Less wastage, lower MSP dependence & better yields the way forward: Economic Times 26th January 2011

Let's look at six frames in agriculture. We had the wheat crisis in 2006 and 2007 and, by the time we recognised the problem and imported wheat, we ended up paying about Rs 920 a quintal against a minimum support price (MSP) of Rs 750 in 2006-07 and Rs 1,490-1,500 a quintal in 2007-08 against an MSP of Rs 1,000. Today, we have stocks of around 47 million tonnes of wheat and rice as of January 1, when the buffer norm is 25 million tonnes for January (peak of 32 million in July).

Second, in 2009-10, there was a shortfall in production of sugar and we imported 2.4 million tonnes, while in 2008-09, we exported 5.5 million tonnes of surplus sugar. Third, the country is the second-largest producer of fruit and vegetables (210 million tonnes); yet prices rise when production fails. This happens because we have wastage that could be 30-50% of production.

Fourth, we are the largest producer and consumer of pulses, and a crop failure in 2009 meant we had to import large quantities at high prices. We import 15-20% of our requirement (3.5 million tonnes out of 18 million tonnes in 2009-10).

Fifth, we import 55-60% of edible oil requirement that gets camouflaged on account of global supplies being stable.

Sixth, when prices of grains and oilcakes rise, this feeds into the cost of production (breeding) of dairy cattle and poultry that, in turn, pushes up final prices, which is irreversible. This is the agricultural conundrum confronting us today.

Given this background, what are the issues for creating food security? Food inflation in the last five years has been a result of higher prices in one or more of these six categories and is exhaustive in terms of composition in WPI. An approach to food security must necessarily tackle all of them.

Horticulture shortfalls cannot really be met through higher production, because the issue relates to paucity of storage facilities. We have to cut down on these wastages through extensive investment in warehousing, including cold storages.

Organised retail or FDI in retail is a solution but given our xenophobia for foreign investment or transparent systems, it will be a gradual process as organised retail constitutes less than 5% of total business. Contract or corporate farming works in bits and pieces but is currently not all pervasive.

The second priority is enhancing cultivation and improving yields for pulses and oilseeds. There are three options here. The private sector can play a bigger role, especially when it comes to corporate farming. However, given our own antipathy to markets, like the reaction to futures trading, there is a lot of suspicion attached to private farming. We have had futures trading being banned or stock limits being invoked every time there is a crisis.

The second option is for the government to get into agriculture in a big way to keep production and prices directly under its control. The third alternative is to actually go in for contract farming in other countries, especially in Africa and Latin America, which is today quite prevalent in mining.




The third priority is dealing with surpluses. Today, it is a mess. High MSPs and indiscreet procurement have created shortages, the government being the biggest foodgrain hoarder. Procurement is over 25% of production while another 15-30% is used for self-consumption or seeds. This has to change and MSP should be made the last resort for the farmer - not the first.

With the UID scheme being implemented, we can map the really poor farmers to the procurement process to ensure that access is restricted. Also, stocks beyond a limit should be offloaded in the market to cool prices and ensure artificial shortages are not created.

Fourth, buffer stocking in sugar and pulses to the extent possible is necessary given that sugar production follows a cycle of 4-5 years that is also replicated globally. Such buffers should be used to alleviate shortages. Such stocks may be held by the sugar companies on behalf of the government and rolled over to eschew damages.

Fifth, most food problems would be addressed if import action is taken with alacrity. Here, futures trading plays an important role in signalling shortages well in advance. While better regulation of the market is a corollary, this aspect of farming will help in providing warning signals. This way, we can avoid the situation where the news of India's entry into a farm import deal automatically pushes up global prices given the quantity involved.

The crux is that the government has to play an active role given that we are not prepared to provide width to the private sector and are apprehensive of letting in FDI. Given the existing fiscal strains, there should be a movement away from activities where institutions work well through privatisation and focus on this new kind of infrastructure: agriculture.

Also, money spent on programmes like NREGS should be elevated to create farm assets where labour is gainfully employed. The panchayats can be involved in such state farming activity. The state governments can act as a kind of market maker to stabilise prices just like the SBI does in money markets and insurance companies in the capital market. Clearly, we should change the narrative to eschew future crises.