Food Security

Agricultural Price Policy, Farm Profitability and Food Security

(S. Mahendra Dev and N. Chandrasekhara Rao)

Presented By:

Group 1:
Sania Sawant PGP/22/376
Sanket Mulewar PGP/22/377
Sarath Allaka PGP/22/378
Satyaki Dutta PGP/22/379
Sharon Soreng PGP/22/380
Sneha Shinde PGP/22/386
Food Security : An Overview
Food Security is the state in which people at all 38.4% of
1 in 4 children
times have physical, social and economic access to children under 5
sufficient and nutritious food that meets their are
years of age are
dietary needs for healthy and active life malnourished
stunted

• Four Pillars of food security :

Availability 21.0% of 14.9% of
Access children under 5 population is
Utilization are underweight undernourished
Stability

National food security act ,2013 aims to provide 195.9 million

food and nutritional security in human life people go
approach by ensuring access to adequate hungry
quantity of quality food at affordable prices everyday
Global hunger Index India Hunger Index
Objective of the paper

• To examine the effectiveness of price policy in helping farmers get sufficient

profits to promote investment, technology and productivity, thereby to the
food security of the country

• To be more specific : To find out the trends in movements of costs, prices

and returns in rice and wheat farming to throw light on impact of price
policy on the profitability of farming
 Trends in the Cost of Rice and Wheat
“Should Rice be given an MSP as similar to Wheat,
as the costs of both the crops are similar”

• The CoP per unit of rice

and wheat, include
imputed values of land
labor and capital, reveal
that the unit costs of the
former are somewhat
lower than that of the
latter.

• However, situations
changed after 1994-95,
particularly noticeable
after 1999-00
• Ratio of Paddy CoP to Wheat CoP is lower than the ratio of their CoC, due to higher yields
in paddy
• A2 CoC of Rice to Wheat is greater than C2 CoC because of lower imputed values of
Land, Labor, Capital for Paddy than Wheat

 Conclusion: Cost of Rice have been similar to that of Wheat since 1990s

 The argument of lower MSP for rice may need a sympathetic hearing.
Cost, although a major one, is not the only factor in determining MSP.

• Growth rates in the real CoP declined in the background of a robust gain in per hectare
yields in the first period, while this costs went up in real terms in the second period.
• Growth Rate in Yields (Rice): 2.67%  0.86%
• Growth Rate in Yields (Wheat): 2.54%  0.52%
• Growth in Yield outstripped growth in CoC during 1980s, enabling Cost per Quintal to go
down.

• CoC has grown at a lower rate in the recent period indicating that the lower profitability
might have discouraged farmers to invest in higher use of inputs and technology.
 “Which states are relatively efficient in CoP
relative to all-India average?”

• Himachal Pradesh, Punjab and

Andhra Pradesh more efficient for rice
• Reduced CoP relative to All India
Average
• AP: 27% belowPunjab: 23% below
• Assam: 30% above MP: 30% above
• Farmers from Assam and Tamil Nadu
are expensive in Rice production

• Rajasthan, Punjab and Haryana are

efficient producers for wheat
• Jharkhand, West Bengal and
Chhattisgarh produces wheat at 87%
above average cost
 Change in MSPs

• Rice Prices for the common variety increased from Rs. 510 to Rs. 1000 while the wheat prices rose from
Rs. 580 to 1080.
• The annual changes reveal that the MSP increased significantly in the first few years after the reforms
were introduced.
• During 2006-07 to 2009-10, both wheat and rice prises increased by 54% and 62% respectively.
Intercrop Price Parity of MSP

The ratio declined significantly because of

a sharp rise in MSP for wheat. The MSP of
wheat increased by 25% compared to
12.7% rise for rice.
Trends in Prices Realised by Farmers
• Farmers are more concerned about Price realized rather than the
MSP per se
• In case of rise, Ratio of Price Realized to MSP was probably
less than 1 which indicates the Price Realized is lower than the
MRP.

Growth rates of prices in real terms show that the rice prices
had a declining trend in both periods. While wheat prices
show a positive growth rate.
Regional Disparities in Price Realization

• There was a decline in the ration in the triennium ending

2006-07 at the all-India level. It was much lower in
states like Assam, Bihar, Odisha and West Bengal.
• Higher ratio for wheat is true for all the reported states.
Relationships between Costs, Prices Realized
and MSP
 Returns to Farming

Gross Farm
Value of A2 Business
Output Income

Gross
Net
Value of C2
Income
Output

From 1981 to 2007, the profitability of rice was declining while that of wheat was rising.

Considering C2 costs, returns over Rice 9% Wheat 26%

total costs in TE 2006-07:
 Profitability Trends

 Ratio greater than 1 for both rice and wheat throughout the period
 Even in 2007-08 wheat farmers reaped more than 50% while rice farmers
could get close to 13%
 In 2006-07, ratio of GVO to A2 costs was 2.64 which is much higher than the
ratio for rice around 1.99
Profitability across States

Positive Negative
Rice AP, HP, Assam,
Haryana, Bihar,
Punjab Karnataka,
MP,
Odisha,
WB, TN, UP
Wheat Almost all Jharkhand,
WB

• All states covered A2 costs for both rice and wheat with the exception of
Uttarakhand for wheat
• Returns over A2 costs for rice are much higher for HP, Haryana, Punjab and
Chhattisgarh. However, those returns declined in second period at 1.15% p.a.
• Profitability growth rates for wheat recorded more than 2% in second period also.
• Margin over cost for rice declined from 30% (1999) to 7.6%(2005-06). It later rose
from 14% (2006-07) to 60% (2009-10).
Increased Role of Price Policy

 Earlier, price policy remained subservient to poverty reduction.

 After the formation of Agricultural Price Commission, the focus was mainly
on maintaining a healthy balance between producers and consumers.
 In 1990s, with high reliance on price policy, price interventions to the
relative exclusion of non-price interventions were made.
 Policy Initiatives:
 Make farming profitable enough for farmers
 Improving productivity per unit of land through sufficient investment in
technology
 Food Security = High Production + Cheap Food
Policy Shift
• Policy of ‘low-input and low-
output’ prices shifted to ‘high-
input and high-output’ prices.
• Public investments on
irrigation, research, extension
and other related
infrastructure went down with
3.4% of agricultural GDP in
early 1980s to 1.9% in 2001-
2003.
• Private investments increased
initially but later stopped
flowing due to the operation
of complementarity between
public and private
investments by late 1990s.
Impact
• Technology development,
dissemination and adoption
received major setback.
• Growth rates in yield went
down.
• CoP started rising.
• Rising costs required higher
support prices to sustain the
long-run margin of 20% over
total costs.
• In 1990s, CoP of rice and
wheat rose @ 1.5% per annum,
therefore rising MSPs were
necessary to maintain farmer’s
income.
 Support Prices

Factors driving higher support prices: Impact of higher support prices:

• Slowdown in yield growth and
consequent increase in CoP.
• Market forces like rising international
market prices due to supply shock.
• Do not necessarily benefit the
farming community.
• Hurts consumers and has an adverse
effect on poverty reduction.
• Stimulate supply response for
agricultural commodities.

Major Takeaways:
• There needs to be a balance between price and non-price interventions.
• Non-price interventions through public investments have to be accelerated to reduce CoP, thereby
increasing support prices.
• A system of variable tariffs has to be implemented to insulate domestic prices from the impact of higher
volatility in international food market.
• Option of trade for food security has limited scope due to huge demands of the large population of the
country.
 Challenges of Food Security
Effect of population increase and availability of food grains:

 Projected population in 2025 and 2050: 1.443 billion and 1.651 billion.

 75% rural and 50% urban population covered under NFSA,2013.

 Under the present allotment limit of 5 kg/person/month, the total annual requirement of food grains (wheat and rice) for year 2025 will
be 77.67 MT and for 2050 will be 93.59 MT.

Crop Diversification:

 Low prices of food grains like rice and higher profits on crops like cotton and sunflower.

 Low productivity in regions like uplands and dry lands due to high moisture stress sensitivity of these crops. Less dependency of Oil
seeds, pulses and high value medicinal plants on irrigation(higher profits).

Climate Change:

 An increase of 2–6°C in global temperature by 2100 (IPCC) effecting land utilization pattern and water resources.

 Temporal and spatial variations in precipitation –draught, floods, cyclones.

 Projected climate change by the end of 2050 will reduce the major crop yield by 4.5-9 percent and this will reduce the net revenue by
20-30 percent.

New Trends in Globalization

 Volatility in financial markets and severe competition among entrepreneurs - growth inequity among various sections of society.

 Discouragement of protective policies - little opportunity for poor to compete with the rich (inequality).

 Loss of policy autonomy to some extent at the national level due to international policies and economic conditions.
 Challenges of Agricultural Price Policy
Non price intervention
Reduced non price interventions for example public investments and percolation of some of the global
price volatility through open trade

Declining growth rate of COC

Reduction of profitability seemed to have discouraged farmers from spending on
yield augmenting technology
Price intervention
Though it has enhanced the MSP for wheat but it has distorted intercrop price parity between rice and
wheat
MSP of wheat is higher than rice, rice farmers have suffered lower price realisation than respective MSP

• Divergent climatic condition

• COP is higher than all India average due to lower productivity in some of the poorer states and price
realised do not cover all the cost
 Recommendation
Building Storage capacities and adequate Coverage
Increasing storage capacities to 50mt and adequate coverage of procurement by building necessary
infrastructure in states like UP, Bihar, MP

Emphasis
• on public investments
Investments to supplement price policy measures ,they can help in increasing yield,
reduce exclusive reliance on price for farm profitability and food security

Effective Public Distribution System

Decentralized the procurement and distribution system, Opening up of new fair price shops .
Universalization of PDS entitlements

Support to other crops

Price support operation should be extended to other drops such as pulses and oilseeds so as
to stimulate their production
Thank You!