The Indian Economy Blog

April 8, 2008

From Helping Farmers To Hurting Them

Filed under: Agriculture,Fiscal policy,Politics,Regulatory reforms,Trade — Nitin @ 6:19 pm

Who gets hurt when grain exports are banned?

Swaminathan Iyer took the words out of this bloggers mouth. The UPA government, he writes “has suddenly shifted from protecting Indian farmers against cheap imports to protecting the consumer by cheapening imports”. He is referring to the ban on rice exports (which follow the export of wheat late last year, followed by the ban on export of maize and pulses).

The April 2008 issue of Pragati called for the government to free the farmers. The UPA government did just the opposite—far from allowing Indian farmers to benefit from selling their produce at record prices, the government is forcing them to sell at artificially low prices. So who is hurting the farmer? And why is silence replacing Sainath? And next year, when farmers find themselves unable to repay their loans, the UPA government—if it is in power at that time—will simply increase payouts and write-offs.

In the end the consumers pay the farmers: only the government gets itself into the equation causing unnecessary leakage and wastage.

Unnecessary? Why, isn’t it at least helping curb inflation? Not quite. As Mr Iyer explains:

The lesson is clear. Curbing exports is a form of national hoarding. If every country tries to hoard food, food prices will naturally rise. Governments would like to believe that hoarding by traders is terrible, whereas hoarding by governments promotes the public interest. But the impact on prices is exactly the same in both cases. Indeed, when governments start to hoard food out of panic, the panic itself stokes further inflationary fears.

That is why I am not optimistic about the Indian government’s anti-inflation package. The government thinks it is improving domestic supplies and hence bringing down prices. In fact the government is adding to the global hoarding problem, and stoking panic too. So, expect food inflation to keep rising in coming months. [TOI]

It’s all very well, you say, but what should the government do when poor people can’t afford food? Well, it should buy food grain at market prices and distribute it to those who need it. That way it will least distort the price signals that farmers receive and allow them to benefit from the good times. And by spending taxpayers money in a targeted manner—only the poor will enjoy cheap food—it will spend less. That is, if the government actually wanted to address the policy challenge, and not flail about paranoid of losing votes.

14 Comments »

  1. State Governments are trying to do exactly same as written by you. They buy at little more higher price and try to give it to poor at lower price through ration shops. What really happening is no farmer is willing to give Rice to govt and they smuggle it to neighbouring states where they can fetch higher price. It is every day story in TN where Rice is smuggled to AP and kerala. Real problem lies in distribution systems and storage. Untill these problems get sorted out, export restrictions will not work.

    Comment by Saravanan — April 9, 2008 @ 4:58 am

  2. Is it a wonder that,the basic premise of welfare is skewed in the dictionary of the policy makers?

    Freeing the trade is an important part of the system. Government claims it is protecting the “kisaan” from the vagaries of prices. Unfortunately, from profits and margins too. And this doesn’t happen only in TN like Saravanan mentioned. It is happening in all the states wherever food crop is grown. Cash crops though are spared this rude joke and farmers in Kerala (ubber/coffee/vanilla) ,in Andhra Pradesh(cashewnuts) and likewise in TN esp Ooty where rose cultivation is a huge business. So in light of all these it is evident that sooner or later the farmers are left with increasingly dire choices.Move to cash crops . If the soil doesn’t support that, migrate.
    Unfortunately the choices are few and a long road to cover in between.

    For some more of problems faced by farmers, give this piece a read.

    Comment by Soham Das — April 9, 2008 @ 8:09 am

  3. [...] IE Blog on rising food [...]

    Pingback by Assorted Links « Mostly Economics — April 9, 2008 @ 10:20 am

  4. This is theoretically very good but the problem is the PDS is a joke and high food prices mean that marginal farmers will starve even if quite a lot benefit.Therefore the only realistic way of avoiding starvation especially during an election year is to spend approx USD 5 bn on imports and keep prices low by directly releasing stocks on the market.Its not good economics but this is a democracy.

    Comment by Shantanu Chatterjee — April 9, 2008 @ 2:30 pm

  5. I think ITC e chopal models must me replicated and there is enough scope for re engineering of the ITC-e choupal model. As we have signed the GATT we can’t stop the imports, as it is an election year in India many populist action taken which are reckless. In long term if you think for a mechanized farming, use of GIS, tacking monsoon, use of non chemical fertilizers, high quality seeds, proper scientific multiple cropping, proper destruction using an efficient supply chain, agricultural insurance, a lot of problem can be solved.
    I still think today even after 60 years of independence, before every CULTUTRE you require AGRICULTURE.

    With Warm Regards,

    Comment by Debashish Bramha — April 12, 2008 @ 2:43 pm

  6. Free market regime is the only answer to problems of the farmer. Let food prices be ruled by market. Let wage prices be ruled by market. Let rent prices for housing be ruled by market.

    You will find that agriculture is booming, housing is booming, and the farming is booming. The real problem of our country is the protected labour force especially the govermnet staff which gets paid for all the non productive jobs,gets pension and medical benifit. Let market prices decide the goverment salaries. Restore the right of begging. Those who do not or can not work can live by begging. Every religion of this world supports begging as a noble profession.

    Comment by Vishwas Gokhale — April 14, 2008 @ 11:55 am

  7. The idea of freeing farmers from the clutches of traders is age old but despite farmer leaders like Sharad Joshi arguing for free sale of farm produce, governments I mean local and state continue to impose restrictions on their movement. Can anyone believe that even after sixty years of freedom, bamboo grown by farmers in their field requires permit from forest departmen. The new agriculture marketing infrastructure scheme offers sops to states which can adopt new laws for agri produce marketing but response is still lukewarm.Governments like to please consumers rather than farmers as they are not organised into lobbies.Even profarmer leaders are not popular with farming communtities whether it is Sharad Joshi,or others

    Comment by venkatesh — April 19, 2008 @ 12:30 pm

  8. On top of the points mentioned, there is indeed every case not to artificially reduce prices and any actions leading in that direction – like closing the futures market. However, the suggestion on targeted distribution of grain to poor is flawed as well. We all know the efficiency of government logistic programs and the corruption involved. In fact it will become a vicious cycle where government will buy at market price, distribute 10%, sell in black market 90% (via rouge officials) at market price, buy more, pumping up prices further and so on.

    This has to be dealt at multiple levels. One of them is public education/information. Government should disclose reserves, give warning against hoarding, and possible consequence of hoarding. This becomes important as India and some other countries are set to have bumper crop this year. As I look in future, i can see further farmer agony due to this bumper crop, low prices followed by insane government actions again.

    Comment by Aashish Sharma — April 23, 2008 @ 11:45 am

  9. Nice post .
    yes it’s true that govt has to do something special in increasing the agricultural productivity and preventing the famers suicides cases because of debt.
    more about indian economy on :

    http://indiaassuperpower.blogspot.com/2008/04/diversified-indian-economy-different.html

    Comment by himanshu — May 4, 2008 @ 3:46 pm

  10. efficient PDS system is required to improve condition of poor

    Comment by heena — June 28, 2008 @ 10:53 am

  11. Fully agree with the article. I feel that the food materials should really reach the deserved people. Strick vigilance should be made on the PDS.Nowadays, there are many ration cards which are actually not there. The entire part is being eaten by many intermediaries, specially by PDS shops

    Comment by Paul — June 28, 2008 @ 10:57 am

  12. Hello,
    I agree with the article.But would like to give suggestions
    1) Involve the farmers in the governments decisions.
    2)Give a platform to the common farmer to discuss his problems
    3)take the help of ngo to be a mediator between the govt and farmer

    Comment by kalpana chandhoke — June 28, 2008 @ 10:59 am

  13. All the measures takes effects farmers on two fronts. While facing the inflation farmers have to also face reduced income due to the measures govt. takes. The first step government takes whenever there is a raise in inflation is to cut down the food prices which effects the agriculture product prices.

    Comment by Ramanjaneyulu — October 30, 2008 @ 3:38 pm

  14. Government intervention in any economic sector can never help.
    They will cause havoc alone just like they caused the GM Genocide.

    Comment by Gargi Dixit — January 24, 2009 @ 4:06 pm

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