To promote sustainable agriculture and address food security, it is vital to break out of the vicious cycle of subsidies and start looking for newer technology-aided solutions
Half a century ago, when India faced one of its most serious challenges in food security, it required a Green Revolution to bring the country out of the crisis. It was a time when the country was still battling bitter memories of the devastating Bengal famine. Food scarcity and inflation had triggered fears of a second disaster. Faced with the task of feeding an ever-growing population, the government had resorted to imports and relied on food grants for years. However, it was amply clear that a lasting solution would be found only when domestic production was stepped up substantially.
It was in this backdrop that a team of scientists led by geneticist MS Swaminathan set to work, enthused by the high-yielding varieties of grains developed by the agronomist Norman Borlaug. Their research gave birth to the Green Revolution in India, which powered a surge in food production and the consequent decline in food prices. In the years to follow, India not only became self-sufficient in food, but also reversed its role of being an importer to an exporter of grains.
The elements of strategy and organisation behind the success of the Green Revolution were many, primarily designed and executed by the Government. Scientific farming methods were developed to exploit the high-yielding varieties of seeds in Indian agro-climatic conditions. Complementing these efforts of the Indian Council for Agriculture Research (ICAR)-led public research system were the Seed and Fertiliser Corporations, and the farm-extension services wings of the state agricultural departments that disseminated the technologies among farmers. Mega irrigation projects, undertaken through public investments, made water available to these farmers. Instruments like the Minimum Support Price (MSP) played a pivotal role in assuring the farmers of economic returns and translating the new technologies into increased food production. Public institutions such as Food Corporation of India (FCI) and the Agricultural Produce Marketing Yards (mandis) played their role in operationalizing the MSP mechanism. Fair Price Shops or ration shops set up under the public distribution system (PDS) sold essential food items to low-income consumers at affordable prices.
The success of the Green Revolution was not without its negative fallouts. To incentivise agricultural production, successive governments at centre and in different states introduced direct and indirect subsidies on key inputs like water, power, and fertiliser. The slew of subsidies not only caused fiscal deficits to soar, but also created a new crisis. Excessive ground water exploitation created several hot-spots around the country, leaving little water for future needs. Imbalanced usage of nutrients resulted in deterioration of soil quality, adversely impacting the land productivity. The increasing gap between MSP paid to the farmers and the PDS price to the consumers distorted markets, stunting the development of competitive value chains in the food and agricultural sector.
In order to promote sustainable agriculture and address the question of food security in the longer term, it is imperative to break out of the vicious cycle of subsidies and start looking for newer solutions. Taking cue from the Green Revolution, it is possible to address the challenge once again through a combination of new technologies and contemporary institutions that will take technology to the farmers and link them to consumption markets.
The changing context of the Indian food economy
Food security is a priority for every Government. However, any exercise to address the issue would remain futile unless one takes into consideration the evolving new market context. With rapid globalisation and higher purchasing power, today’s consumers are seeking superior taste, better quality, larger variety, and more convenience in their food products. The share of cereals in the diets across all socio-economic classes has reduced in favour of vegetables, fruits, milk and meat. Value-added processed food is gaining popularity by the day. In this scenario, it is imperative that market signals reach the farmers, enabling them to continuously align their production with changing consumer demand patterns and realise better prices. As a large part of India’s poor are farmers, this would also address the issue of poverty alleviation. Additionally, raising farmer incomes would whet their risk-taking appetite and encourage them to diversify into crops beyond grains. This would, in turn, address the need for nutrition security, a necessity given the staggering levels of malnutrition in the country today.
This new context warrants a transformation in the food and agriculture system that is more fundamental than what is generally understood. Producing what the consumer wants is quite different from selling whatever is produced by the farmer. An important prerequisite for this makeover is a re-orientation from production-driven supply chains to demand-driven value chains. This will entail huge investments in creating appropriate infrastructure in post-harvest, logistics, processing, packaging, retailing, and information systems.
This transformation cannot be achieved by the Government alone, as it successfully did in the circumstances prevailing fifty years ago. Companies specialising in supply chain management, food-processing, and marketing will need to work closely with the farmers to tap the emerging opportunities. However, a variety of policy constraints deter sizeable investments by such private enterprises today. Foremost among them is the non-implementation of the ‘Model APMC Act’ by many states. In addition, the Essential Commodities Act (ECA) imposes stock limits and curbs movements from time to time, further affecting the viability of agri-businesses and food-processors. Therefore, policies related to trade and marketing in agriculture need a significant overhaul if farmers have to benefit from the expanding food consumption in the country.
Leveraging technology to raise production, reduce wastage and plugging leaks
Technology can play a vital role in raising farm yields, improving nutritional quality of food, reducing use of natural resources and in dealing with wide variations in weather conditions. Over the past few decades, India has indeed successfully leveraged technology to increase production of many crops. In wheat, for example, technological interventions and innovations have raised production from a mere ten million tons during early-1960s to nearly hundred million tons today. However, there is an urgent need to develop varieties of seed that can adapt or overcome the effects of climate change, besidesserious biotic stresses and poor soil conditions. This is particularly pertinent given that the latest IPCC report has warned of an increased risk to food security and drinking water due to global warming, drought, floods and erratic rainfall. Since 65% of India’s total sown area meets its requirements from rainwater alone, it is time to invest in a wide spectrum of technology interventions that will make agriculture weather-proof.
On its part, the Government must craft a policy framework that encourages investment in research, and articulate a National Vision on critical traits relevant to India, in order to channelize the R&D efforts of private sector also towards this important mission. The regulatory processes for accelerated introduction of new technologies must also be streamlined to make them more scientific, transparent, and predictable. This will enable sustainable intensification of Indian agriculture and increase food production duly factoring all the constraints, while being sensitive to the ecology and environment.
Technology can also be leveraged to reduce food wastage. It is estimated that 5% to 40% of food is wasted along the value chain between the farmer and the consumer, depending on the perishability of the crop and the season. This reduces the availability of food even when the farmers have produced in adequate quantities. Setting up bag-less storage, handling, and transportation systems for grains and oilseeds, and world-class climate-control infrastructure for fruits & vegetables requires considerable investments. Since the private sector has the required expertise as well as the financial capacity to invest, it is important to stimulate investment sentiments by modifying the stifling regulations like the Essential Commodities Act.
Technological interventions can go a long way in plugging the leakages in the Public Distribution System as well, the country’s foremost mechanism to reach out to the beneficiaries of the food security measures. Introduction of bio-metrics and smart cards for identification, use of electronic weighing machines and setting up of ATMs or mobile vans for automatically vending essential commodities are some of the measures that will reduce corruption, and help deliver the benefits to the intended individuals in full.
Creating market-based instruments to reduce the cost of providing food security
As pointed out already, the Green Revolution relied on institutions like the Food Corporation, Agricultural Extension Departments, APMC Market Yards and Fair Price Shops to execute its chief instrument, the minimum support price. Similar, but contemporary, instruments and institutions are required to deal with the characteristics of today’s food economy.
The changing patterns of consumption discussed above require a larger number of food items like vegetables, milk and meat to be brought under the purview of the institutions and instruments that provide food security. However, considering the immense cost of implementing MSP in just two crops in three-and-a-half states, extending this support to at least a dozen crops spread across 15 states is well-nigh impossible. Instead of relying on government-administered subsidies alone, a more efficient mechanism would be to create a market-based instrument, and build institutions that can take such an instrument to the farmers. These market-based instruments will reduce the need for the State to engage in commodity operations directly, yet giving the government the power to influence prices in public interest, whenever required.
For the farmers, Commodity Derivatives such as Futures’ and Options are good safeguards as they facilitate alignment of production with demand. In the absence of future price signals, farmers are currently forced to make planting decisions based on the previous season’s prices. Commodity Derivatives can open up new possibilities for the farmers as they assure them of a post-harvest price before they take a decision on what to sow.
While trading in Futures is currently permitted, this instrument ties the farmer down with the obligation to deliver at the contracted price, even if the market moves up after harvest. What the farmers need is a more flexible instrument, which, like the MSP assures them of a minimum price before planting, while at the same time gives them the option of opting out if the market prices go up later. Options provide that flexibility. By buying a “put option”, the farmer gets the right to sell at a pre-determined future price, but does not have the obligation to deliver if the market moves up. This assurance builds the capacity of farmers to invest in productivity-enhancing and quality-improving technology and practices, which in turn raises food production.
It is vital, therefore, that the Forward Contacts (Regulation) Act is amended to permit trading in “Options”. To help the farmers afford the high cost of the premium typically charged for “Options”, the market needs to introduce exotic derivatives like caps and collars. The government too can step in and subsidise the premia, since that would entail a far less outgo than direct subsidies. Such subsidies would be better targeted too.
To manage the small lot sizes of farmers and the complexities involved in operating in the derivative markets, it is also important for the Act to recognise the role of the “Aggregators” who would offer simpler “options-embedded over-the-counter (OTC) contracts” to farmers. Private companies would then be motivated to take up this role. This would serve a twin purpose — the farmers’ needs would be met while private involvement in the sector would be encouraged. Suitably federated Farm Producer Organisations can also take on the role of Aggregators. Options thus are the win-win instrument that can help farmers hedge risk effectively and reduce pressure on the national exchequer by replacing expensive subsidies with an efficient market-based mechanism.
Making the nation food secure is the first step towards achieving the goal of sustainable and inclusive growth for all. The measures outlined here will not only achieve food security, but also go a long way in propelling Indian agriculture into the next orbit. With a market oriented policy impetus and effective public-private-people partnerships, the agriculture sector in the country can be rejuvenated to offer a new promise for the new aspirational India.