July 5, 2006EconomyPublic Policy

Rethinking agriculture

…beyond sympathy and rhetoric

This is an archived blog post from The Acorn.

Ajay Shah offers some public policy responses to the issue of farmers’ suicides in his Business Standard column:

The first point is that we should keep our heads on the marginal cost and marginal benefit of alternative avenues for curbing mortality. Farmer suicide is a classic man-bites-dog story that gets played up by journalists.

The second area of focus should be four policy levers on cotton. As shown above, some varieties of cotton have had high price volatility. But other varieties do not. A remarkable feature of cotton is how prices of different grades are uncorrelated. This suggests a lack of arbitrage which would equalise prices across locations and grades. These low correlations are caused by barriers against the movement of cotton within the country and local distortions such as the interference by the Maharashtra government in the cotton market. In addition, building modern futures markets, and freeing up imports of cotton, would yield safety.

The third issue is the treatment of personal bankruptcy. Developed countries have a notion of Chapter 11”, where a person declares bankruptcy, and is given immunity from creditors subject to certain covenants…This should be driven by experts in economics and finance and not the politicians focused on farmer suicide.

The fourth issue is to ask fundamental questions about how agriculture is organised. As emphasised above, a farmer is an entrepreneur…It would make more sense to have corporations in agriculture. An agriculture corporation could control 10 square kilometres of land, and hire today’s small farmers as staff. [Ajay Shah/Business Standard]Ajay elaborates on these points on his blog.

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