Context

The essential challenge of public policy for agriculture- the high price of food remains unsolved.

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.

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.
• Impact on manufacturing sector: Arguably, the high price of food has been a factor in the disappointing lack of expansion of the manufacturing sector in India despite repeated efforts to bring it about.

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.

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.

Consider the question “India faces the challenge of high food prices. Examine the ways in which high food prices affects the overall economy. How far is the India’s agriculture policy responsible for the problem?”

Conclusion

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.

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