Opinion Broadening the basket
Agricultural reform means the poor diversify their diet
Indian agriculture is already increasingly demand-driven. This will accelerate in future. More than two decades ago,we argued that agricultural diversification in India was basically driven by higher growth and domestic demand. The major impact of faster income growth was on domestic demand,leading a process of demand diversification in a big way. Agro-based items of consumption are not for elite consumption alone: as people become better-off,they eat more eggs,drink more milk and eat vegetables,fruit and cheese. This happened in the 90s,and by now this diversification of the food basket is well-known. The process is not smooth and the period of the East Asian meltdown,for example,saw a slowdown not only in India but in fast growing East Asia as a whole.
The underlying long-term trends,however,concern foodgrains growing faster than grains and non-crop-based agriculture,like animal husbandry,growing even faster. Within crops,demand for tree crops grows faster. These trends have exhibited themselves again in the recovery of the agricultural economy we saw in the period since 2004-05. The underlying trends are driven by the growth of the economy; urbanisation,since demand patterns differ between rural and urban areas; income distribution,since the rich consume differently than the poor; and of course population growth.
Given the level and growth of population,tastes and preferences will be a major determinant of demand. Also,per capita income will be determined by income growth. Giventaste patterns,relative prices will determine demand. These factors will vary by the distribution of income,since they will be different for the rich and the poor and in rural and urban areas. Income elasticities are high for cereals for the poor,and low for the non-poor. They are negative for inferior cereals for the non-poor. For commodities like milk and milk products,eggs and meat,edible oil and sugar,estimates of expenditure elasticities were high for poor households,in some cases above 2,but were below 1 for the non-poor. There is a substantial literature on the declining consumption share of grains by poor households in India and its impact on poverty estimates.
It is important to note that a reduction of the population below the poverty line also leads to the diversification of the food basket and not just an increase in cereal demand. In fact,the Asian Development Bank has argued that a strategy of diversified agricultural growth reduces poverty and malnutrition faster.
How? Reform leads to faster agricultural and rural growth,which is based on widespread and diversified agricultural growth,and also diversified agricultural growth generates rural incomes and employment which reduce malnutrition. This impact can be empirically measured. Income supplementation and public distribution policies,working through pricing and dual markets (both the open market and a rationing system),can be integrated into policies specifically aimed at households below the poverty line. Apart from the theory,these approaches had considerable policy impact. Dual pricing systems are still used in Indian policies. In the political economy literature Ashutosh Varshney used these estimates extensively. He placed these estimates in the larger context of the political economy discourse on policy support to farmers and food consumption of poor agriculturists.
The kind of estimates ADB and IFPRI have modelled have their origin in the Indian work on poverty removal,and in fact the first model of this type was worked out by R. Radhakrishna in the early 90s for the ADB,which showed that if these economy-level interactions were ignored,a cheap food policy (in those days Rs 2 per kg rice in Andhra) could actually make the poor worse off.
However,recently,food security has been given an immediate focus in policy by the welcome inclusion of abolition of hunger as an objective by the UPA government in its short-run policy agenda. This has led to two kinds of pressures on food demand exercises. The first is to raise the bar on poverty levels by the state governments and some agencies of the government of India,from the Planning Commissions poverty estimates. The other is to follow recent global work which tends to argue that almost the entire Indian population is poor.
The discussions of the National Advisory Council have endorsed arguments,which I too have made,for a dual-pricing policy,as well as targeting the nutritionally deprived in the 150 backward districts.
This might miss the point. The very poor should be selectively defined and targeted,but the growth process should be built around entitlements. Design of policy should provide incentives for widespread growth and these would include state-determined incentives. There should also be disincentives for those who erode widespread growth processes,by undermining institutions or synergies on a mass scale.
The writer,a former Union minister,is chairman,Institute of Rural Management,Anand express@expressindia.com
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