The essential challenge of public policy for agriculture is that the high price of food remains unsolved.

Q What are the Implications of high food prices ?

  • Increases poverty: A higher price of food increases poverty, especially as the rice and wheat supplied through the PDS constitute only a part of the total expenditure on food of the average Indian household.
  • Reduces the expenditure on other item: For the household, a high price of food crowds out expenditure on other items ranging from health and education to non-agricultural goods.
  • This prevents the market for non-agricultural goods from expanding.
  • This was one of the first discoveries in economics, made by the English economist David Ricardo about two centuries ago.

Q What is the extent of Rising food prices in India ?

  • An indication of the elevation of the price of food in an economy is the share of food in a household’s budget.
  • In a global comparison we would find that this share is very large for India.
  • Data from the U.S. Department of Agriculture (2016) show that this share ranges from over 30% for India to less than 10% for the U.S. and the U.K.
  • This is in line with Ricardo’s understanding of how economies progress i.e., as food gets cheaper, growth in the non-agricultural economy is stimulated.
  • Agricultural policy in India has remained quite unaccountable in the face of a rising relative price of food.

Q What are the changes needed in agricultural policy ?

  • Both from the point of view of food security for low-income households and the dynamism of the non-agricultural sector, agricultural policy cannot ignore the price at which food is produced.
  • Focus on improving the yield: The fact of low agricultural yield in India by comparison with the rest of the world has been known for long, and little is done about it.
  • Management of soil nutrients and moisture: A superior management of soil nutrients and moisture, assured water supply and knowledge inputs made available via an extension service would be crucial.
  • Raising yields will ensure profitability without raising producer prices, which will inflate the food subsidy bill.

Q How government intervention created problems ?

  • Given the importance of food for our survival, this justifies public intervention in agriculture.
  • The issue is the design and scale of this intervention.
  • In the mid-sixties, when India was facing food shortage that could not be solved through trade, a concerted effort was made to raise domestic agricultural production.
  • Profitability through MSP: It introduced the strategy of ensuring farm profitability though favourable prices assured by the state.
  • Further, it entrenched the belief that it is the farmer’s right to have the state purchase as much grain as the farmer wishes to sell to the state agency.
  • Created grain stockpile: This has resulted in grain stockpiles far greater than the officially announced buffer-stocking norm.
  • These stocks have often rotted, resulting in deadweight loss, paid for by the public though taxes or public borrowing.
  • Supply more than demand: Finally, with all costs of production reimbursable and all of output finding an assured outlet, supply has outstripped demand. 
  • Damage to natural environment: This has led to unimaginable pressure on the natural environment, especially water supply.

Q What can be the way forward ?

A  India needs an agricultural policy that ensures that farming is profitable but this cannot be at the cost of a high price of food. The ‘food problem’ should no longer be seen only in terms of the availability of food from domestic sources.