RA062610_Agricultural_Price_S_Mahendra_Dev

RA062610_Agricultural_Price_S_Mahendra_Dev - REVIEW OF...

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REVIEW OF AGRICULTURE June 26, 2010 vol xlv nos 26 & 27 EPW Economic & Political Weekly 174 Agricultural Price Policy, Farm Profitability and Food Security S Mahendra Dev, N Chandrasekhara Rao Agricultural price policy has come under serious attack recently for recommending support prices higher than what the costs of production warrant, supposedly leading to a distortion of the market, and, therefore, to food deprivation. With an in-depth analysis of costs and returns in rice and wheat, which are the most state-protected crops and underlie the livelihoods of millions of farmers, this paper examines the effectiveness of agricultural price policy in enabling farmers to obtain sufficient profits to promote investment, technology and productivity and thereby to food security. The rising cost of production due to the overemphasis on getting input prices right is a major factor that has led to higher support prices. Another factor is the percolation of volatility in global prices through trade liberalisation. Because of this, wheat support prices had to be hiked steeply in recent years so that sufficient quantities are procured. This has distorted parity between the prices of rice and wheat. S Mahendra Dev ( [email protected] ) is with the Commission for Agricultural Costs and Prices, New Delhi and N Chandrasekhara Rao ( [email protected] ) is at the Centre for Economic and Social Studies, Hyderabad. A gricultural price policy plays an important role in achiev- ing growth and equity in the Indian economy in general, and the agriculture sector in particular. The major under- lying objective of the Indian government’s price policy is to pro- tect both producers and consumers. Achieving food security at both the national and household levels is one of the major chal- lenges in India today. Currently, the food security system and price policy basically consist of three instruments: procurement prices/minimum support prices ( MSP s), buffer stocks and public distribution system ( PDS ). Agricultural price policy is one of the important instruments in achieving food security by improving production, employment and incomes of the farmers. There is a need to provide remunerative prices for farmers in order to main- tain food security and increase the incomes of farmers. There has been a debate on price versus non-price factors in the literature. However, a review of literature shows that they are complements rather than substitutes (Dev and Ranade 1998; Rao 2004, 2006; Schiff and Montenegro 1997). In the post-reform period, it was viewed that reforms in non- agriculture would shift the terms of trade ( T o T ) in favour of agri- culture and lead to enhancement of private sector investment, which, in turn, would raise growth in agriculture (Singh 1995). The favourable T o T in agriculture have had some impact on agri- culture in the post-reform period as the periods of improving T o T like in the early 1990s and more recently after 2004 onwards, witnessed a robust growth in agricultural production in general, and in foodgrains in particular (Dev 2009). However, the slack-
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