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Thursday, January 6, 2011

2011: Anticipated Global Food Crisis

Agriculture is the lynchpin of India’s food and livelihood security. For, it still provides employment to around 52% of the workforce, though its share in India’s GDP (at constant prices of 2004-05) slid from 18.9% in 2004-05 to 15.7% by 2008-09, while growth rate itself fell from 4.7% in 2007-08 to 1.6% by 2008-09.

Against this backdrop, and particularly the known quantitative and qualitative status of undernutrition and malnutrition prevailing in our country being what it is, the recent warning of the Food and Agriculture Organization (FAO) of the United Nations that “with the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011,” is sending shockwaves.

For, when prices of food commodities spike in global markets, they tend to transmit to domestic markets, particularly when markets are integrated—a stage towards which India is currently heading; and it is the consumers in the developing countries that are worst-hit, as they spend a high share of their incomes on acquisition of food, that too, having no or little options in their food choices.

Now the question is: What should India do in 2011 to obviate the forecasted crisis? Of course, as the Steering Committee on food and nutrition set up to advise the UN Committee on food security observed, India must draft and execute “a comprehensive coordinated approach, not piecemeal approaches, to tackling chronic, hidden and transitory hunger.”

Fortunately, we have suitable policies already in place, but what is needed is: political will to implement them in letter and spirit. The first policy that comes to mind for immediate execution is the recommendations of the National Commission on Farmers, which emphasized the importance of “imparting an income orientation to agriculture” by affording water and nutrients, timely credit and assured and remunerative marketing system that ultimately result in higher productivity per unit of land.

The mission-criticality of this simple requirement can best be appreciated only when one is aware of the basics of Indian agriculture. More than four-fifths of India’s total operational holding of 1,077.1 lakhs fall under the category of small and marginal farmers consisting of less than 2 ha. Essentially, every farmer is a risk-taking entrepreneur—even today, the entrepreneurship of an Indian farmer is a gamble on the monsoon system. Besides, they also face the risk of spurious inputs such as seeds and pesticides, pest and disease attacks, and inadequate/untimely credit supply, coupled with procedural hassles from the banking system and price uncertainties.

And the small and marginal farmers are the worst victims of all these risks, for they do not have the wherewithal to micromanage these innumerable risks; nor do they have the asset-backing to stay put with the consequences of any of these risks—particularly, the consequences associated with the risk of extremities of weather, like the one the state of Andhra Pradesh suffered in the current kharif season.

So, what immediately needs to be done is to build risk-mitigation mechanisms in an integrated way into the system. It, of course, calls for a multi-pronged strategy to address both covariate and idiosyncratic risks: one, macro level agricultural insurance system to be strengthened, besides making it meaningful; two, encouraging local collective group insurance initiatives; three, so streamlining the credit delivery system that it adopts a flexible and cyclical credit system in sync with weather behavior; four, institutionalizing the price support mechanisms and procurement for greater transparency; and five, creating a reliable and well-regulated market infrastructure. So far as the policy initiatives for providing ex post risk-related relief are concerned, a distinction needs to be made between normal risks and risks that are rare but having high consequences for individuals over larger areas, and importantly, institutionalizing these measures to limit the scope for corruption. 

Are we then ready to plunge into action—of course, right action?

- GRK Murty


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