Special Article

The food court 

Security Can't Be Left To Imports 

By Bharat Jhunjhunwala

THE Centre has initiated a policy of reducing domestic agricultural prices and allowing the domestic production to decline. The rationale is that the country's food security can be ensured through imports. Hitherto, sugarcane prices were decided by the state governments and the rates hovered between Rs 160 and Rs 180 per quintal. The Centre has now abolished this system and fixed an all-India price of Rs 130 per quintal. In a parallel move, a nominal increase of Rs 20 per quintal has been made in the Minimum Support Price of wheat against Rs 80-100 in the previous years. 
This increase is deceptive. A larger increase in the price of inputs means that the real price obtained by farmers is less than previous years. This reduction in prices is likely to lead to a decline in production. The union agriculture minister, Sharad Pawar, has indicated that the government may resort to imports to meet any shortage that ensues. 
Why do the developed countries, who are great votaries of free trade, maintain high-cost domestic production and not rely on cheaper imports for meeting their food requirements? Almost all of them, notably the United States, the European Union and Japan provide huge subsidies to their farmers to maintain the domestic high-cost production instead of importing cheap food. 
The cost of production of wheat in the United States is about Rs 20 per kg, but the domestic price is less because of the subsidies. The United States is a major exporter not because it produces wheat competitively but because it provides subsidies to its farmers. It seems the developed countries do not want to depend on the global market for their food security. They provide subsidies to their farmers, produce more than their requirements, export the excess production and make other countries dependent upon their exports. 
The wheat trade
THE USA is not willing to import wheat from Australia because it values its food security more than the economic gains from cheap food. We can see a strange convergence of interests between the governments of India and the US. India is keen to import cheap wheat from the US and the latter is keen to export cheap wheat to India. 
Is food security important only for the developed countries and not for developing countries? The Government of India does not answer this question. Instead, it behaves as if the international markets will provide food security to our people. This is the reason why the Centre has embarked upon a policy of reducing domestic farm prices and inviting a reduction in production. The British had made our country dependent upon imports of cheap cloth made in Manchester. Similarly, the UPA government is making the country dependent upon the import of cheap wheat produced in the US. It seems that North Block's policies are being dictated by the White House. 
The argument advanced by the government is that availability of cheap imported food will enhance the welfare of our consumers. A higher price will have to be paid to the farmers to increase domestic production and this will lead to unrest. This argument is valid. But one has to examine the overall impact of high domestic prices on different sections of our society. 
The maximum benefit of high prices accrues to the big farmers. But a part of it also trickles down to the farm workers. The wages of unskilled workers in parts of the country rose from Rs 200 to Rs 300 per day in the last harvesting season because the price of foodgrain was high. The high prices are, therefore, a mixed bag for the farm workers. They stand to lose because they have to pay high prices for the food they buy from the market; but they stand to gain because of the higher wages that landowners are willing to pay buoyed by the same high prices of farm produce. 
The impact on urban workers is more complicated. They are directly hit by the high price of food they buy from the market. But there is a close connection between the wages of rural and urban workers. People migrate from rural areas to Delhi, Kolkata and Mumbai in search of higher wages. They calculate the earning by staying at home in relation to what they will make by migrating. If the wage rate for farm workers increases in Bihar because of the high price of wheat, then the attraction for remaining in the village will be all the greater. They will migrate only if they receive higher wages in the city. 
Migration largely takes place through contractors who promise higher wages in order to get the workers to leave their homes. Workers will be unwilling to migrate in view of higher local wages. This will lead to less availability of workers in the cities and translate into higher urban wages. Therefore, high prices of foodgrain will be a mixed bag for urban workers as well. They will have to pay a higher price for foodgrain but also get higher wages. The continuation of rural to urban migration despite increase in food prices is proof that the workers still find it profitable to work in the cities despite rising food costs. Therefore, we should not worry too much about the impact of high food prices upon the poor. 
Higher prices
There is another beneficial impact of higher food prices on the poor. Higher prices provide an incentive to the big farmers to increase production. More land is brought into cultivation or extensive irrigation is made through diesel pumps. This leads to an increase in demand for farm workers and again pushes up their wages.
The truth is that higher prices of foodgrain pose a problem only for the urban middle class. They have to buy food at a higher price, but their wages do not rise in the same proportion. It seems the government is wholly focused on the interests of the urban middle class. Government employees were, for example, given a 40 per cent increase in salaries over and above the dearness allowance by the Sixth Pay Commission. An employee getting a salary of Rs 8,000 per month was given an increase of about Rs 3,000. His total monthly expenditure on food would be, say, Rs 4,000. The increase in the cost of food would be, say, fifty per cent or about Rs 2,000. He will be partly compensated for this increase in price in the increased dearness allowance. The net burden on the family will be approximately Rs 1,000. Against this, they have already been given an increase of Rs 3,000. 
But they are not satisfied and they also want cheap foodgrain in addition to the increase in salaries. The government is reducing the price of food items to satisfy this very strong lobby. And this has endangered the country's food security. The poor are the shield behind which the Government is serving the urban middle class. 
(The writer is former Professor of Economics,
Indian Institute of Management, Bangalore.) - THE STATESMAN.