Elections with tur dal tadka

Dal prices have been on fire. The bureaucrats and politicians have been caught napping once again. In the recent past, tur dal prices have crossed Rs 200 per kg. The prices of other major pulses have also crossed more than Rs 100 per kg.

The governments (central as well as state governments) have gone on an overdrive and blamed the hoarders for the price rise, as they have often done since the 1960s. A statement released by the ministry of consumer affairs, food and public distribution late last week pointed out that 74,846.359 tonnes of pulses have been seized from hoarders after 6,077 raids.

It is not surprising that the central government wants to push down the price of various pulses in general and tur dal in particular, given the on-going state assembly elections in Bihar. Media reports suggest that the high dal prices have become an election issue in Bihar, with leaders of both the NDA and the Nitish+Lalu+Congress combine accusing each other of not doing enough to control dal prices.

But is hoarding the really the only reason for high prices? The ministry of agriculture publishes a document titled Commodity Profile for Pulses. This document dated March 2015 had clearly pointed out that the total production of various kinds of dal would fall by 6.8% to 18.43 million tonnes in 2014-2015. The production had stood at 19.78 million tonnes in 2013-2014.

The production of tur dal was expected to be at 2.75 million tonnes, a fall of 13.2%.  The production for 2013-2014 had stood at 3.17 million tonnes.

The Commodity Profile for Pulses dated September 2015, revised these numbers. The total production of dal was revised to 17.2 million tonnes, a fall of 13% from 2013-2014. The production of tur dal was revised to 2.78 million tonnes, a fall of 12.3% from 2013-2014.

The point here is that the government knew at the beginning of this financial year that the production of tur dal in particular and total dal production as a whole, had fallen in 2014-2015. It was but logical that hoarders would get into the fray.

This possibility should have been tackled at that point of time. By the time the government woke up to this possibility it was too little and too late. The damage of escalating dal prices had already been done.

Further, imports have been bandied around as a solution to the escalating prices. In a press release dated October 19, 2015, the ministry of consumer prices, food and public distribution stated that the “government would further import 2000 tonnes of Tur dal and 1000 tonnes of Urad dal and tender will be floated by MMTC immediately.”

As mentioned earlier the production of tur dal has fallen from 3.17 million tonnes in 2013-2014 to 2.78 million tonnes in 2014-2015. Also, a poor monsoon this year may also have had an impact on tur production. Tur is mainly grow during the kharif season and a very small portion of the total area under production has access to irrigation. The monsoon this year was at 86% of its long period average.

So what does this mean? The production of tur dal during the course of 2014-2015 was around 0.4 million tonnes lower than 2013-2014. In an article in The Indian Express Professor Ashok Gulati of ICRIER estimates that the yearly consumption of tur dal in India is in the region of 3.3 to 4 million tonnes. Trying to plug this huge gap between falling production and consumption by importing a few thousand tonnes of tur dal is not going to help much.

In fact, the global market for pulses is not very big. In 2014-2015, India imported a total of 4.6 million tonnes of dal, of which 0.58 million tonnes was tur dal. A little over half of India’s tur dal imports came from neighbouring Myanmar and the remaining came from Africa. Also, it is worth mentioning here that India is the biggest producer of tur dal in the world. So imports really cannot help beyond a point.

Further, pulses are an important source of proteins especially for vegetarians. In this scenario as per capita income goes up, the demand for pulses will continue to go up.

As the 2013-2014 annual report of ministry of consumption, food and public distribution points out: “demand for pulses has been increasing steadily mainly due to increase in population and preference for enhanced protein requirements in food.”

A discussion paper titled Taming Food Inflation in India released by the Commission for Agricultural Costs and Prices (CACP) in April 2013 and authored by Ashok Gulati and Shweta Gulati refers to the same reason. As it points out: “[The] study finds that the pressure on prices is more on protein foods (pulses, milk and milk products, eggs, fish and meat) as well as fruits and vegetables, than on cereals and edible oils, especially during 2004-05 to December 2012. This normally happens with rising incomes, when people switch from cereal based diets to more protein based diets.”

This trend of increased consumption of proteins has been around for a while. What all this clearly tells us is that the government failed to see this crisis coming, even though the data as well as the trend suggested it very clearly.

Further, the trend of increased protein consumption will continue, as people earn more and eat better. This can be only solved by producing more pulses within the country.

The government of India actively procures wheat and rice through the Food Corporation of India and other agencies. This creates its own set of problems. As the CACP report points out “Assured procurement gives an incentive for farmers to produce cereals rather than diversify the production-basket.”

The economic incentive the way it is currently structured encourages farmers to produce more of rice and wheat and not other crops. This is something that needs to be set right.

In the short run, the good news is that the area on which pulses have been sown in this kharif season has gone up to 11.6 million hectares from 10.3 million hectares last year.

As far as tur dal is concerned the area under production has gone up by 4% to 3.74 million hectares. While the number is higher in comparison to 2014-2015, it is not as high as earlier years. Between 2010-2011 and 2013-2014, the number varied between 4.42 million hectares and 3.90 million hectares. The yield in 2010-2011 was 655 kg per hectare. This had jumped to 813 kg per hectare in 2013-2014.

With an increase in area under production, prices are likely to fall a bit in the days to come. Nevertheless, if dal prices in general and tur dal prices in particular, need to come down dramatically in the years to come, then the yield as well as area under cultivation need to go up. And this is easier said than done.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared in The Asian Age/Deccan Chronicle on October 28, 2015

10 reasons why Amartya Sen is wrong about the food security bill

Vivek Kaul
Amartya Sen, who won the Nobel Prize for economics, in 1998, has been a big votary of the Food Security Bill being passed. “The case for passing this Bill is overwhelming…I would prefer this Bill to not having a Bill at all,” Sen said at a press conference yesterday.
The bill envisages to distribute highly subsidised rice and wheat to almost two-thirds of India’s population of 1.2 billion. In terms of its sheer size, this would be perhaps the biggest ever programme to distribute subsidised food grain to citizens of any country. And given this it is more than likely to have consequences, which the government of the day is either not thinking about or is simply not bothered about.
Given these consequences, Sen’s support for the Bill seems more ideological than logical. This conclusion can be easily drawn after a quick reading of a report titled National Food Security Bill: Challenges and Options authored by Ashok Gulati, Jyoti Gujral and T.Nandakumar (with Surbhi Jain, Sourabh Anand, Siddharth Rath, and Piyush Joshi) belonging to the Commission for Agricultural Costs and Prices (CACP), which is a part of the Ministry of Agriculture. This report was released in December 2012.
The report highlights many reasons on why the Bill in its current form is a recipe for sheer disaster and is not desirable at all, and should be junked at the earliest opportunity.

1. The expenditure behind the food security bill is stated to be at Rs 1,20,000 crore. But this the CACP report feels is just the tip of the iceberg. This expenditure does not take into account “additional expenditure (that) is needed for the envisaged administrative set up, scaling up of operations, enhancement of production, investments for storage, movement, processing and market infrastructure etc.”
So what is the likely cost of the food security bill going to be? “The total financial expenditure entailed will be around Rs 682,163 crore over a three year period,” the report estimates. This is much higher than the Rs 1,20,000 crore per year estimate being made by the government. The question is where is this money going to come from? The government is already reeling under a very high fiscal deficit and is under pressure from international rating agencies to cut down on flab. A high fiscal deficit also means higher interest rates as the government will have to borrow more. It will also lead to higher inflation.
2. Estimates made by CACP suggest that over the next three years the cost of distributing rice and wheat at a subsidised price is going to come to Rs 5,12,428 crore. This calculation does not include other costs of creating the required infrastructure to run the scheme. Of this, the leakage is expected to be at 40.4%. So, nearly Rs 2,07,000 crore will be siphoned off by middlemen.
What is ironical is that the government wants to introduce the right to food security through its public distribution network rather than use a cash transfer system like Aadhar, which it has been creating parallely. The government’s public distribution system is perhaps the biggest distribution system of its kind in the world. But it has virtually collapsed in several states leading to huge leakages.
“It may be noted that this Bill is being brought in the Parliament to enact an Act when internationally, conditional cash transfers (CCTs), rather than physical distribution of subsidised food, have been found to be more efficient in achieving food and nutritional security,” the report points out.
3. The food security bill in its current forms works with the assumption that cereals like rice and wheat are central to the issue of food security. Rice and wheat will be made available at extremely subsidised prices as a part of right to food security. But the irony is that more and more Indians have moved away from cereals towards a protein based diet in the recent years.
As the report points out “As economic growth picks up, it is common to observe a change in dietary patterns wherein people substitute cereals with high-value foodShare of expenditure on cereals in total food expenditure has declined from 41% in 1987-88 to 29.1% in 2009-10 in rural areas and from 26.5% in 1987-88 to 22.4% in 2009-10 in urban areas. The Bill’s focus on rice and wheat goes against the trend for many Indians who are gradually diversifying their diet to protein-rich foods such as dairy, eggs and poultry, as well as fruit and vegetables. There is a need for a more nuanced food security strategy which is not obsessed with macro-level food-grain availability.”
4. A nuanced strategy is also needed because the right to food security also aims at improving the nutritional status of the population especially of women and children. But just ensuring that women and children have access to subsidised wheat and rice is not going to take care of this. As the report points out “Women’s education, access to clean drinking water, availability of hygienic sanitation facilities are the prime prerequisites for improved nutrition. It needs to be recognised that malnutrition is a multi-dimensional problem and needs a multi-pronged strategy.”
5. The right to food security creates a legal obligation for the government to distribute rice and wheat to those who are entitled. In order to fulfil this obligation the government will have to procure rice and wheat from the farmers. It currently does that through the Food Corporation of India(FCI) at a minimum support price(MSP). The MSP is declared in advance and the farmer knows what price he is going to get for the rice and wheat that he sells to the government.
The way the current system works is that FCI is obligated to buy all the rice or wheat that the farmer wants to sell as long as a certain quality standard is met. This has led to a situation where farmers find it favourable to produce rice and wheat because they have a ready buyer for all their produce, at a price they know in advance.
This has led to a severe imbalance in the production of oil seeds as well as pulses. As the report points out “India imported a whopping US$ 9.7 billion (Rs 46,242 crore) worth of edible oils in 2011-12 – a 47.5 percent jump from last year and pulses worth US$ 1.8 billion (Rs 8767 crore) during 2011-12- an increase of 16.4 percent as compared to last year.”
To distribute rice and wheat under the right to food security the government will continue using FCI and keep declaring a minimum support price. This means farmers will continue to get assured procurement when it comes to wheat and rice. And this will have several consequences. As the report points out “Assured procurement gives an incentive for farmers to produce cereals rather than diversify the production-basket…Vegetable production too may be affected – pushing food inflation further.”
6. Indian agriculture is still highly dependent on rainfall with 50% of area under cultivation still at the mercy of good monsoons. Irrigation wherever its available is also dependent on rainfall. So what happens in a situation of drought? As the report points out “A case in point is the drought year 2002-03 where the production of wheat and rice fell by 28.5 million tonnes over the previous year (overall food-grain production dropped by 38 million tonnes). It took 3 years to make up and it was only in 2006-07 that the production exceeded the 2001-02 level.”
If a drought situation crops up, will the government resort to imports? Is it a feasible option? Turns out it is not. “Rice is a very thinly traded commodity, with only about 7 per cent of world production being traded and five countries cornering three-fourths of the rice exports. The thinness and concentration of world rice markets imply that changes in production or consumption in major rice-trading countries have an amplified effect on world prices..This is especially true in the case of rice, as global markets are much smaller. India’s entry into the international market as a large buyer could exert significant upward pressure on prices,” the CACP report points out. Hence, any shortage of rice in India, is going to send world prices of rice through the roof. Also if the government continues procuring as much in a drought year as it has in previous years, it will leave very little of rice and wheat available for the open market, sending their prices through the roof.
7. The right to food security will mean that the government will use its public distribution system to distribute rice and wheat throughout the country. The trouble is that FCI, currently procures a major portion of rice and wheat from a few selective states. “70% of rice procurement is done from Punjab, AP, Chhattisgarh and UP while 80% of wheat procurement is done from Punjab, Haryana and MP alone,” the report points out. This will need infrastructure to be created and that will cost money.
As the report points out “From a logistics point of view it could be cheaper to procure food-grains from states like MP, Bihar, Gujarat etc and deliver the food-grains to neighbouring deficit states in central, eastern and western India rather than procure from a handful of surplus states in North and South and distribute food-grains across the deficit states in India. But such a system would need ramping up of procurement efforts in emerging surplus or self-sufficient states in cereals, such as Uttar Pradesh, Bihar, West Bengal, Assam, and Orissa.” And that is easier said than done.
8. In many such states where the operations of FCI are huge, the government has become the number one procurer of rice and wheat. With right to food security coming in, this procurement is only going to go up. And that will create its own share of problems. “In several states like Punjab, Haryana, Andhra Pradesh, Madhya Pradesh, and Chhattisgarh, one observes that the state is overwhelmingly dominant in procuring rice and/or wheat, leading to almost a situation of monopsony. Any further increase in procurement by the state would crowd out private sector operations with an adverse effect on overall efficiency of procurement and storage operations, as well as on magnitude of food subsidies and open market prices,” the CACP report points out.
9. What has also been observed that FCI does not have economies of scale. As it procures more, its cost of procurement goes up. As the CACP report points out “The economic cost of procurement to Food Corporation of India (FCI) has been increasing over time with rising procurement levels – demonstrating that it suffers from diseconomies of scale with increasing levels of procurement. Currently, the economic cost of FCI for acquiring, storing and distributing foodgrains is about 40 percent more than the procurement price.” If right to food security becomes an Act, FCI’s procurement of rice and wheat will go up, and so will its cost of procurement. This will mean a higher expenditure on part of the government.
10. The government will also have to keep increasing the MSP it offers on rice and wheat. This will have to be done to incentivise farmers to produce more rice and wheat to help the government distribute it to the entitled beneficiaries. The farm labour costs have been on their way up. As the report points out “There is an acute shortage of labour in agriculture that has suddenly cropped up in these three years. In some states, labour costs have gone up by more than 100% over the same period. Due to these rising costs, the margins of production for farmers have been declining both for paddy and wheat . Therefore, the government may have to raise procurement prices for rice and wheat to encourage farmers to increase production of these staples. As the cost of production of crops is rising, MSP can’t be kept frozen.” This means that the government expenditure on right to food subsidy will keep going up.
To conclude, its time Amartya Sen read this report and made himself aware of the problems the right to food security can create for India.
The article originally appeared on www.firstpost.com on May 7,2013

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Why food prices will continue to remain high in the coming years

Vivek Kaul

Buried somewhere in the Reserve Bank of India‘s first quarter review of monetary policy released yesterday is the following paragraph:
The stickiness in inflation, despite the significant growth slowdown, was largely on account of high primary food inflation, which was in double-digits during Q1 of 2012-13 due to an unusual spike in vegetable prices and sustained high inflation in protein items.
In simple English what this means is that despite economic growth slowing down inflation continued to remain high because of high food inflation. The Reserve Bank of India (RBI) has not seen the last of food inflation and there are several reasons why food inflation will continue to remain high in the days to come.
Below average rainfall: The immediate reason for the food prices continuing to remain is the below average rainfall this monsoon season. As the RBI said in the first quarter review of monetary policy:
During the ongoing monsoon season, rainfall up to July 25, 2012 was 22 per cent below its long period average (LPA). The Reserve Bank’s production weighted rainfall index (PWRI) showed an even higher deficit of 24 per cent. Further, the distribution of rainfall was very uneven, with the North-West region registering the highest deficit of about 39 per cent of LPA. If the rainfall deficiency persists, agricultural production could be adversely impacted.
The availability of water can make a huge difference to the agricultural output in India. Areas fed by canals form only around 40% of the total arable land in India. The remaining 60% are dependent on rains. With deficient rains this year the current khareef crop is likely to be impacted with production not being enough to meet demand. This will lead to food prices going up in the days to come.
Rural India is eating better: The various social schemes being run by the current United Progressive Alliance (UPA) government have put more money into the hands of rural India. The income of rural India has more than doubled in the last five years. One thing that seems to have happened because of this is that people are eating better than before. Economists are of the opinion that as income of people rises above the subsistence level of $1000 per year, a substantial portion of the new money is spent on food. People eat more and better quality food. At the same time they also move from cereal based diets to more protein based diets. In major parts of the world this means that people start consuming more meat. But India has a lot of vegetarians and hence consumption of other high protein food items like dal, milk and other dairy based products has gone up, pushing their prices up. This is likely to continue in the months and years to come given the social commitment of the current UPA government. If the proposed Right to Food Act goes through you could see a further increase in food prices.
The Japan syndrome: As a densely populated country industrialises, the area under agriculture tends to go down. This phenomenon was first observed in Japan, and has since then been observed in South Korea, Taiwan, and very recently China. As Lester R Brown points out in Outgrowing the Earth: The Food Security Challenge in an Age of Falling Water Tables and Rising Temperatures “First, as a country industrialises and modernises cropland is used for industrial and residential development. As automobile ownership spreads, the construction of roads, highways, and parking lots…takes valuable land away from agriculture…. Secondly as rapid industrialisation pulls labour out of the countryside, it often leads to less double cropping, a practice that depends on quickly harvesting one grain crop once its ripe and immediately preparing the seedbed for the next crop…Third, as incomes rise, diets diversify, generating demand for more fruits and vegetables. This in turn leads farmers to shift land from grain to these more profitable high-value crops.”
This is a long term phenomenon which is clearly playing out in India right now. Just drive around towards the outer limits of the city you live in and you will realize that what was once agricultural land has been taken over to build malls, apartments, offices etc. This leaves less area to grow vegetables, cereals and other crops, pushing up their prices in turn. Depleting aquifers: A huge amount of increase in the irrigation of crops across the gangetic plane, India’s agricultural heartland have substantially depleted the aquifers or the underground water tables. As a report by DWS Investments points out “Dramatic increases in the irrigation of crops across northern India have substantially depleted the region’s groundwater. Between April 2002 and August 2008, aquifers lost a total of more than 54 cubic kilometers per year. That decrease in groundwater is even more than double the capacity of India’s largest reservoir.”
While this data is around four years old there is no reason to believe that the situation could have improved in the last four years. It could only have got worse. This is something that Brown agrees with in his book Outgrowing the Earth. He writes “the extensive overpumping of aquifers in India will deprive farmers of irrigation water and will also reduce grain production”.
Climate change also threatens food security: As the following table points out Indian agriculture has very low productivity when it comes to other parts of the world. Even Bangladesh does better than us when it comes to producing rice.
Comparing productivity of Indian agriculture with the world (kg/ha)
Country Paddy Country Wheat Country Maize
World 4,223 World 2,829 World 5,010
Bangladesh 4,012 China 4,608 Agentina 7,666
Brazil 3,826 Egypt 6,478 Canada 8,511
China 6,422 France 6,256 China 5,151
India 3,303 India 2,704 India 2,440
Indonesia 4,705 Italy 3,568 Italy 9,144
Japan 6,511 Spain 3,470 Turkey 6,838
USA 8,092 United Kingdom0 7,225 USA 9,458
Source: Agriculture Statistics at a Glance /Kotak GameChanger Report
Even this production is threatened now because of rising global temperature which beyond a certain point tends to reduce the amount of crop produced. As Lester Brown told me in an interview I did for the Daily News and Analysis (DNA) a few years back “For each degree celsius rise in temperature above the norm during the growing season, farmers can expect a 10% decline in wheat, rice, and corn yields. Since 1970, the earth’s average surface temperature has increased by 0.6 degrees Celsius, or roughly 1 degree Fahrenheit.”
As the earth’s temperature rises it has led to glaciers melting. “Nowhere is this of more concern than in Asia. It is the ice melt from glaciers in the Himalayas and on the Tibetan plateau that sustain the major rivers of India and China, and the irrigation systems that depend on them, during the dry season. In Asia, both wheat and rice fields depend on this water. China is the world’s leading wheat producer. India is No 2 (The US is third.) These two countries also dominate the world rice harvest. Whatever happens to the wheat and rice harvests in these two population giants will affect food prices everywhere. Indeed, the projected melting of the glaciers on which these two countries depend presents the most massive threat to food security humanity has ever faced,” said Brown.
Cars and people are competing for grains: As the price of oil keeps going up, the world has started to look for alternate sources of fuel to run cars and other forms of transport around the world. One such fuel is ethanol which is made from corn and sugarcane in different parts of the world. In Brazil, a lot of cars run on ethanol, which is produced using sugarcane. So if oil prices go up, ethanol becomes more viable as an alternate fuel. And this pushes up the price of ethanol input, i.e. sugarcane. With lesser sugarcane available to produce sugar, the price of sugar also goes up. The United States uses corn to make ethanol. So oil prices going up leads to corn prices going up as well. As Brown put it “If the fuel value of grain exceeds its food value, the market will simply move the commodity into the energy economy. If the price of oil jumps to $100 a barrel, the price of grain will follow it upward. If oil goes to $200, grain will follow. From an agricultural vantage point, the world’s appetite for crop-based fuels is insatiable. The grain required to fill an SUV’s 25-gallon tank with ethanol just once will feed one person for a whole year. If the entire US grain harvest were to be converted to ethanol, it would satisfy at most 18% of US auto fuel needs.”
Given these reasons the food prices are likely to remain high in the months and years to come. And the Reserve Bank of India can fiddle around with the interest rates as much as it wants to, but there is no way it can control food prices.
(The article originally appeared on www.firstpost.com on August 2,2012. http://www.firstpost.com/economy/why-food-prices-will-continue-to-rise-in-the-coming-years-400532.html)
(Vivek Kaul is a writer and can be reached at [email protected])