Saturday, February 12, 2011

Agriculture Infrastructure in Rural India

Sources:
Minnesota Post: Rising Global Food Prices Squeeze the World’s Poor
NYT: As India Thrives, Its People Remain Hungry
Indian Express: Food Security, international Monetary System Reforms to be on G-20 Table
Huffington Post: Price Volatility and Food Crises
Business Standard: Agriculture Min Working Towards Cluster-Based Farming

Despite its ambitions as an emerging economic giant, India still struggles to feed its 1.1 billion people, and nearly half of Indian children 5 years old or younger are malnourished. Many families in India are part of the 1 billion worldwide who struggle to afford food. The United Nations Food and Agricultural Organization (“FAO”) food price index hit an all-time high in December. Egypt was one of the nations the FAO cited where food prices had drastically increased. While there is not enough data to show the rise in food prices was a substantial cause of the current unrest in Egypt, many people believe that extreme food prices were an aggravating factor.

There are two intertwined elements to India’s lagging agricultural system. First, most farms in India are family owned and run, and they do not take advantage of economies of scale. (Economies of scale is the concept that the cost per unit falls as output quantities increase). Indian laws make it challenging for farmers to assemble large land holdings. Thus, inefficient, small farms are still the norm. One can look to the United States as the paragon of agricultural economies of scale, where a few massive U.S. agricultural corporations have consolidating resources, to reduce food prices, making American food arguably the cheapest in the world.

The second facet of the problem in India is low investment. Farming equipment and infrastructure are scarce outside the provinces of Punjab and Haryana. Investment in agriculture has fallen inside India, and worldwide from 19% in 1980 to 5% of total investment today. Because many of the farms are so small in India, the farmers cannot afford irrigation systems that would increase productivity. Thus, some farmers are in a state more resembling the pre-industrial era than today. Small size and a low level of capital lead to lower production and inefficiency, resulting in higher costs to Indian consumers. Indian food inflation was 13.7% in December, compared to inflation of 8.4% for all commodities. Most striking to Indians, the onion, a staple of Indian food, has quadrupled in price the last few months.

However, the Indian government is taking action. In conjunction with the United States, the two nations are launching the Evergreen Revolution (“Revolution”). The Revolution will expand Indian farm production by providing American money for agricultural research and development in Indian institutions. The money will be used to create genetically engineered crops that will be introduced into target rural areas. The United States benefits by experimenting with new innovations in India before selling them to the rest of the world. The Indian government is also increasing subsidies for farming equipment and consolidating farms that grow the same crops. These reforms will help feed the nation and raise rural India out of poverty.

Discussion:
1. Why is India putting energy into internal agricultural reform when it can import more food instead?
2. What role do American and European domestic agricultural subsidies have on world food prices?

1 comment:

farmland investment said...

Agriculture is absolutely key to the development of poorer countries like India.