Themes > Current Issues
17.08.2010
Managing the Food Economy
C.P. Chandrasekhar
Recent
weeks have seen rather contradictory statements on the challenge of
ensuring food security and the set of feasible initiatives for managing
the food economy. To start with, the National Advisory Council (NAC),
which recognises the need for universal public distribution system (PDS)
and was expected to push for a transition from the currently prevalent
targeted system to a universal one with expanded commodity coverage,
decided to recommend the staggered implementation of the proposal on
the grounds that the country was faced with a supply constraint on the
foodgrains front. In its view, since there is not enough food to distribute,
attempting to offer every household 35 kgs of food at Rs. 3 a kg would
take demands to levels where supply would be short of demand. Hence,
argues the NAC, the shift out of the system of targeted distribution
to a universal one should be initially restricted to 150 ''most disadvantaged
districts''.
Even ignoring for the moment the correctness of the view that it would be difficult to match supply with potential demand, this position does leave a couple of issues unresolved. It is known that the growth and development of the public distribution system in India has been extremely uneven across geographical space. Some states in the Northeast and Union Territories, as well as states such as Andhra Pradesh, Kerala and Tamil Nadu have more extensive systems in which the PDS has covered a wider section of the population, and therefore been more effective for the poor as well. But there are also many states where the public distribution is poorly developed and where offtake in general and by the poor in particular has been extremely low in the past. It would be reasonable to expect that it is in states with a larger number of ''most disadvantaged districts'' that the spread and reach to the poor of the PDS would be more limited and would be less efficient as a mechanism of delivery. Therefore, ''targeting universalisation'' at these districts would not only deprive those residing in states that are more ''developed'' of the benefits of universalisation, but would defeat the purpose of universalisation by focusing it in areas where the means to effectively implement the scheme do not exist. As a result, restricting universalisation in the 150 most disadvantaged districts may not increase offtake by the Above the Poverty Line population by the estimated 20 million tonnes. In the event, the flow of food through the PDS would be smaller than expected, and the fears of a demand-supply imbalance turn out to be exaggerated. Rather, the attempt to match demand with estimated supply may just severely limit the impact of the PDS.
What is likely to happen is that food meant to be provided to all sections in the most backward districts but cannot be reached to most of them because of the inadequacies of the PDS, may still be acquired by speculators at subsidised prices and diverted to the open market either in these districts or elsewhere. In fact, there is a real danger of the ''universalisation'' scheme being discredited however it performs. If offtake of subsidised food is low, the evidence would be used to argue that the belief that government can run a universal public distribution systems in a country as large as India is wrong. If offtake of subsidised food is found to be high it would be argued that subsidies are not reaching the poor but leaking out to those at whom it is not targeted. It must be said, therefore, that the scheme of using geographical backwardness to target universalisation lays itself open to criticism.
Interestingly, when a confused policy of ''targeted universalisation'' is being proposed on the grounds that stocks adequate to support a universal PDS do not exist, the actual picture on the supply side seems to be one of excess stockholding by the government. Not only is the size of the government's foodgrain stock much higher than the buffer stocking norm, but the judiciary, parliament and the media seems to be obsessed with the problem of inadequate storage leading to the rotting of food when the poor go hungry. Even though last year's poor monsoon resulted in lower procurement of rice, the stocks of rice and wheat with the government are placed at 60 million tonnes. With covered storage available for around 45 million tonnes, a substantial part of these stocks has to be stored in the open, leading to losses. Unless the NAC believes that targeted universalisation is actually going to increase demand for food substantially, this problem of foodgrain rot in a country with hunger is likely to persist.
This embarrassing accumulation of food stocks seems to have changed the government's views on how to manage the food economy, with opinion shifting (even if temporarily) in favour of an expanded PDS, at a time when the NAC has decided to go against the demand for complete universalisation because of constrained supply. The government has implicitly accepted that uneven spread of the PDS has meant that targeted distribution results in underachievement of the objective of distributing food stocks procured using the Minimum Support Price (MSP). Implementing the targeted PDS scheme in the context of uneven development of the PDS has had two consequences. First, allocations to states with a better developed distribution system providing access to Above the Poverty Line (APL) sections were far short of demand. Second, states in which the PDS is poorly developed and which were eligible for allocations under the Below Poverty Line household scheme, could not lift their quotas in full since they would not be able to reach it to the poor, or for that matter to large sections of the non-poor.
This has led to two recent changes in food policy. To start with, the Planning Commission has decided to accept the revised Tendulkar estimates on the proportion of population below the poverty line, that have significantly (even if not adequately) raised the poverty head count. This would require increasing the number of households to be covered by the BPL scheme, which would increase demand from the PDS wherever it is available. Second, the government has all of a sudden decided to increase allocations for APL users of the PDS, after having penalised states that were providing access to these sections in the past by limiting central allocations.
These developments are of significance because the recognition of the need to raise the MSP to improve the returns to foodgrain production is likely to lead to further increases in procurement in normal or good monsoon years. Clearly then, the direction of movement in the country is towards an enlarged and more universal PDS. This is not because of the government's concern about food security but because of the logic of enhancing production and managing supplies in the food economy.
The NAC's failure to exploit this trend and push for true universalisation possibly stems from a mistaken assumption that agricultural production and productivity are determined separately and not influenced by policies aimed at ensuring food security. This ignores the fact that it was the decision to raise food production through the Green Revolution that necessitated the food distribution system that we currently have. An essential component of the Green Revolution strategy was the decision to incentivise production by setting a ''remunerative'' cost-plus floor to certain agricultural prices, in the form of procurement prices at which the government would acquire any volume of foodgrains sold by the peasantry. This obviously resulted in the accumulation of stocks with the government in excess of buffer stocking norms, especially in normal or good monsoon years. To boot, uneven agricultural growth, engendered by historically given inter-regional variations, on the one hand, and the nature of the Green Revolution strategy, on the other, resulted in yield increases and food surpluses being concentrated in a few states in the country. The challenge this set the government was that of moving food from surplus to deficit (and often poor) regions and ensuring the effective demand required to absorb these surpluses. This necessitated the sale of a part of that stock at lower and affordable prices through the PDS to sustain demand. As a result, the government had to provide a subsidy to cover the difference between the cost of acquiring these foodgrains, carrying them, and transporting them to urban areas and deficit states and the lower price at which it offered this food through the PDS to ensure offtake. Thus, the PDS was part of a strategy of enhancing agricultural production and the food subsidy on the government's budget was substantially explained by the nature of the agricultural growth strategy and the cost of stockholding it involves. Thus, the assumption that policies to enhance food production are independent of the food distribution and pricing policy, which seems to underlie the NAC's recommendations, seem unwarranted.
Not surprisingly, those interested in reducing the food subsidy bill have pushed not for reduced procurement or even lower procurement prices but for a reduction in the quantum of stocks held by the FCI and the sale of much of procured volumes at prices that cover the economic cost. This has in the past sought to be achieved in two ways. First, ''excess stocks'' accumulated in periods when open markets prices are depressed and ''procurement'' high were disposed off in true marketist fashion by resorting to sale in the open market through the private trade and through allocations to exporters; second, attempts were made to 'target' the PDS only at the ''needy'', and reduce allocations to a system which distributes government stocks at prices below economic cost.
As against this trend, it has been argued for long by those concerned with the need to ensure food security that excess food stocks offer an opportunity to increase the spread of the public distribution system so as to reach a minimum quantity of reasonably priced food to a majority of the population and incentivise food production in the process. In addition, the government can launch food-for-work programmes that build productive and social infrastructure that can help enhance agricultural productivity. Through such a strategy, the government can utilise surplus stocks to ensure access to food as well as widen and deepen the productive base in the agricultural sector. It is to this kind of logic, rather than one based on a simplistic assumption about limited availability of food, that the government must turn.
Even ignoring for the moment the correctness of the view that it would be difficult to match supply with potential demand, this position does leave a couple of issues unresolved. It is known that the growth and development of the public distribution system in India has been extremely uneven across geographical space. Some states in the Northeast and Union Territories, as well as states such as Andhra Pradesh, Kerala and Tamil Nadu have more extensive systems in which the PDS has covered a wider section of the population, and therefore been more effective for the poor as well. But there are also many states where the public distribution is poorly developed and where offtake in general and by the poor in particular has been extremely low in the past. It would be reasonable to expect that it is in states with a larger number of ''most disadvantaged districts'' that the spread and reach to the poor of the PDS would be more limited and would be less efficient as a mechanism of delivery. Therefore, ''targeting universalisation'' at these districts would not only deprive those residing in states that are more ''developed'' of the benefits of universalisation, but would defeat the purpose of universalisation by focusing it in areas where the means to effectively implement the scheme do not exist. As a result, restricting universalisation in the 150 most disadvantaged districts may not increase offtake by the Above the Poverty Line population by the estimated 20 million tonnes. In the event, the flow of food through the PDS would be smaller than expected, and the fears of a demand-supply imbalance turn out to be exaggerated. Rather, the attempt to match demand with estimated supply may just severely limit the impact of the PDS.
What is likely to happen is that food meant to be provided to all sections in the most backward districts but cannot be reached to most of them because of the inadequacies of the PDS, may still be acquired by speculators at subsidised prices and diverted to the open market either in these districts or elsewhere. In fact, there is a real danger of the ''universalisation'' scheme being discredited however it performs. If offtake of subsidised food is low, the evidence would be used to argue that the belief that government can run a universal public distribution systems in a country as large as India is wrong. If offtake of subsidised food is found to be high it would be argued that subsidies are not reaching the poor but leaking out to those at whom it is not targeted. It must be said, therefore, that the scheme of using geographical backwardness to target universalisation lays itself open to criticism.
Interestingly, when a confused policy of ''targeted universalisation'' is being proposed on the grounds that stocks adequate to support a universal PDS do not exist, the actual picture on the supply side seems to be one of excess stockholding by the government. Not only is the size of the government's foodgrain stock much higher than the buffer stocking norm, but the judiciary, parliament and the media seems to be obsessed with the problem of inadequate storage leading to the rotting of food when the poor go hungry. Even though last year's poor monsoon resulted in lower procurement of rice, the stocks of rice and wheat with the government are placed at 60 million tonnes. With covered storage available for around 45 million tonnes, a substantial part of these stocks has to be stored in the open, leading to losses. Unless the NAC believes that targeted universalisation is actually going to increase demand for food substantially, this problem of foodgrain rot in a country with hunger is likely to persist.
This embarrassing accumulation of food stocks seems to have changed the government's views on how to manage the food economy, with opinion shifting (even if temporarily) in favour of an expanded PDS, at a time when the NAC has decided to go against the demand for complete universalisation because of constrained supply. The government has implicitly accepted that uneven spread of the PDS has meant that targeted distribution results in underachievement of the objective of distributing food stocks procured using the Minimum Support Price (MSP). Implementing the targeted PDS scheme in the context of uneven development of the PDS has had two consequences. First, allocations to states with a better developed distribution system providing access to Above the Poverty Line (APL) sections were far short of demand. Second, states in which the PDS is poorly developed and which were eligible for allocations under the Below Poverty Line household scheme, could not lift their quotas in full since they would not be able to reach it to the poor, or for that matter to large sections of the non-poor.
This has led to two recent changes in food policy. To start with, the Planning Commission has decided to accept the revised Tendulkar estimates on the proportion of population below the poverty line, that have significantly (even if not adequately) raised the poverty head count. This would require increasing the number of households to be covered by the BPL scheme, which would increase demand from the PDS wherever it is available. Second, the government has all of a sudden decided to increase allocations for APL users of the PDS, after having penalised states that were providing access to these sections in the past by limiting central allocations.
These developments are of significance because the recognition of the need to raise the MSP to improve the returns to foodgrain production is likely to lead to further increases in procurement in normal or good monsoon years. Clearly then, the direction of movement in the country is towards an enlarged and more universal PDS. This is not because of the government's concern about food security but because of the logic of enhancing production and managing supplies in the food economy.
The NAC's failure to exploit this trend and push for true universalisation possibly stems from a mistaken assumption that agricultural production and productivity are determined separately and not influenced by policies aimed at ensuring food security. This ignores the fact that it was the decision to raise food production through the Green Revolution that necessitated the food distribution system that we currently have. An essential component of the Green Revolution strategy was the decision to incentivise production by setting a ''remunerative'' cost-plus floor to certain agricultural prices, in the form of procurement prices at which the government would acquire any volume of foodgrains sold by the peasantry. This obviously resulted in the accumulation of stocks with the government in excess of buffer stocking norms, especially in normal or good monsoon years. To boot, uneven agricultural growth, engendered by historically given inter-regional variations, on the one hand, and the nature of the Green Revolution strategy, on the other, resulted in yield increases and food surpluses being concentrated in a few states in the country. The challenge this set the government was that of moving food from surplus to deficit (and often poor) regions and ensuring the effective demand required to absorb these surpluses. This necessitated the sale of a part of that stock at lower and affordable prices through the PDS to sustain demand. As a result, the government had to provide a subsidy to cover the difference between the cost of acquiring these foodgrains, carrying them, and transporting them to urban areas and deficit states and the lower price at which it offered this food through the PDS to ensure offtake. Thus, the PDS was part of a strategy of enhancing agricultural production and the food subsidy on the government's budget was substantially explained by the nature of the agricultural growth strategy and the cost of stockholding it involves. Thus, the assumption that policies to enhance food production are independent of the food distribution and pricing policy, which seems to underlie the NAC's recommendations, seem unwarranted.
Not surprisingly, those interested in reducing the food subsidy bill have pushed not for reduced procurement or even lower procurement prices but for a reduction in the quantum of stocks held by the FCI and the sale of much of procured volumes at prices that cover the economic cost. This has in the past sought to be achieved in two ways. First, ''excess stocks'' accumulated in periods when open markets prices are depressed and ''procurement'' high were disposed off in true marketist fashion by resorting to sale in the open market through the private trade and through allocations to exporters; second, attempts were made to 'target' the PDS only at the ''needy'', and reduce allocations to a system which distributes government stocks at prices below economic cost.
As against this trend, it has been argued for long by those concerned with the need to ensure food security that excess food stocks offer an opportunity to increase the spread of the public distribution system so as to reach a minimum quantity of reasonably priced food to a majority of the population and incentivise food production in the process. In addition, the government can launch food-for-work programmes that build productive and social infrastructure that can help enhance agricultural productivity. Through such a strategy, the government can utilise surplus stocks to ensure access to food as well as widen and deepen the productive base in the agricultural sector. It is to this kind of logic, rather than one based on a simplistic assumption about limited availability of food, that the government must turn.
© MACROSCAN 2010