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Farmers respond to incentives

Farmers respond to incentives
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First Published: Thu, Jul 10 2008. 10 16 PM IST
Updated: Thu, Jul 10 2008. 10 16 PM IST
The news from the farm keeps getting better and better.
The latest official estimates of crop production in 2007-08 are even higher than the earlier estimates released in April. Compared with 2006-07, Indian farmers have delivered 3 million more tonnes of rice, 2.6 million tonnes more of wheat, 6.8 million tonnes more of coarse cereals and about 1 million extra tonnes of pulses. Cotton and oilseeds production, too, has soared.
These new farm production numbers come at a time when the world is worried about a food crisis and prices have shot up. Food security — both for the country as a whole as well as for individual families — could be under threat. The splendid rise in farm output in 2007-08 should assuage at least some of these fears. It will also take India’s rate of economic growth above 9%. In short, higher farm output is both a weapon against food inflation and an insurance against a sharp slowdown in the economy.
An equally interesting issue is why farm production is rising. The easiest explanation is that the rains have been good. That’s true. It would have been hard to get so much out of the land in a year of poor rainfall. But there could be more to the story. We feel farm secretary P.K. Mishra was on to something when he told reporters on Wednesday: “Higher minimum support prices also provided incentives to farmers to put in more efforts to increase production and productivity.”
Farmers have very clearly been responding to incentives. This is not surprising by itself. One of the fundamental insights in economics is that consumers and producers respond to incentives. Indian farmers have done the same.
There is a broader lesson here. The only sustainable way to beat the food crisis is by raising farm output. Better seeds and more public investment in rural infrastructure will play a part. But the price system is also important. Higher food prices are an incentive for farmers to invest more and work harder.
The current fad of putting artificial lids on food prices will be self-defeating in the long term. Higher prices are a signal to farmers that there is strong demand for what they produce. Meddling with these signals will do more harm than good.
Have Indian farmers responded to high prices? Write to us at views@livemint.com
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First Published: Thu, Jul 10 2008. 10 16 PM IST
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