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Managing India's food economy
Book reviews
and OM in Mali. The greatest effect structural adjustment had was the abolition of monopolies on grain buying and selling. However, the authors consider its impact not to have been significant, since such monopolies were largely fictitious in the case of the grain trade. They omit to point out, however, that turning de facto competition into a de jure phenomenon should reduce the transaction costs and risks associated with ‘illegal’ sales. The more realistic problem, however, is that while governments proclaim under adjustment to have abolished monopoly, in practice they continue to impose many defucto restrictions, for example through making licensing for traders mandatory and difficult, by delaying the issuance of transport permits for trade across regional boundaries, by restricting institutional finance for trade, or simply by not letting the public know the reforms governments agreed to make with the donors with whom they negotiated reform packages. On the effectiveness of competition after liberalization, once again the study is silent, perhaps because it is based on secondary sources. For instance, how many traders have entered the market since liberalization and how much access to credit, information or transport do they have to provide genuine competition to the marketing boards? Where do these traders reside and whose needs do they serve? These are important issues which need further empirical research. Only two grain boards changed their producer price system to a floor price system. Two others abolished their price system altogether. Six of the 10 grain marketing boards retained their consumer price system. The report is silent on the extent to which this price stabilization benefited the needy populations, and about the financial costs the boards incurred in carrying out consumer price stabilization. An important researchable issue for future analysis should be the effectiveness of the reorganizations in reducing unit costs of market operations of the boards, who benefited from these policies, and how much price stability can be achieved or afforded at what fiscal or monetary costs.
FOOD POLICY August
1991
As for the RMBs, nearly a third of the 21 were liquidated. Most of those were in Nigeria, but liquidation was not related to adjustment. Nearly 40% were ‘restructured’, but as many as half maintained their monopoly and more than half maintained their past system of producer pricing. The case studies in the next chapter show how complex and country- and commodity-specific are the issues in privatizing the operations of RMBs, and how frequently privatization has largely meant turning to the weak, but still politically popular, cooperatives. Whether the simple option to privatize often exists given the complex requirements of individual crops and the historical factors which led to their establishment in the first place are questions that research needs to address if real progress in policy reform is to be achieved. To summarize, the working paper is useful as a positive analysis, hut is weak in posing normative questions
about the efficiency and equity of boards vis-ci-vis the private sector, the cost of their operations, or their future roles in achieving sustained and broad-based agricultural growth, promoting exports or protecting the food consumption of the poor. Uma Lele institute of Food and Agricultural Sciences University of Florida, Gainesville, FL, USA ‘See Uma Lele and Robert E. Christiansen, Markets, Marketing Boards and Cooperatives in Africa: Is&es in Adjustmenf Policv, MADIA Discussion Paoer No 11, World -Bank, Washington, DC,’ 1990. Uma Lele, Robert E. Christiansen and Kundhavi Kadiresan, Fertilizer Policy in Africa: Lessons from Development Programs and Adjustment Lending, 19707987, World Bank, Washington, DC, 1990. Uma Lele, Nicolas Van de Walle and Mathuron Gbetibou, Cotton in Africa: An Analysis of Differences in Performance, MADIA Discussion Paper No 7. World Bank, Washington, DC, 1990.
A flawed contribution MANAGING
INDIA’S
FOOD
ECONOMY Problems
and Alternatives
by D.S. Tyagi
Sage, New Delhi, 165
1990, 240 pp, Rs
D.S. Tyagi has been associated with the Commission on Agricultural Prices and Costs (CACP) of the Government of India for nearly two decades. This book, reflecting his experience and convictions, is a welcome contribution on the analysis of India’s food(grain) economy. Tyagi has a definite message to communicate about the need to shift the emphasis of food policy as the country’s situation has changed from foodgrain deficit to selfsufficiency. But the message is scattered over 10 chapters, 240 pages and over 100 tables, and his tendency to repeat, verbatim or paraphrased, can put the reader’s patience to the test. A precise write-up would have done the job better.
Changing policy environment Low productivity, high fluctuations in production and prices, dependence on imports (generally under PL-480) and undernutrition were well-known features of the food economy in India until the mid-1970s. Adverse longterm effects of imports on agriculture together with foreign exchange shortages led the government to give high priority to the objective of food selfsufficiency. Food and agriculture policy were determined by these problems. Even macroeconomic policy was influenced by them because of the great interdependence between agricultural and non-agricultural sectors, a point not appreciated by Tyagi, who acknowledges the influence of macro policy on food policy but not the other way round (Ch II, p 24). The strategy of following a strong research and development policy, a positive price policy through assured minimum output prices, subsidized inputs and a supportive institutional policy (as described in Ch III, ‘Two major achievements’, and Ch VI, ‘Towards food
347
Book reviews
self-sufficiency’) led to a rapid growth in foodgrain production (rice and wheat mainly). This rose from about 70 million tonnes in the mid-1960s to 120 million tonnes in the late 197Os, to about 170 million tonnes today. This made it possible to build a stock of 2&25 million tonnes, thus reducing supply and price uncertainties - a great achievement for a deficit country dependent on imports. But growth in per capita availability was largely offset by rapid population growth over the years. Growth in production also led to a decline in the ‘real’ prices of rice and wheat. These achievements (increased availability and decline in price) are defined by coining new terms, ‘increasing physical and economic access’ (a term used several times by the author but not defined until p 49) instead of using the term in currency, ie ‘food security’. The present system of ‘management’ is discussed in Ch II, but mainly the organizational (who does what and how) rather than the strategic aspects of priorities of food policy, planning and implementation, are considered. The above-mentioned achievements were not without costs: (a) a huge fertilizer subsidy (Tyagi’s silence on the fertilizer subsidy, which is almost twice the size of the food subsidy, is surprising); (b) a fiscal burden of more than Rs 2 billion in food subsidies for managing the public distribution system (PDS); (c) an increase in the deficit and prices of other items such as edible oils and pulses; and (d) increased foreign exchange needs. However, an analysis of trends in coarse cereals, all foodgrain, nonfoodgrain and competing crop prices is completely missing. This incomplete analysis of supply-demand situations leaves the reader unenlightened about the cost of food self-sufficiency. In view of the large stocks of foodgrains price uncertainty was presumably dampened, but adequate and rigorous evidence is not given. Tyagi’s conclusion, based on fragmentary evidence rather than a systematic analysis, that food policy failed in checking price rises is far-fetched (see Ch IV). The PDS was universal and mainly an urban programme until recently; the latter point is not highlighted.
348
Reshaping food policy Initially food policy in India was mainly concerned with strategies to increase production, and therefore equity issues, though mentioned rhetorically in various five-year plans, did not receive much attention until the mid-1970s. The author rightly finds that because of the universal nature of the food subsidy its impact on the poor was very small. By comparing foodgrain distribution with needs in different states Tyagi finds that the poor states got proportionately less foodgrains (Ch IV). Thus it is obviously necessary to target food subsidies to the carefully defined poor, particularly in rural areas. Coarse grains, which are the staple food of the poor, were ignored in R & D and price support policy, and also in this study. In the following chapter emerging problems - the marketing burden on public agencies, the increase in subsidies, high buffer stocks, etc - are identified. The increase in production together with support prices caused a glut in the market, especially in the post-harvest seasons, making procurement by the government unmanageable and expensive. A separate chapter on ‘Distrust of free trade’ describes the fact that under scarcity conditions free trade is and harms the poor ‘exploitative’ most. The implications of uncertainty over prices in the international market are also shown, though not altogether clearly. A gradual increase in the involvement of private trade is suggested. Suggestions in Ch VIII, ‘Alternatives for managing food economy’, include targeting food subsidies, the payment of reasonable prices to coarse grains producers, futures trading and keeping a combination of a foodgrain buffer as well as a supply of foreign exchange and inducing staggered market arrivals. The need to strengthen research on coarse cereals is not mentioned.
Theory flouted Some of the biases and aberrations in the study that have been mentioned could have been avoided if the analy-
sis had adhered to a model or framework drawn from an economic or management discipline. To provide further examples - a loose penultimate chapter entitled ‘Information system’ describes the need for improvement of information on production and consumption but ignores completely price (and other supply and demand) information of which Tyagi himself, being in the CACP, was an extensive user. If the state decides not to intervene in the market Tyagi shows no interest in information! Moreover, the terms ‘consumption’ and ‘demand’ and ‘production’ and ‘supply’ are often used interchangeably (eg p 172), and the reader is left to decide whether the reference is to the ‘quantity’ or the ‘curve’. Besides repetitions, the description in the text sometimes contradicts the f acts provided (see eg the table on fair price shops on p 230 and the text on p 38). The frequent use of phrases such as ‘there are reasons to believe’, ‘no doubt’, and ‘weather-inspired fluctuations’, on the other hand, are perhaps matters of style. Perhaps the author was suffering from time constraints b ut a summary of relevant points and an acknowledgement of the limitations of the book’s analysis would have put matters into proper perspective. Nevertheless, two points are communicated clearly: (a) the pressing need to target food subsidies; and (b) the need to reduce market interventions by keeping a mixed buffer of foodgrains and foreign exchange and by staggering purchases. It should be mentioned here that food self-sufficiency is a partial solution if imports of inputs for food production (fertilizer and petrol) and products competing with foodgrain crops such as edible oils are needed. Dependency in the area of foodgrains is replaced by non-foodgrain items, but f oreign exchange needs are not eliminated. In such a situation why should not the Indian economy reap the benefits of comparative advantage by allowing economic forces to operate? S.L. Bapna Centre for Management in Agriculture Indian institute of Management Ahmedabad, India
FOOD POLICY August 1991
and OM in Mali. The greatest effect structural adjustment had was the abolition of monopolies on grain buying and selling. However, the authors consider its impact not to have been significant, since such monopolies were largely fictitious in the case of the grain trade. They omit to point out, however, that turning de facto competition into a de jure phenomenon should reduce the transaction costs and risks associated with ‘illegal’ sales. The more realistic problem, however, is that while governments proclaim under adjustment to have abolished monopoly, in practice they continue to impose many defucto restrictions, for example through making licensing for traders mandatory and difficult, by delaying the issuance of transport permits for trade across regional boundaries, by restricting institutional finance for trade, or simply by not letting the public know the reforms governments agreed to make with the donors with whom they negotiated reform packages. On the effectiveness of competition after liberalization, once again the study is silent, perhaps because it is based on secondary sources. For instance, how many traders have entered the market since liberalization and how much access to credit, information or transport do they have to provide genuine competition to the marketing boards? Where do these traders reside and whose needs do they serve? These are important issues which need further empirical research. Only two grain boards changed their producer price system to a floor price system. Two others abolished their price system altogether. Six of the 10 grain marketing boards retained their consumer price system. The report is silent on the extent to which this price stabilization benefited the needy populations, and about the financial costs the boards incurred in carrying out consumer price stabilization. An important researchable issue for future analysis should be the effectiveness of the reorganizations in reducing unit costs of market operations of the boards, who benefited from these policies, and how much price stability can be achieved or afforded at what fiscal or monetary costs.
FOOD POLICY August
1991
As for the RMBs, nearly a third of the 21 were liquidated. Most of those were in Nigeria, but liquidation was not related to adjustment. Nearly 40% were ‘restructured’, but as many as half maintained their monopoly and more than half maintained their past system of producer pricing. The case studies in the next chapter show how complex and country- and commodity-specific are the issues in privatizing the operations of RMBs, and how frequently privatization has largely meant turning to the weak, but still politically popular, cooperatives. Whether the simple option to privatize often exists given the complex requirements of individual crops and the historical factors which led to their establishment in the first place are questions that research needs to address if real progress in policy reform is to be achieved. To summarize, the working paper is useful as a positive analysis, hut is weak in posing normative questions
about the efficiency and equity of boards vis-ci-vis the private sector, the cost of their operations, or their future roles in achieving sustained and broad-based agricultural growth, promoting exports or protecting the food consumption of the poor. Uma Lele institute of Food and Agricultural Sciences University of Florida, Gainesville, FL, USA ‘See Uma Lele and Robert E. Christiansen, Markets, Marketing Boards and Cooperatives in Africa: Is&es in Adjustmenf Policv, MADIA Discussion Paoer No 11, World -Bank, Washington, DC,’ 1990. Uma Lele, Robert E. Christiansen and Kundhavi Kadiresan, Fertilizer Policy in Africa: Lessons from Development Programs and Adjustment Lending, 19707987, World Bank, Washington, DC, 1990. Uma Lele, Nicolas Van de Walle and Mathuron Gbetibou, Cotton in Africa: An Analysis of Differences in Performance, MADIA Discussion Paper No 7. World Bank, Washington, DC, 1990.
A flawed contribution MANAGING
INDIA’S
FOOD
ECONOMY Problems
and Alternatives
by D.S. Tyagi
Sage, New Delhi, 165
1990, 240 pp, Rs
D.S. Tyagi has been associated with the Commission on Agricultural Prices and Costs (CACP) of the Government of India for nearly two decades. This book, reflecting his experience and convictions, is a welcome contribution on the analysis of India’s food(grain) economy. Tyagi has a definite message to communicate about the need to shift the emphasis of food policy as the country’s situation has changed from foodgrain deficit to selfsufficiency. But the message is scattered over 10 chapters, 240 pages and over 100 tables, and his tendency to repeat, verbatim or paraphrased, can put the reader’s patience to the test. A precise write-up would have done the job better.
Changing policy environment Low productivity, high fluctuations in production and prices, dependence on imports (generally under PL-480) and undernutrition were well-known features of the food economy in India until the mid-1970s. Adverse longterm effects of imports on agriculture together with foreign exchange shortages led the government to give high priority to the objective of food selfsufficiency. Food and agriculture policy were determined by these problems. Even macroeconomic policy was influenced by them because of the great interdependence between agricultural and non-agricultural sectors, a point not appreciated by Tyagi, who acknowledges the influence of macro policy on food policy but not the other way round (Ch II, p 24). The strategy of following a strong research and development policy, a positive price policy through assured minimum output prices, subsidized inputs and a supportive institutional policy (as described in Ch III, ‘Two major achievements’, and Ch VI, ‘Towards food
347
Book reviews
self-sufficiency’) led to a rapid growth in foodgrain production (rice and wheat mainly). This rose from about 70 million tonnes in the mid-1960s to 120 million tonnes in the late 197Os, to about 170 million tonnes today. This made it possible to build a stock of 2&25 million tonnes, thus reducing supply and price uncertainties - a great achievement for a deficit country dependent on imports. But growth in per capita availability was largely offset by rapid population growth over the years. Growth in production also led to a decline in the ‘real’ prices of rice and wheat. These achievements (increased availability and decline in price) are defined by coining new terms, ‘increasing physical and economic access’ (a term used several times by the author but not defined until p 49) instead of using the term in currency, ie ‘food security’. The present system of ‘management’ is discussed in Ch II, but mainly the organizational (who does what and how) rather than the strategic aspects of priorities of food policy, planning and implementation, are considered. The above-mentioned achievements were not without costs: (a) a huge fertilizer subsidy (Tyagi’s silence on the fertilizer subsidy, which is almost twice the size of the food subsidy, is surprising); (b) a fiscal burden of more than Rs 2 billion in food subsidies for managing the public distribution system (PDS); (c) an increase in the deficit and prices of other items such as edible oils and pulses; and (d) increased foreign exchange needs. However, an analysis of trends in coarse cereals, all foodgrain, nonfoodgrain and competing crop prices is completely missing. This incomplete analysis of supply-demand situations leaves the reader unenlightened about the cost of food self-sufficiency. In view of the large stocks of foodgrains price uncertainty was presumably dampened, but adequate and rigorous evidence is not given. Tyagi’s conclusion, based on fragmentary evidence rather than a systematic analysis, that food policy failed in checking price rises is far-fetched (see Ch IV). The PDS was universal and mainly an urban programme until recently; the latter point is not highlighted.
348
Reshaping food policy Initially food policy in India was mainly concerned with strategies to increase production, and therefore equity issues, though mentioned rhetorically in various five-year plans, did not receive much attention until the mid-1970s. The author rightly finds that because of the universal nature of the food subsidy its impact on the poor was very small. By comparing foodgrain distribution with needs in different states Tyagi finds that the poor states got proportionately less foodgrains (Ch IV). Thus it is obviously necessary to target food subsidies to the carefully defined poor, particularly in rural areas. Coarse grains, which are the staple food of the poor, were ignored in R & D and price support policy, and also in this study. In the following chapter emerging problems - the marketing burden on public agencies, the increase in subsidies, high buffer stocks, etc - are identified. The increase in production together with support prices caused a glut in the market, especially in the post-harvest seasons, making procurement by the government unmanageable and expensive. A separate chapter on ‘Distrust of free trade’ describes the fact that under scarcity conditions free trade is and harms the poor ‘exploitative’ most. The implications of uncertainty over prices in the international market are also shown, though not altogether clearly. A gradual increase in the involvement of private trade is suggested. Suggestions in Ch VIII, ‘Alternatives for managing food economy’, include targeting food subsidies, the payment of reasonable prices to coarse grains producers, futures trading and keeping a combination of a foodgrain buffer as well as a supply of foreign exchange and inducing staggered market arrivals. The need to strengthen research on coarse cereals is not mentioned.
Theory flouted Some of the biases and aberrations in the study that have been mentioned could have been avoided if the analy-
sis had adhered to a model or framework drawn from an economic or management discipline. To provide further examples - a loose penultimate chapter entitled ‘Information system’ describes the need for improvement of information on production and consumption but ignores completely price (and other supply and demand) information of which Tyagi himself, being in the CACP, was an extensive user. If the state decides not to intervene in the market Tyagi shows no interest in information! Moreover, the terms ‘consumption’ and ‘demand’ and ‘production’ and ‘supply’ are often used interchangeably (eg p 172), and the reader is left to decide whether the reference is to the ‘quantity’ or the ‘curve’. Besides repetitions, the description in the text sometimes contradicts the f acts provided (see eg the table on fair price shops on p 230 and the text on p 38). The frequent use of phrases such as ‘there are reasons to believe’, ‘no doubt’, and ‘weather-inspired fluctuations’, on the other hand, are perhaps matters of style. Perhaps the author was suffering from time constraints b ut a summary of relevant points and an acknowledgement of the limitations of the book’s analysis would have put matters into proper perspective. Nevertheless, two points are communicated clearly: (a) the pressing need to target food subsidies; and (b) the need to reduce market interventions by keeping a mixed buffer of foodgrains and foreign exchange and by staggering purchases. It should be mentioned here that food self-sufficiency is a partial solution if imports of inputs for food production (fertilizer and petrol) and products competing with foodgrain crops such as edible oils are needed. Dependency in the area of foodgrains is replaced by non-foodgrain items, but f oreign exchange needs are not eliminated. In such a situation why should not the Indian economy reap the benefits of comparative advantage by allowing economic forces to operate? S.L. Bapna Centre for Management in Agriculture Indian institute of Management Ahmedabad, India
FOOD POLICY August 1991