The contours of an optimal agri-food policy

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January 18, 2021 5:50 AM

Agri-food policies should be demand-driven, protect sustainability and efficiency in production, and give consumers more choice on nutritious food

Finance minister will do an honest job if she puts the full food subsidy bill in the central budget rather than putting it under the carpet of FCI borrowings.Finance minister will do an honest job if she puts the full food subsidy bill in the central budget rather than putting it under the carpet of FCI borrowings.

Making an optimal agri-food policy in India is the need of the hour. It should look at not only the short run but also medium- to long-term challenges. The UN Population projections (2019) indicate India will be the most populous country by 2027. By 2030, India is likely to have almost 600 million people living in urban areas, who would need safe food coming from the hinterlands. Indian agriculture has an average holding size of 1.08 hectares (2015-16 data) while engaging 42% of the workforce. Cultivable land and water for agriculture are limited and already under severe pressure. Given these basic parameters, how does one design an optimal agri-food policy?

Such a policy must have at least four touchstones. One, it should be able to produce enough food, feed and fibre for India’s large population. Two, it should do so in a manner that not only protects the environment (soil, water, air, and biodiversity) but achieves higher production with global competitiveness.

Third, it should enable seamless movement of food from farm to fork keeping marketing costs low, save on food losses in supply chains, and provide safe and fresh food to consumers. And finally, consumers should get safe and nutritious food at affordable prices. And, at the centre of all these is the farmer, whose income needs to go up with access to the best technologies and best markets in India and abroad.

On the production front, the best policy is to invest in R&D for agriculture, and its extension from lab to land, irrigation, etc, that raise productivity. For developing countries, it is believed that they should invest in agri-R&D and extension, at least about one percent of their agri-GDP. India is hovering at about half of this number. It needs doubling with commensurate accountability of R&D organisations (ICAR and state agriculture universities) to deliver. Can it be done over say the next three years?

But, where India is failing is to protect its natural resource endowments, especially water and soil. Free electricity for pumping groundwater and highly subsidised fertilisers, especially urea, are damaging groundwater levels and its quality, more so in the Green Revolution states of Punjab, Haryana and western Uttar Pradesh. This region is crying for crop diversification, especially reducing rice area by almost half, while augmenting farmers’ incomes.

It can be done by switching from highly subsidised input price policy (power, water, fertilisers), and MSP/FRP policy for paddy, wheat, and sugarcane, to more income support policies linked to the saving of water, soil and air quality. But policymaking so far on this front has failed, resulting in excessive production of these three crops in the country. Sugar and wheat are being produced at prices that are higher than global prices, and can’t be exported unless heavily subsidised. Excessive stocks of wheat and rice with Food Corporation of India (FCI) are putting pressure on finances of FCI. Rice is still globally competitive for exports, but we are exporting massive amounts of precious water (almost 25-30 billion cubic meters, annually) through the rice as water (power for pumping) is highly subsidised. All these are signs of sub-optimal agri-food policies.

Interestingly, these are the three crops in which MSP/FRP have any significant meaning, but they are growing at the slowest pace (see graphic). Poultry, fishery, dairy, and even horticulture, for which there is no MSP, are growing much faster (3 to 5 times) than cereals or sugarcane. It may be noted that in 2018-19, the value of livestock and fishery was almost 40% of the gross value of agricultural output. Horticulture accounted for another 21% (see graphic). And they don’t enjoy any MSP programme of the government. Overall, the total value of purchases by government agencies at MSP of paddy, wheat, pulses, oilseeds and cotton, was just about 6% of the value of total agriculture and allied sector.

In the marketing segment also, for most of our agri-commodities, our costs remain high compared to several other developing countries due to poor logistics, low investments in supply lines and high margins of intermediaries. This segment has been crying for reforms for decades to bring about efficiency in agri-marketing and lower the transactions costs. It is still a tall challenge before us.

Let us now look at the consumer end. Basic hunger has been more or less conquered, but the biggest challenge for the next 10 years is that of malnutrition, especially amongst children. It is a multi-dimensional problem. From women education to immunisation and sanitation, to nutritious food, all have to be addressed on a war footing. Public Distribution of Food (PDS) that is relying on rice and wheat, and that too at more than 90% subsidy over its costs of procurement, stocking and distribution, is not helping much. It is already blowing up the finances of FCI, where its borrowing are touching Rs 3 lakh crore.

Finance minister will do an honest job if she puts the full food subsidy bill in the central budget rather than putting it under the carpet of FCI borrowings.

But more importantly, beneficiaries of subsidised rice and wheat need to be given a choice to opt for cash equivalent to MSP plus 25%. FCI adds about 40% cost over MSP while procuring, storing and distributing food. This cash option will save some money to the FM and also encourage more diversified and nutritious food to beneficiaries.

All this would mean setting the agri-food policies based on a demand-driven approach, protecting sustainability and efficiency in production and marketing, and giving consumers more choice for nutritious food at affordable prices.

The author is Infosys Chair Professor for Agriculture, ICRIER
Views are personal

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