Tackling the food crisis

We are now in the midst of twin global crises—in financial markets and in food prices. Schultz offers many insights into the food crisis. In fact, if he were to redeliver his Nobel Prize lecture of 1979, it would still be relevant and appropriate today.

Schultz’s main research agenda was to understand poverty. He realized that most poor people are employed in agriculture and that motivated him to study agriculture. He said economists assume that poor and developing countries are different and need different sets of policies. But most economies were once poor and dependent on agriculture and, hence, this was a mere fallacy.

Much of the early discussion on agriculture economics was around Thomas Malthus and David Ricardo. Malthus and Ricardo gave more importance to land and were pessimistic in their outlook for agriculture. They always questioned (in their own different ways) whether we would have enough land to feed the growing number of mouths. Schultz challenged this view and emphasized human agents and technology as critical factors in development of agriculture. He said in his Nobel Prize speech that “most observers overrate the economic importance of land and greatly underrate the importance of the quality of human agents". We had the Green Revolution through both better technology and research.

So, what would Schultz recommend for tackling the ongoing food crisis? It would still be the same advice—incentivize agriculture. For long, this sector has been ignored and the role of a farmer is deemed to be unimportant. The crisis occurred because much of policy time was devoted to sectors such as finance, software, etc. Moreover, the crisis is global and shows failings at a global level. Recent research from the Food and Agricultural Organization (FAO) indicates that stocks have been declining across food crops and that this was a crisis waiting to happen.

Agriculture has been ignored for too long and all of a sudden we are talking about food insecurity, riots, etc. It is true that the share of agriculture declines (is expected to decline in developing economies) as economies progress, but the sector has a vital role to play especially in highly populated economies such as India and China. Hence, there is an urgent need by policymakers to reincentivize farmers and usher reforms and investments. There is need to look at agriculture in a holistic manner and not just focus on direct factors (such as improving productivity), but also on indirect factors such as education, health, rural roads, etc.

Global authorities are now acknowledging the important role of agriculture. The World Bank’s World Development Report 2008 focuses on agriculture. It has divided the world economy into three types: agriculture-based (most of sub-Saharan Africa), transforming (South and South-East Asia, West Asia and North Africa) and urbanized (Latin America, Europe, Central Asia). For each region, it has suggested different sets of reforms to revolutionize agriculture. After years of effort to revive industry in Africa, the report says Africa can do much good by focusing on agriculture.

It is amazing that despite the best attempts by policymakers to bury the ideas of John Maynard Keynes and Schultz, they keep making a comeback. That’s why we are talking about the twin crises and discussing government intervention for one (Keynes) and increasing agricultural productivity for the other (Schultz). No wonder their works are classics and despite our best efforts, we keep revisiting old times.

Amol Agarwal is an economist with IDBI Gilts Ltd. Comment at otherviews@livemint.com

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