Incentives matter

Incentives matter
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First Published: Sat, Apr 26 2008. 12 41 AM IST
Updated: Sat, Apr 26 2008. 12 41 AM IST
Finally, some good news on the price front. Global wheat prices have dropped to a six-month low. Opinion is divided whether this is due to a bumper rabi crop in India or Ukraine’s decision to lift restrictions on wheat exports.
There is a larger lesson here—economic incentives matter. Last year’s record wheat prices seem to have encouraged farmers around the world to increase the area for wheat cultivation. Farmers have responded to high prices by producing more.
This newspaper has been critical of the trade bans that governments—including our own—have imposed to keep food inflation in check. These measures are terribly short-sighted. By artificially suppressing prices, they will do little to tackle the global food crisis.
Of course, wheat has been an exception. Rice prices continue to shoot up in the global forward markets. It will thus need an overall shift in the terms of trade in favour of agriculture for there to be a sustained rise in farm investments and full granaries for food security.
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First Published: Sat, Apr 26 2008. 12 41 AM IST
More Topics: Wheat | Incentives | Rice | Agriculture | Views |