Understand the problem of food security in India  Understand the rationale behind government operations in food grains  Analyze the impact of government operation on the food economy  Analyze the issue of agricultural subsidy in relation to food security?

 Understand the problem of food security in India  Understand the rationale behind government operations in food grains  Analyze the impact of government operation on the food economy  Analyze the issue of agricultural subsidy in relation to food security

At the beginning of the 21st century the world’s leading development institutions and countries reached a consensus at the United Nations to define a Sustainable development goals , These goals range from poverty reduction to imparting primary education to gender equality and better health with an aim to improve lives of people, particularly in the developing world, threatened by disease and hunger. Of these the very first and second  goal define as "No Poverty and Zero Hunger "

Food security was initially understood as food self-sufficiency or adequate availability of basic food products. However this definition is incomplete and needs to be broadened as mere availability cannot ensure accessibility. Availability must be complemented with both physical and economic access to food with nutritional adequacy of the food consumed. These together form a comprehensive food security policy. Thus food security comprises:

1. Sufficient or adequate production and supply of food grains in line with the requirements. Ensuring availability does not imply that all the food grain must be domestically produced. Domestic production can be supplemented with imports so as to ensure prompt and adequate availability.
2. An efficient distribution system which allows accessibility to food. This requires a distribution network, both state-sponsored and market-based, which can make food available to people in both rural and urban areas.
3. Physical access needs to be accompanied with economic access. This implies that the people should have adequate purchasing power to purchase the food required by them. Moreover it also includes fair pricing of food so that it is affordable for all.
4. The food purchased and consumed by people should provide them adequate nutrition. Hence mere availability and physical and economic access are not sufficient for food security. It has to be nutritionally adequate.  

Components of Food Security :

The main components of food security system in India comprise increase in food grain production, providing a minimum support price to farmers, procurement of food grains, disbursing food through the public distribution system (PDS) and maintaining buffer stocks. This policy has been formalized in the form of the National Food Security Act passed in September, 2013.

Status :

India has achieved substantial food self-sufficiency as far as wheat, rice and coarse cereals are concerned but with respect to pulses the supply is far short of demand. Food grain production has increased from 51 million tones in 1950-51 to 241 million tones in 2010- 11. It is predicted to reach 263.2 million tones in 2014. The challenge is further intensified with the predictions that by 2050 India’s population will be 1.8 billion and food production will have to be around 460 million tones (M.S. Swaminathan and R. V. Bhavani, 2013).

Government Operations in Food grains

A review of government’s operations in food grains and the PDS is imperative as it is the cornerstone of India’s policy to tackle hunger and poverty and provide food security. 

• The system of providing food under the PDS involves organized effort on part of the government. It starts with the procurement of food grains comprising wheat, rice and coarse cereals at the minimum support price (MSP). 
• The MSP or the procurement price is above the harvest price with the aim to stabilize prices and incomes of the farmers. 
• The MSP tries to do away with the disincentive of a bumper crop and a crash in prices there by affecting farmers’ incomes or a price rise associated with a lean crop
• The Food Corporation of India (FCI) purchases food grains from the farmers. It offers a price to procure the excess output at a price which will stabilize farmers’ income at a given level than lead to a fall in income due to a bumper crop. MSP is a floor price which is above the harvest price. The latter is the lowest price the farmer can get. Thus MSP involves a subsidy to the farmer to make farming viable. The government had set up the Agricultural Prices Commission which was later renamed as the Commission on Agricultural Costs and Prices (CACP) with the responsibility of deciding the MSP for various crop.

The system of procurement by the FCI is not without limitations.

Firstly, procurement is confined mainly to Punjab and Haryana for wheat and to Punjab, Haryana, UP and AP for rice. Hence the benefit of price support is appropriated by a few farmers in these states only. More recently, the FCI has tried to increase its procurement from Bihar, Chhattisgarh and West Bengal.

one of  the basic tenets of the food security system is to make food available to the people at an affordable price. 

The PDS or the targeted PDS (TPDS) for the very poor BPL caters only to the poorer section of the society. It is important for the state to ensure that even the open market price of food grains does not fluctuate very sharply inversely with the nature of the harvest. In order to prevent wild fluctuations in prices the government has to maintain buffer stocks which are formed by the crops procured by the FCI at MSP. Hence the procurement at MSP is used to build buffer stocks in times of a bumper harvest which are used or run down in times of shortages thus avoiding erratic movements in food prices in the open market. These buffer stocks are also used to provide subsidized grain to the poor through the PDS or the TPDS.

Maintaining buffer stocks needs to be done at the least cost possible. Related to this is the issue of an optimal size of the stock as holding stocks by the government imposes a cost of transportation and storage. Once the stocks are procured they must be stored efficiently to avoid losses due to theft, corruption, weather and pests. Then they must be moved on time to curtail pressures on prices in different areas. The minimum buffer stock norm that must be maintained by the FCI is stipulated and changes according to the needs of the economy.

Although maintaining buffer stocks is an indispensable part of the effort to provide food security the government has to work on keeping the costs of their maintenance manageable. As such the stocks exceed the norms with the implication that the MSP and food subsidy is being allocated to a much larger share of output. Cost of transportation and storage of stocks is also relevant. Losses due to poor handling and corruption all add to the high cost of buffer stock.

The issue of agricultural subsidy

Another aspect of food security is the element of subsidy involved in production, procurement and distribution of food grains. Provision of subsidy to the agricultural sector for production and to the poor for consumption has been raised in the WTO as well. Justification for subsidizing food in a poor country like India cannot be a contended. 

However what needs to be done is to plug the loopholes to curb corruption and leakages and ensure channelization of subsidized grain to the target groups. Thus efficiency and accountability has to be introduced in the system to make it viable and sustainable. 

Analyze the issue of agricultural subsidy in relation to food security?

Ina bird’s eye view of the scale of major agricultural subsidies. In each instance, the subsidy represents the expenditure incurred by the respective government (state or central). Fertilizer, credit, irrigation and crop insurance are explicit subsidies in that the government provides budgetary heads to charge these expenditures. Power and price support subsidies are not official budget categories but estimated. It is worth clarifying that the Central food subsidy does not represent in its entirety the expenditures that support farm incomes. The food subsidy also includes expenditures towards the Public Distribution System (PDS) that offers subsidies to consumers. Hence the price support subsidy is only a component of the food subsidy.

• Central Government Subsidies Amount Fertilizer 70,000 Credit 20,000 Crop Insurance 6,500 Price Support 24,000 Total
• State Government Subsidies Power 91,000 Irrigation 17,500 Crop Insurance 6,500 Loan Waivers 1,22,200

Agricultural subsidy comprises producer and consumer subsidy. Producer subsidy is both on inputs used and output sold. Main agricultural subsidies in India are: 

1.Input subsidies aim at providing the farmers subsidized inputs. These include fertilizer, irrigation, power, crop insurance, subsidized priority lending, other subsidized inputs, transportation and warehousing

2.Output subsidies are designed to cover the costs over the market price. This includes MSP which acts as a price-floor to stabilize farmers’ incomes and prices. Tariffs and quotas on imports also provide protection to domestic farmers. Exportsubsidies are used to make exports of agricultural products internationally competitive. 

3. Consumer subsidies: This is the issue price of food distributed through the fair price shops under the PDS and the welfare schemes under rural development. The issue price is kept below the procurement price and the difference between the two comprises food subsidy. This also includes the cost of carrying or maintaining buffer stocks by the FCI. The stocks held are in excess of the norms which helps safeguard the interests of producers in times of a bumper harvest.

The efficacy of agricultural subsidies especially input subsidies has been questioned on the following grounds

 Firstly, these subsidies impose a fiscal burden. They impose a deadweight loss on the domestic economy, create production and consumption distortions and interfere with trade patterns.

Secondly, more often than not, input and output subsidies, are appropriated by large and medium farmers. They bypass the small and marginal farmers who are short of funds and are unable to generate enough marketable surplus to avail of MSP or other subsidies. Due to lack of appropriate storage and transport facilities the small and marginal farmers are forced to sell their meagre surplus at harvest prices. The rich farmers’ lobby has been very effective in obtaining regular upward revision of MSP.

Thirdly, over-use of cheap inputs like water, fertilizers or pesticides leads to soil degradation, ground water depletion and soil nutrient imbalance

Fourthly, the provision of subsidies has failed to influence the cropping pattern. Rather is distorts production and trade pattern in favour of commodities which are input-intensive

Agricultural Subsidies* Study Prepared for XV Finance Commission(Report)

1.  Drawing on the most recent estimates (not always for the same years), annual central government subsidies to farmers would be of the order of Rs. 120,500 crores as the sum of fertilizer subsidies (Rs. 70,000 crores, 2017/18), credit subsidies (Rs. 20,000 crores, 2017/18), crop insurance subsidies (Rs. 6500 crores, 2018/19) and expenditures towards price support (Rs. 24,000 crores estimated for 2016/17).

1. Annual State government subsidies are almost of an equal amount of Rs. 115,500 crores to as the sum of power subsidies (Rs. 90,000 crores, 2015/16), irrigation subsidies (Rs. 17,500 crores, 2013/14), and crop insurance subsidies (Rs, 6500 crores, 2018/19). In addition, in the year 2017/18, state governments announced loan waives totaling to Rs. 122,000 crores. Overall farm subsidies amount to 2-2.25% of GDP

• While the importance of subsidies to farmer livelihoods may vary by region, by crop and by farm size, they form a substantial part (20%) of aggregate farm income. Yet, even a substantial rise in subsidies cannot address the sectoral gaps in productivity (which are much too large) or compensate for small farm sizes. The latter is the fundamental constraint to farm incomes for a majority of workers in agriculture (landless and marginal farmers with ownership less than one hectare

•  India’s subsidies involve price interventions. Price subsidies have the advantage that they are automatically targeted to those who are users of the subsidized input (or producers of the price supported output). However, price interventions create inefficiencies because they embed incentives for fraud, diversion, and waste. Overtime, as price subsidies become deeper and entrenched, these inefficiencies accumulate and may ultimately pose a threat to the sustainability of subsidies itself. Hence, alternatives have to be explored and tried.

• Developing economies do not have the sophisticated database and state capacity to design and target direct transfers. The major constraint to designing and implementing direct transfers is the database. Ideally, the subsidy would go to the farm operator and would involve a cap based on the farm operator’s wealth. The State, however, lacks the information to implement such an ideal subsidy. Land records are in the process of being computerized, with the progress uneven across states, but we are still some distance away from the goal of conclusive titling. But even when well done, these records would not identify farm operators and thus farm operators would be left out. The model Acts on land leasing and on licensing tenants (the Land License Cultivators Act) proposed by Niti Aayog deserves greater consultation with the States.

• Power subsidies imperil our already stretched groundwater resources and directly attack the sustainability of our natural resources. Electricity consumption in Indian agriculture is far greater than in any comparable large country. Correspondingly, the Indian withdrawal of groundwater is more than that of China and the United States put together. Direct benefits transfer together with the separation of agricultural feeders and metering supplies are immediate policy imperatives. Unlike other subsidies that need to target direct benefits using some criteria such as land ownership, power subsidies have the advantage that they can be restructured to direct benefits on the basis of power connections

•  Moving fertilizer subsidies to DBT would also stimulate efficiency improvements. If land records are in workable condition, these changes can be made. The stumbling block is Aadhar authentication. Investments have to be made to make this seamless and error-free. 

• Credit or interest subsidies have weak rationale. Formal sector interest rates have not been the constraint to increasing access to formal sector institutions. These subsidies would be better spent in strengthening the credit infrastructure and rural banking.

• Irrigation subsidies are the symptom of a bigger problem: the poor quality of this important service. Cutting irrigation subsidies through user charges cannot be done without considering its place in the larger agenda of how surface irrigation systems can be more responsive and accountable to users and improve its quality.

• The subsidy that threatens to dwarf others is loan waivers. These may undermine the formal rural credit structure for some years to come. Their electoral appeal stems, in part, because farmers and the rural population are deprived of public services of education and health. The dependence on private fee paying institutions (for education and health) makes them even more vulnerable to the typically high risks of agricultural activity.

• ) Crop insurance offers promise to be an important component of agricultural safety nets. The subsidy on this program is new enough that this program can be redesigned without provoking political opposition. The evaluation of this program suffers from a major constraint: of data. Compared to the expenditures on this program, an in-built evaluation that tracks the experience of about 10,000 farm households would cost very little and yet would quickly yield insights to maximize farmer benefit. Otherwise, what remains in public view are the gains recorded by insurance providers.

• Only a part of food subsidy expenditures (about 20-30% typically but could be higher in peak stock years) may be considered as support to farmers. Such support arises essentially from excess procurement (i.e., procuring more than what is distributed), which subtracts supplies and pushes up prices. If govern.ment only bought what it sold through PDS, the gains to farmers would be small, if any.

• Excess procurement is costly to consumers and involves other kinds of waste that come in disposing off the stocks. This is generic to procurement-based price supports and such costs were also experienced in other countries that implemented these policies.

•  Price deficiency payments are a substantial improvement on procurement-based price supports. However, in the medium to long run, they reproduce some of the distortions of the procurement system and become difficult to manage.

•  Direct benefit transfers will minimize the waste of price support policies. However, upfront costs will be high and it calls for a new architecture and substantial improvements in land administration