April 14, 2008agriculturedevelopmenteconomicsEconomyIndiainflationmacro-economic policyrural developmentUPA

Rising food prices = opportunity for India’s farmers

And the cost of lost opportunities

This is an archived blog post from The Acorn.

For all its rhetoric about protecting rural India, when the real opportunity came, the UPA government decided to deprive the farmer of a chance of making a better livelihood.

Now everyone knows that rising food prices are bad for the economy, and very much so for the poor. Yet it is possible to protect those at greatest risk through the use of targeted food subsidies and even direct cash transfers. Such an approach would have been doubly beneficial: first, farmers would have enjoyed greater incomes from high international prices and second, farmers would have responded to the price signal by growing more food-grains, thereby increasing the global supply and helping check inflation.

Barring exports was the dumb thing to do. It harms farmers. It prevents them from making more money at a time when they could have made more money. It prevents them from investing in better seeds, fertilisers and farming technology that could increase agricultural productivity (India’s is among the lowest in Asia). Capturing productivity gains would have had long-term benefits.

In its new deal for global food policy” the World Bank says as much:

While higher grain prices are clearly a burden to poor net purchasers of food, they also present an opportunity to stimulate foodgrain production and enhance the contribution of agriculture to medium-run growth. For example, higher prices weaken the rationale for costly floor prices or import tariffs for grain, and may facilitate the implementation of politically difficult trade reforms. Higher grain prices can also help to reverse a generally declining trend in government, private sector and donor investment in the agricultural sector.

Agricultural producers such as Brazil, Malaysia and Thailand have made significant progress in agricultural commercialization in recent years, and have increasingly undertaken investments in research and extension necessary to promote increased agricultural productivity and reduced agricultural risk.

However, some of the short-run policy options discussed above may limit the scope for longer-term solutions. For example, policy responses that seek to control markets through mandated grain prices, export restrictions, forcible procurement, or direct government involvement in marketing activities are likely to lower the food supply response over the medium term. In contrast, alternative measures such as the piloting of market-based risk management tools in Malawi, and the improvement of publicly accessible market information systems in India and Mali, are all likely to mobilize significant new resources in the private sector to cut marketing costs and improve efficiency of grain markets over the medium term. [WB]

Related Links: In addition to the World Bank’s excellent backgrounder see this post by Alex Evans at the Global Dashboard. Update: Paul Collier’s op-ed in the Times makes some very good points.



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