Agricultural country - Answers
Published by Ravikiran Rao January 29th, 2004 in EconomicsAnya gets the answer right. The theoretical way to do it is to export. That way 60% of our population can work on agriculture, but we consume only 30% worth of it and export the rest. It is not feasible in practice because most rich countries subsidise their farmers to produce enough for themselves and the poor countries are so poor that they can’t pay us for the food we’d supply them. Even if the rich countries stop subsidising their farmers, there is still the problem that when India tries to export any commodity, the price of that commodity tends to crash because we are such a big player in the market.
Ravages is wrong. His solution means that we’d have less farmers - so much less that we wouldn’t be an agricultural country anymore.
And what’s with these loose charges of socialism and communism guys? Ravages wasn’t necessarily calling for the government intervention to mechanise farming or consolidate land-holdings. In fact government action would be required, but only to the extent of removing the restrictions on land-holding and allowing corporatisation of agriculture.
In any case the problem I posed has nothing at all to do with ideology. It follows from the simple fact that as people grow richer, their consumption of food doesn’t increase all that much. (In other words, food is income-inelastic) So if we have the same proportion or even the same number of people occupied in growing food for us, then those people do not get to share in the increased prosperity.
The choices we face do not change depending on whether we are capitalist or communist. How we make those choices - whether through the market mechanism, through government incentives or through government fiat determines whether we are following a capitalist, socialist or communist path. Ravages’ articulation of a choice is no more socialist than me asking what choice we have.
Nitin: Higher productivity is good, but that still means that we can do with fewer farmers, unless we export the extra stuff we will produce.
Ramnath: Higher value addition is good, but once again, not much use unless we export the stuff. It may make people spend more on food, but frankly, how much more? My guess is, not enough to affect the universal truth that as people get richer, they tend to spend a lower proportion of their income on food. So all you have to do is replace “farmers” with “people dependent on food supply for their income” for the problem to still remain the same.
And my problem with the 60-30 distribution is not that it is inegalitarian, but that it keeps those 60% poor with no hope of improvement. Even within the 60%, the distribution is skewed. Most of the 30% is taken by the landed farmers. The landless labourers depend on farming, but also buy food, so they are screwed either way.
What really bugs me is this. I haven’t yet understood why there is any controversy at all about the claim that as we get more prosperous, we should make do with fewer people supplying our food unless we wish to keep those people poor and numerous. Look I am an engineer by temperament as well as training. My way of understanding a problem is to model it by reducing it to its essentials. Apparently economists don’t work that way. They complicate the problem in order to pretend that we have more choices than we do.
Ravi, one point about the problem of crashing prices (typically known as big country problem) is that it happens because we sell as a country. The govt accumulates the grain from the farmers and sell it. The information about the intention to sell is then easily available and hence prices crash. But if farmers were free to enter private contracts with buyers abroad, nobody could guess if farmer A intented to sell or not and more importantly at what price. This would ensure our farmers getting the best price in the international market. Once again, the best solution is “leave the kids alone”
Exports, Yes.
But before we speak of ‘international’ exports lets just consider domestic markets. The lack of transport and communications infrastructure makes India itself an archipelago of small markets. So it is essential to make India one common market first.
International export markets for agro-foods are highly competitive. But rural India can surely compete in these markets. Again you need good roads, efficient and accessible sea- and airports. There are insufficient number of international transport hubs for most of India’s farmers to even smell the export dollars.
Unlike software and services, agricultural exports cannot happen without government’s committment to infrastructure development. (And shall I say jettisoning of the socialist baggage)
what of cash crops. here i am in malnad: pepper, areca, vanilla, coffee, tea, what have you?
My guess
1) Food is income-inelastic at the higher income levels
2) Only a small percentage of Indians have reached such high income levels
Ergo, as incomes within India rise, there’s lots of scope for increased spending on food products — cash crops/ fruits/ vegetables/ value-added stuff.
3) I also agree that exports of agricultural products (in whatever form) are an absolute must for India eg, Tasty Bite is just one small example. India is globally competitive in sugar, I think - but because of the governments (India and overseas), we don’t exprot much.