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Foodgrain: a problem of plenty

Foodgrain: a problem of plenty
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First Published: Tue, Sep 28 2010. 09 12 PM IST
Updated: Tue, Sep 28 2010. 09 12 PM IST
Yet again, in its latest meeting on 24 September, the National Advisory Council (NAC) has failed to break the impasse on the proposed National Food Security Act. According to media reports, NAC wanted the opinion of the food ministry and the Planning Commission before taking a final call. As expected, both these institutions were unanimous in rejecting any proposal to include the above poverty line (APL) population within the legal ambit of the proposed Act. That may not be surprising, given that these are the same institutions that have contributed to creating the messy food security situation in the country in the last two years.
The bottleneck in the passage of the Act also comes at a time when food price inflation continues to hover around 15%, despite promises of reduction. Nor has there been any decline in food stocks in spite of orders from the Supreme Court. Worse, a large section of the population suffering from floods and drought is being offered rotten foodgrain, and there is speculation about the government’s intention to export grains to take advantage of higher prices in the international market.
This is not to say that there is a dearth of ideas within the government on what should be done. Take a recent paper by chief economic adviser Kaushik Basu. Lucidly written, using insights from industrial organization theory (which deals with how firms operate in given market conditions), “The Economics of Foodgrain Management in India” analyses current problems and offers solutions that are not beyond the government’s reach.
Basu admits that the mess is largely because of the government’s role as the biggest hoarder of foodgrain. However, we are in such disarray not because the government has procured foodgrain beyond the buffer limits—the flexibility in procurement is desirable if price policy is to have a role in stabilizing food prices (by working the demand-supply mechanism) and ensuring sufficient remuneration to our farmers. The problem is that the government, knowingly or unknowingly, has failed to release the foodgrain to the consumers. A good food price management policy would ensure price stability by procuring when there is surplus production and prices are low, and by releasing when supply falls short.
Contrary to this sound theoretical advice, the government procured the second highest amount of foodgrain (54 million tonnes, or mt) in the last three decades in 2009-10—a year that also saw the worst drought in the last 30 years. In comparison, it procured the second lowest amount (36.23 mt) in 2006-07—a normal year with bumper production of foodgrain, and at a time when international foodgrain prices were rising. In hindsight, one cannot be sure that such aberrations and basic disregard of economic theory will not be repeated.
The real problem, according to Basu, is the release of foodgrain, not its procurement. Unless procurement and distribution are linked, and are in tandem with each other, such situations will keep recurring. It is this tenet of food price management that the government?has?failed to recognize.
Basu also offers a solution, rooted in industrial organization theory: He says that to stabilize grain prices, the government should release foodgrain in small instalments and in regular frequency. In fact, this has been the guiding principle ever since the 1960s, when a major food crisis was followed by several measures for foodgrain price stabilization. Basu is quite right when he says that the lack of storage facilities is not the problem. Rather, foodgrain is rotting because the distribution channel is weak.
While Basu has been bang on target as far as foodgrain management is concerned, he has failed to read the reality of the distribution channel, in particular the role of foodgrain policy in providing cheap food to the poor. He has been honest, however, in admitting that the system is full of leakages. He also rightly agrees that theory is of little help in solving this problem, and offers some “practical” solutions.
But these solutions, also mentioned in the Economic Survey released earlier this year, are less likely to succeed than his suggestions on managing food stocks. Proposals for mechanisms such as cash transfers, food coupons, smart cards and biometric identification are not new—many, including those in government, have propounded them. Unfortunately, all these work on the same edifice— targeting the population based on poor below poverty line and non-poor APL categories, which is the biggest problem with our existing foodgrain delivery system. If the targeting were to be improved and corrected, then leakages would reduce irrespective of the method of delivery. Sadly, the paper offers little in this context.
More importantly, the resolution of this issue is also conditio sine qua non for solving the foodgrain management problem. If not, economic theory would be of little use in solving the gigantic problem of plenty that India faces, even amid its widespread hunger and malnutrition.
Himanshu is an assistant professor at Jawaharlal Nehru University and a visiting fellow at Humaines, New Delhi.
Comments are welcome at theirview@livemint.com
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First Published: Tue, Sep 28 2010. 09 12 PM IST