Food Security and Environmental Quality in the Developing World - Part 5 pps

© 2003 by CRC Press LLC Part Five Policy Issues © 2003 by CRC Press LLC Priorities for Policy Reform in Indian Agriculture Peter Hazell CONTENTS Introduction Public Spending on Agriculture Agriculture and the Environment From Food Security to Market-Driven Growth Conclusions References INTRODUCTION India has made impressive gains in agricultural growth, food security and rural poverty reduction since the food crisis years of the mid-1960s. Food-grain production has approximately doubled since that time and India is now self sufficient in cereals, producing about 180 million tons of cereals each year, more than enough to meet current market demand. Although many Indians still do not have an adequate diet, the per capita availability of cereals has improved and the incidence of rural poverty has fallen from about two thirds of the rural population to one third today. But these favorable trends are now stalling and there is urgent need for new approaches if agriculture is to contribute to future national economic growth, employment creation and poverty reduction. This chapter addresses three connected sets of issues. The first concerns the recent cutbacks in public investment in agriculture that threaten future productivity growth and poverty reduction in the rural sector. Second, past patterns of agricultural growth have been environmentally destructive and there is need to redress this problem on a national scale to sustain future productivity growth in agriculture. Third, there are new and favorable opportunities for market-driven growth in the agricultural sector with trade liberalization and increasing diversification of the national diet. If these opportunities are properly managed, they could make signif - icant contributions to further reductions in rural poverty. 2 6 © 2003 by CRC Press LLC PUBLIC SPENDING ON AGRICULTURE The Indian government’s “development” expenditures on agriculture, irrigation, transportation, power and rural development grew at an average annual rate of 15.1% during the 1970s, by 5.1% in the 1980s and by 1.3% in the early 1990s (Fan et al., 1999). Despite an increase in private investment in the early 1990s, there is little evidence to suggest that it is substituting for public investment, either in its level or composition. Given the strong links between government investment in the rural sector and agricultural growth and poverty reduction overall (Fan et al., 1999), there is a real danger that future growth and poverty reduction will now also slow. Moreover, to make matters worse, the government is wasting a good deal of its resources by paying too much and charging farmers too little for basic services in agriculture (power, fertilizers, water, credit, etc.) that could be financed privately or provided more efficiently. This approach has a number of serious consequences: • It places a huge and growing financial burden on the government. Subsi- dies currently consume more than half of total government spending on agriculture (World Bank, 1999). While many of these subsidies played a useful role in launching the Green Revolution in the late 1960s and helped ensure that small farmers and not just large farmers gained access to new technologies, today they are largely unproductive and detract from the public resources that are available for investment in future agricultural growth. Gulati (2000) has estimated that the subsidies for power and fertilizer alone now cost the government about $6 billion per year, equiv - alent to about 2% of national gross domestic product (GDP). Water, credit and the food distribution system also call for large subsidies. If these are added in, it seems likely that at least $10 billion is spent each year on unnecessary subsidies. Thus, enormous opportunities exist for doing much more with the resources that are already being allocated to agriculture. • A highly subsidized agricultural support system fosters inefficiency in the supply of key inputs and services. In India, the fertilizer industry receives the lion’s share of the subsidy, and production costs for urea from a majority of firms in the industry are well in excess of the world price (Gulati, 2000). The public supply systems for power and irrigation water are also notoriously inefficient, a direct result of their having no need or incentive to perform better when they are almost fully financed by gov - ernment rather than by their clients. • Because farmers pay too little for the inputs and services they receive, they have little incentive to use them carefully, which leads to overuse and waste. This is costly to the country and, in some cases, it has high environmental costs, e.g., fertilizer and pesticide runoff into waterways and waterlogging of irrigated lands. India thus does not need large-scale foreign aid for agriculture. Rather, the resources that are already available need to be used to greater effect. India already spends relatively more on promoting agriculture (public investment as a percentage © 2003 by CRC Press LLC of agricultural GDP) than do most other Asian countries (World Bank, 1999). The challenge is not to spend more, but rather to get better value for the money that is spent. AGRICULTURE AND THE ENVIRONMENT The Green Revolution played a key role in achieving national food security and in reducing rural poverty. By raising yields, it also avoided having to increase the total cultivated area significantly, thereby helping to preserve remaining forest areas and avoiding crop expansion into environmentally fragile areas (e.g., hillsides and dry - lands). Even so, there is no question that the Green Revolution was environmentally damaging in many of the areas in which it occurred. The problems created or worsened include: • Salinization of some of the best irrigated lands • Fertilizer and pesticide contamination of waterways • Pesticide poisoning • Falling water tables The problems began in the 1970s and appear to be getting worse. There is also mounting evidence that yield growth in many of the intensively farmed areas has now peaked and, in some cases, is even declining (Rosegrant and Hazell, 2000). Even where there is no absolute yield decline, there is diminishing factor produc - tivity. Growing voices are arguing that Indian farmers should revert back to the low external-input farming technologies of pre-Green Revolution days (Shiva, 1999). This would have disastrous impacts on yields and food supplies and would destroy the environment on an even larger scale because of the need to rapidly expand the planted area. Realistic prospects exist for making modern technologies more environmentally benign and reversing resource-degradation problems on a national scale (Pingali and Rosegrant, 2000). But it will take significant and determined action by the govern - ment. Needed actions include: • Development and dissemination of technologies and natural-resource management practices that are more environmentally sound than those currently used on many farmers’ fields. Some technologies that already exist include precision farming, crop diversification, ecological approaches to pest management, pest-resistant varieties and improved water management practices. The challenge is to get these technologies adopted more widely on farmers’ fields. Managed properly, some of these technologies can even increase yields while they reduce environmental damage. Further agricultural research is needed to create additional tech - nology options for farmers, which should include interdisciplinary work on pest control, soil management and crop diversification. Modern biology should also be used to develop improved crop varieties even better suited to the stresses of intensive farming but with reduced dependence on © 2003 by CRC Press LLC chemicals, e.g., varieties that are more resistant to pest, disease, drought and saline stresses. Agricultural research and extension systems will need to give much higher priority to sustainability problems than they have in the past. • Reform of policies that create inappropriate incentives for farmers in their choices of technology and natural resource management practices. As mentioned above, current large subsidies for water, power, fertilizer and pesticides make these inputs too cheap and encourage excessive, even wasteful use, with dire environmental consequences. Pricing these inputs at their true cost would save the government much money while also improving their management. This would reduce environmental degrada - tion and, in the case of scarce inputs such as water, lead to important efficiency gains. Improvements in land tenancy rules would also improve the incentives for many smaller farmers to take a longer-term view in their choice of technologies and management practices. Strengthening commu - nity rights and control over common property resources like grazing areas, woodlots and water resources could also improve incentives for the more careful and sustainable use of these natural resources. Additionally, the farm credit system needs to offer more medium- and long-term loans for investment in the conservation and improvement of natural resources, especially for smallholders and women farmers. • Reform of public institutions that manage water to improve the timing and amounts of water that are delivered relative to farmers’ needs and to get better maintenance of irrigation and drainage structures. When farmers have little control over the flow of water through their fields, they have reduced capacity to prevent waterlogging or salinization of their land and to use water more efficiently. Forestry departments also need to work more closely with local communities, devolving responsibilities where possible, to improve incentives for the sustainable management of public forest and grazing areas. • Assistance to farmers in diversifying their cropping patterns to relieve the stress resulting from intensive monoculture. Investments in marketing and information infrastructure, trade liberalization, more flexible irrigation systems and so forth, can increase opportunities for farmers to diversify. Unfortunately, the kinds of diversification that the market wants are not always consistent with the kinds of on-farm diversification that are needed for sound crop rotations. • Resolution of widespread “externality” problems that arise when all or part of the consequences of environmental degradation are borne by peo - ple who have not caused the problem, e.g., pollution of waterways or siltation of dam reservoirs due to soil erosion in upstream watershed areas. Possible solutions include taxes on polluters and degraders, regulation of resource use, empowerment of local organizations and appropriate changes in property rights. Effective enforcement of rules and regulations is much more difficult than writing new laws, so attention needs to be given to ensuring implementation. © 2003 by CRC Press LLC FROM FOOD SECURITY TO MARKET-DRIVEN GROWTH India presently has a good supply of food grain (about 60 million tons of cereals are held in stock at the present time). Future agricultural growth will be constrained if the country does not move beyond its past concerns with national food self sufficiency to better exploit its comparative advantages. The overall food-grains balance should be monitored, but this seems unlikely to be a major problem, at least within the next several decades (Bhalla et al., 1999). Food security has become primarily a distribution problem that requires other solutions than simply growing more food grains. It requires more focused and targeted efforts to raise the incomes of the poor, most of whom are rural and live in rain-fed areas, which are often backward areas with limited agricultural potential or infrastructure and market access (Fan et al., 2000). New growth opportunities for agriculture are arising from a number of sources: • Changes in the national diet are occurring with the accelerated national economic growth achieved in recent years. With the rising affluence of the middle classes, domestic demand for livestock products (especially milk and milk products), fruits, vegetables, flowers and vegetable oils has shot up. This creates new growth opportunities for farmers to diversify (even specialize) in higher-value products, especially those farmers who have ready access to markets, information and inputs. • Ongoing policy reforms are slowly opening up export markets for Indian farmers. This, together with the removal of restrictions on interstate trade within India, should enable more farmers to specialize in those crops in which they have comparative advantage and can best compete in the market. These opportunities should further improve if the next round of world trade negotiations sponsored by the World Trade Organization succeed in freeing up more agricultural markets in countries around the world. • There are also good opportunities for generating greater value added in agroprocessing, particularly if agroindustry is liberated from current pro - tective policies and can became more competitive with imports (World Bank, 1999; Gulati and Kelley, 2000). Oil seed processing, for example, is highly protected at present, making domestic vegetable oils noncom - petitive with imports. Producers of vegetable oil seeds can compete as growers, but they are penalized when competing in the international veg - etables oils market because their products have to be processed by a highly inefficient domestic industry (Gulati and Kelley, 2000). Agricultural growth of these types can make important contributions to increasing rural Indian incomes. But, like the Green Revolution, such growth is likely to leave many poorer regions and poor people behind. Farmers will prosper most in those regions that can best compete in the market. Competitiveness will require investments in rural infrastructure and technology (roads, transport, electricity, improved varieties, disease control, etc.) and improvements in marketing and distribution systems for © 2003 by CRC Press LLC higher-value perishable foods (refrigeration, communications, food processing and storage, food safety regulations, etc.). If poorer farmers and regions are to benefit from these new opportunities, policy makers will have to assist them rather than leaving everything to market forces alone. Helping small-scale producers capture part of these growing markets will require that agricultural research systems give greater attention to the problems of smaller farms and not just large ones. The private sector seems likely to play a greater role in under - taking the research needed for many higher-value products. But private research firms will be more attracted to the needs of larger farms than of small ones and to regions with good infrastructure and market access. Public research institutions will need to play a key role in ensuring that small farmers and more remote regions do not get left out. Smallhold farmers will also need to be organized more effectively for efficient marketing and input supply. While smallholders are typically more efficient producers of many labor-intensive livestock and horticultural products, they are at a major disadvantage in the marketplace because they have poor information and marketing contacts and their smaller volumes traded (both inputs and outputs) lead to less- favorable prices than larger-scale farmers receive. Contracting arrangements with wholesalers and retailers has proven useful in some contexts, but, for the mass of smallhold farmers in India, some kind of cooperative marketing institutions probably offer a more realistic option, even recognizing the many faults of previously govern - ment-sponsored co-ops. Operation Flood is a good example of what can be done with good leadership, use of modern technologies and commitment to serving farmer and consumer interests rather than those of intermediaries (Doornbos and Nair, 1990; Kurien 1997). This program supports dairy cooperatives for the collection, treatment and marketing of milk, produced by many millions of small-scale producers, including landless laborers and women. Many of the smallholders produce only 1 or 2 liters per day. In 1996, Operation Flood involved 9.3 million farmers, yet still accounted for only 22% of all marketed milk in India (Candler and Kumar, 1998). The Gov - ernment assists the program through technical support (e.g., research and extension, veterinary services and the regulation of milk quality), but otherwise the program is run by the cooperatives themselves with no direct financial support from government. Spreading the benefits of new growth opportunities to less-favored areas will also require focused policies and investments. These will need to include greater investment in research, infrastructure and human capital to improve the ability of less-favored areas and producers to compete in the market place. Policy makers have been reluctant to do this in the past, preferring to rely on the “trickle down” benefits from investments in high-potential areas, i.e., increased employment there, migration opportunities and cheaper food. But this approach has proven insufficient to resolve the problems of many less-favored areas. Although people migrate to better areas and urban jobs, rural population is nevertheless increasing. Population densities are still increasing in many less-favored areas and seem likely to do so for at least a few more decades. Without adequate investments in basic infrastructure, technology and human development, less- favored areas will lose out even further as agricultural markets become more liberalized and competitive. They will become victims, not beneficiaries, of market liberalization and globalization, with worsening poverty and environmental degradation. © 2003 by CRC Press LLC Does investing in less-favored areas have to mean less growth per dollar of investment than investing that money in high-potential areas? Few would dispute the possibility of achieving bigger direct reductions in poverty by investing in less- favored areas, but are there significant tradeoffs with long-term economic growth and poverty reduction? Will present investments in less-favored areas reduce the long-term prospects of the poor and the country? Recent IFPRI research on India says no. In fact, many investments in less-favored areas offer a win–win strategy for India, giving both more growth and less poverty (Fan et al., 2000). This is true also for investments in research and development, though not necessarily in the most difficult agroclimatic zones. CONCLUSIONS India has made impressive gains in agricultural growth, food security and rural poverty reduction since the crisis years of the 1960s. Agricultural growth continues to be critical for addressing the livelihood needs of large numbers of rural people, including most of the country’s poor. But future growth will need to be different from the past. It will be less driven by growth in food-grain production and more by new growth opportunities for higher-value livestock, horticultural and agroforestry products for the domestic market, by increased value-added opportunities in agro-industry and by export opportunities. Moreover, if future agricultural growth is to benefit the poor, it must be more focused on rain-fed areas than in the past, including many of the less- favored and backward regions that gained relatively little from the Green Revolution. Future agricultural growth will also need to be more environmentally benign and sustainable than in the past, with greater attention to the problems of intensive farming areas. This will require policy reforms to change incentives in favor of more sustainable technologies and natural-resource management practices, as well as appropriate types of agricultural research. Meeting these challenges will require serious policy and institutional reforms, including the phasing out of input subsidies, trade liberalization (with removal of trade protection for agroindustry), reform of public institutions serving agriculture and increases in productive investment in agriculture and the rural sector. (This also means spending less, not more, on agricultural subsidies.) India has been flirting with some of these changes for over a decade, but progress has been impeded by entrenched interests in the farm, agro-industry, banking and public sectors that are politically very difficult to challenge at the present time. It will take the same kind of vision to surmount these problems and to rejuvenate the agricultural sector as it did to launch the Green Revolution some 35 years ago, that is, strong political leadership drawing on and supported by the best available current scientific knowledge. REFERENCES Bhalla, G.S., P. Hazell and J. Kerr. 1999. Prospects for India’s Cereal Supply and Demand to 2020. 2020 Vision Discussion Paper 29. International Food Policy Research Insti - tute. Washington D.C. © 2003 by CRC Press LLC Candler, W. and N. Kumar. 1998. India: The Dairy Revolution. Operations Evaluation Depart- ment. World Bank. Washington, D.C. Doornbos, M. and K.C. Nair, Eds. 1990. Resources, Institutions and Strategies: Operation Flood and Indian Dairying. Sage Publications. New Delhi, India. Fan, S., P. Hazell and S. Thorat. 1999. Linkages between Government Spending, Growth and Poverty in Rural India. Research Report 110. International Food Policy Research Institute. Washington, D.C. Fan, S., P. Hazell and T. Haque. 2000. Targeting public investments by agro-ecological zone to achieve growth and poverty alleviation goals. Food Policy, 25 (4): 411-428. Gulati, A. and S. Narayanan. 2000. Demystifying fertilizer and power subsidies in India. Economic and Political Weekly, March 4, 784-794. Gulati, A. and T. Kelley. 2000. Trade Liberalization and Indian Agriculture. Oxford University Press. New Delhi, India. Kurien, V. 1997. The AMUL Dairy Cooperatives: Putting The Means Of Development Into The Hands Of Small Producers in India. In Reasons for Hope: Instructive Experiences in Rural Development, A. Krishna, N. Uphoff and M.J. Esman, Eds. 105-119. Kumar - ian Press. West Hartford, CT. Pingali, P. and M.W. Rosegrant. 2000. Intensive Food Systems in Asia: Can the Degradation be Reversed? In Tradeoffs or Synergies? Agricultural Intensification, Economic Development and the Environment, D.R. Lee and C.B. Barrett, Eds. CABI Publishing. Wallingford, UK. Rosegrant, M.W. and P. Hazell. 2000. Transforming the Rural Asian Economy: The Unfinished Revolution. Oxford University Press for the Asian Development Bank. Hong Kong. Shiva, V. 1999. Betting on Biotechnology: Why Genetic Engineering Will Not Feed the Hungry or Save the Planet. Research Foundation for Science, Technology and Ecol - ogy. New Delhi, India. World Bank. 1999. Toward Rural Development and Poverty Reduction. Paper presented at NCAER-IEG-World Bank Conference on Reforms in the Agricultural Sector for Growth, Efficiency, Equity and Sustainability, India Habitat Centre, New Delhi, April 15-16. © 2003 by CRC Press LLC The Role of the Public Sector in Achieving Food Security G. Edward Schuh CONTENTS Introduction Producing New Knowledge for Agricultural Modernization Education, Vocational Training and Health Fertilizer Policy International Trade Rural Development Safety Nets Conclusions References INTRODUCTION The World Food Summit organized by the FAO some 5 years ago set a daunting target of reducing the number of food-insecure persons in the world by half by the year 2015. A recent review of how well the world is doing in attaining this objective showed the results to be disheartening. The progress that most specialists thought would be made has not been achieved. Thus, a discussion of how we might do better is both timely and appropriate. Two propositions provide the necessary context for this discussion. First, despite the importance of the agricultural sector to both the global food security problem and to economic growth more generally, agriculture and the rural population continue to suffer discrimination by national policy makers and by international development agencies. Second, the importance of public goods for dealing with food security and economic development issues is being sorely neglected, again by both national and international policy makers. It is especially worrisome that the U.S. Agency for International Development and the World Bank have shifted most of their declining support for agriculture away from helping to supply necessary public goods, both in the form of investments and better institutional arrangements. 2 7 [...]... 0.78 1. 45 2.44 0.02 0.03 -0 .02 -0 .32 -1 . 75 Energy Use Oil Use Phosphate Fertilizer Use Organic Water Pollution 0.60 0.28 0.78 Resource 1.18 0 .54 1 .50 Depletion 2. 25 1.02 2.79 0.09 0.17 0.33 Total Effect -0 .06 -0 .08 (per capita) 4.07 6.40 1.81 2.72 4.70 5. 94 High Income $16,000 $32,000 1.93 -0 . 05 -0 .04 3.06 -1 .98 -9 .72 -1 0.24 -7 .70 -1 .16 -3 3.88 5. 91 1.80 -1 .98 -1 5. 79 -1 0.94 -5 9.42 0.60 0.93 0.81 -5 .58 Population... until the total population begins to decline within the next 50 to 80 years Since the 1 950 s, the total fertility rate (TFR, the expected number of children that a woman will bear throughout her life) has fallen in every region of the world From an average of nearly six children per woman in 1 950 55 , by 1990– 95 TFR had fallen to 3.4 in India, 3 .5 in the rest of Asia and 3 in Latin America and the rates... alleviating the poverty that is the cause of food insecurity Whether one focuses on the shortor long-term food security issue, raising the incomes of poor people is the key to addressing food security problems However, neither in the short term nor in the long term will this be sufficient to solve these problems There will always be some who need assistance in a time of crisis, or who are not able to participate... International Institute for Applied Systems Analysis Laxenburg, Austria Ch 15 Pinto, M 1992 Liberalization of the Indian Bureaucracy Indian Journal of Administrative Science, 3: 1-2 , 12 5- 1 31 Ruddle, K and W Manshard 1981 Renewable Natural Resources and the Environment: Pressing Problems in the Developing World Tycooly International Publishing Dublin, Ireland Seldon, T.M and D Song 1994 Environmental quality and. .. density and selected other variables for approximately 120 countries, using data from the 1990s The numbers presented in Table 28.2 are long-run elasticities, showing the impact of a 1% increase in per capita income (from the specified income level shown at the top of the table) on the variable in the left-hand column The geometric progression of the specified income benchmarks is well within the range... for India to address its food supply and demand problems, including poverty, food insecurity, environmental degradation and population growth The analysis shows that if the Indian government could successfully resolve its food supply and demand challenges chiefly by making wise investments in education, agricultural research and infrastructure, it could let markets mostly determine whether the food. .. smaller and smaller share of their income on food Thus, as average incomes rise, the demand for agricultural products increases at a slower pace than the demand for nonfarm goods and services and more and more labor is needed in the expanding nonfarm sectors In addition, as the process of modernization continues, the quantity of food demanded can be supplied by an ever-smaller labor force, especially in the. .. distinction between short-term and long-term food security problems Taking poverty alleviation as the guiding principle for addressing the food security problem, the solution to the longer-term problem is to raise the per capita incomes of the poor The solution to short-term problems is to devise safety nets that will help carry people through short-term crises Both dimensions of the food security problem... price increase, though not imminent, would hardly be noticed by consumers in the United States, who spend only 2% of their income on farm-supplied food ingredients The situation would be different in India, however, where food prices heavily influence real income of consumers The number of food consumers exceeds that of food producers in every country and poor consumers in India who purchase food in the. .. Agricultural Policy Luther Tweeten CONTENTS Future Global Food Supply–Demand Balance Economic Progress and the Environment Using the Proven Standard Economic Model to Alleviate Poverty, Food Insecurity and Environmental Degradation Promoting High-Payoff Public Investments for Broad-Based Productivity Gains Implementing the Standard Model Conclusions References Aligning food supply and demand at acceptable . daunting target of reducing the number of food- insecure persons in the world by half by the year 20 15. A recent review of how well the world is doing in attaining this objective showed the. poverty that is the cause of food insecurity. Whether one focuses on the short- or long-term food security issue, raising the incomes of poor people is the key to addressing food security problems between short-term and long-term food security problems. Taking poverty alleviation as the guiding principle for addressing the food security problem, the solution to the longer-term problem