The food economy

By Sudhanshu Ranade

FOOD SURPLUSES have become as much a fact of life as food deficits were in the 1960s. The Food Corporation of India has 40 million tonnes of wheat and rice in stock. Not once in the past ten years has offtake exceeded 20 million tonnes; most years, it has been well below this level. With a normal monsoon, food stocks are expected to increase further, when the kharif harvest starts coming in, four months from now. Prices usually decline in response to excess supplies. This stimulates an increase in demand, which helps dispose the surplus. Instead, in the latest Union Budget the Finance Minister chose to sharply hike the prices at which wheat and rice are sold in `fair price shops'.

Earlier, 7 million tonnes had been earmarked for `below poverty line' families at 10 kg per family a month. Since this quota was doubled when prices were hiked, and since even the new prices are well below the free market rates, offtake by BPL families may now double. Against this, however, it will be necessary to set off lower offtake by `above poverty line' families. Ten million tonnes had earlier been earmarked for these families. But, after the price hike, wheat sells for Rs. 9 a kg in `fair price shops'. Wheat was available wholesale last month at less than Rs. 7 a kg.

Faced with this embarrassing surfeit of food stocks, the Government decided to sell 5 million tonnes of wheat. But there would not be many takers for it at Rs. 9. So in the end it was decided to sell this wheat in bulk at Rs. 7.50 a kg. In an effort to put a good face on it, the Government has said that only inferior quality stocks will be sold at this rate; and that, anyway, wheat is procured from farmers at only Rs. 7 a kg.

No doubt we will also be told later that it costs less to sell wheat in bulk than it does to sell it a few kg at a time. Indeed, it is surprising that the PR men have not thought of this already. But, whatever the nature of the cover-up, one thing is clear: Mr. Yashwant Sinha got his timing wrong. The hike in food prices did not make him popular; and now it turns out that it will not make him richer either. He will end up losing money anyway. What, then, was the point? But there is more to the issue than just tactics. There is also the question of strategy. The farm lobby acquired considerable clout over the 1980s. It was to woo this lobby that the then Prime Minister, Mr. V. P. Singh, wrote off farm loans of the `poor' worth Rs. 10,000 crores; mostly money that was overdue from large farmers. Similarly, even as Mr. Yashwant Sinha started rolling up his sleeves earlier this year for `hard decisions' against the poor who buy their grain at fair price shops, the farm lobby continued to be handled with velvet gloves. Procurement prices were hiked yet again; though stocks on hand were already above the desired levels. And sub- standard stocks were once again accepted, even though, already, stocks were simply rotting away.

The idea of holding buffer stocks is sound enough. With such a policy in place, you can protect farmers by mopping up surplus stocks in good years, when prices are low; so that you can then protect consumers against high prices in bad years, when production is low. The problem is that public stocks of food are no longer being used as mere buffers. Instead they are being used as a sort of sink for all the extra grain that keeps coming in because of the high procurement prices. To some extent, we too, like the Americans, have begun paying farmers to keep their fields idle. This does not immediately get noticed given the flurry of activity on farms in Punjab and Haryana. But the only difference is that American farmers keep their fields idle; it is the produce of our farms that we lay waste.

We may, however, be reaching a limit beyond which we will be unable to continue with ad hoc policies. It is getting clearer with each passing day that we need to evolve, or revert to, a more sensible, more cost-effective management of supply and demand, through procurement and pricing policies, and buffer stocks.

Onions come to mind as the most obvious example. So dramatically did the price increase a year ago, that it is said to have played a part in toppling the Governments of Delhi and Rajasthan. One of the measures taken at that time was to ban exports. And now, with onions wholesaling for about a rupee a kg, it is the farmers who are on the warpath.

Prof. Abhijit Sen, Chairman of the Commission on Agricultural Costs and Prices, has expressed the opinion that such a situation may be developing even in respect of staples. While the `economic cost' of wheat from FCI godowns, he says, is as high as Rs. 9 a kg, thanks to high handling charges and wastage, wholesale prices on the world market are only around Rs. 5 a kg. So far we have managed to keep foreign wheat out by levying a 50 per cent tax on imports. But, Prof. Sen points out, it is only a matter of time before the Governments of deficit States begin protesting that it is unfair to expect them to become unpopular with voters in their States simply because politicians in the surplus States wish to be popular with their farmers.

Of course, this cuts both ways. Surplus States could just as easily argue that they do not see why they should hurt their farmers simply because deficit States do not wish to hurt their consumers. Wheat may today be much cheaper elsewhere than it is in India. But this has not always been the case. In fact, according to a study led by Prof. Ashok Gulati, after taking into account the subsidies on power and fertilizer on the one hand, and the ban on exports on the other, Indian farmers have been heavily taxed (rather than subsidised) over the late 1980s, and throughout the 1990s. Indeed, though there are large fluctuations from year to year on account of price changes in India and abroad, Prof. Gulati's calculations suggest an increase in this sort of `tax' on farmers over this period; though political commentators say that it was over this period that the `clout' of farmers increased dramatically.

Be that as it may, it is `efficient' prices that we need for food, not `fair' prices. We have to evaluate our policies on the basis of their sustainability in the long run. Efficiently managed buffer stocks (together with price and procurement policies) should certainly be used for supply and price stabilisation, between good years and bad. But it does not make sense to use them for political patronage (of either farmers or FCI employees), because, in the end, there is a direct trade off between being fair to farmers, and being fair to consumers. Even if one is willing to keep aside the economics of the food economy, its political aspects will keep returning to haunt us again and again.

According to a recent article by Prof. C. H. Hanumantha Rao, India experienced a significant drop in the average per capita consumption of cereals from the early 1970s to the early 1990s. The quantity of cereals consumed by the poorest 30 per cent went up a bit but there was a decline for every other category in both rural and urban areas in favour of other items of consumption - total consumption increased in every case.

Though average consumption declined faster in rural areas, even at the end of the period it was 26 per cent higher than in urban areas (as compared to 36 per cent earlier). Since India's urban population will grow over the next two decades, from 25 to 35 per cent, this too can be expected to depress our food needs in future. On the other side of the ledger, of course, is the fact that our total population will increase; from one billion today to about 1.3 billion in 2020. But, it is clear, the question of increasing food supplies has to be discusssed in relation to the cost at which we can do so.

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