1 Draft for Discussion Agriculture Growth in India: Is there any Conflict between Income and Food Security Ramesh Chand Director National Centre for Agricultural Economics and Policy Research New Delhi 110012 Email: rc@ncap.res.in It is widely acknowledged that there is lot of potential to raise agricultural output in the country. Present level of productivity of most of the crops in a large number of States is awfully low as compared to the productivity which is attainable with already available technology, and as compared to other countries of comparable level. This potential is believed to be very large in the eastern and central region of the country. However, agriculture growth has witnessed slowdown after late 1990s at country level and in most of the states. This is causing serious concern in terms of food and nutrition security, farmers income, growth in overall economy, disparity in rural and urban income and development of disadvantaged rainfed and dryland areas. While agriculture growth decelerated sharply during this period, problems and challenges in agriculture sector became more acute. These challenges and problems relate to sustainability, efficiency, farmers distress, strain on land resources and risk in production and marketing of farm produce. Some concrete measures like increase in public investments in agriculture, market reforms, increased supply of institutional agricultural credit were initiated during the last two years of Xth Five Year Plan to address the challenges confronting the agriculture sector. Eleventh Five Year Plan took a clear cognizance of the severe challenges faced by the sector and brought into focus the need to give fresh thrust and big push to agriculture sector. The Plan fixed a target of 4% growth in agriculture and emphasized the need to achieve growth through sustainable use of natural resources and efficient methods of production. This was sought to be achieved through favourable policy environment, use of improved technology, and strengthening of institutional mechanisms.
Growth rate in agriculture during the first year of XI five year plan turned out to be close to 5 percent which was higher than the targeted growth growth rate for XI FYP. Moreover, this high growth during 2007-08 followed excellent performance of agriculture during 2006-07, which achieved 4 percent growth in GDP of agriculture and allied sectors. Thanks to bumper harvest of foodgrains during 2007-08 India did not experience any abnormal increase in prices of staple food while global food prices witnessed astronomical increase and world as a whole faced food crisis. However, the success of year 2007-08 could not be repeated in the year 2008-09 as growth rate in GDP agriculture and allied plummeted to one third of what it was during 2007-08 despite strong policy support to agriculture. The situation worsened during 2009-10 due to severe drought in some parts of the country followed by unusual floods in southern states of Andhra Pradesh and Karnataka. These trends underscore the need to identify various concerns related to performance of agriculture sector and to diagnose the factors constraining the achievement of goals set in the Plan. Evidence is emerging that maintaining interest in farming and inducing output growth require reasonable income from farming activities. In the absence of rapid technological gain farmers income can be raised only by offering high prices for agricultural output. However, the past experience shows that keeping food prices at higher level results in accumulation of stock and reduces food intake causing adverse effect on consumption and household food security. The paper examines the historical experience of India to analyse changes in farm income and food security during various phases of agriculture growth. It is organised into five Sections. The first section presents growth analysis of agriculture and food sector and identifies different phases of growth in agriculture output. The second section looks at the trend and changes in income of agriculture sector corresponding to various phases of agri growth. Section 3 and 4 are focused on trend in food prices and changes in food security based on National estimates and FAO estimates. The last Section makes an attempt to collate the information and trends that emerge from
the first four section to draw inferences relating to conflict between income and food security. GROWTH RATE IN AGRICULTURRE OUPUT I Various phases in agriculture growth can be identified either by establishing structural breaks in the output series or by examining growth trajectory that allows for turning points as and when growth rate accelerates or decelerates. We opted for the latter approach. The paper looks at various phases of growth during the period 1971-72 to 2008-09. Under this, annual growth rates based on semi-log trends were estimated for 10 years period each beginning with 1971-72 to 1980-81, and extending to 1999-00 to 2008-09. This way, 39 growth rates were estimated which provide an idea about change in growth trajectory as we move up on the time scale. These growth rates are presented in Fig 1. The figure shows that during the decade ending with 1980-81 to the decades ending around late 1990s growth rate in agriculture output fluctuated between 2.9 and 4 per cent except one growth point that ends with year 1992-93 which was a bad year and growth soon recovered from this dip. After late 1990s, agriculture growth continuously declined with each passing year and this deceleration continued till the year 2005-06 when the growth rate based on 10 years period dipped to just 2 per cent. The deceleration was initially small and then turned sharp after 20001-02. The growth rate series show that the period 1995-96 to 2004-05 recorded lowest growth among all 10 years periods during 1971-72 to 2008-09. This analysis indicates that the period 1971-72 to 2005-06 can be clearly divided into two phases based on growth performance. First phase from beginning of 1970s to late 1990s and the second phase from late 1990s to 2005-06.
Fig.1: Growth Rate in Agri-food Output at 1999-00 Prices Based on 10 Year Period, decade ending with 1980-81 to 2008-09 Changes in growth performance of agriculture were also seen by looking at the trend in year to year rate of change in output based on 5 yearly moving average series of value of agriculture output at 1999-2000 prices. The results are presented in Figure. 2. This figure shows that there are very wide fluctuations in rate of change in output from one quinquennium to another quinquennium. However, the overall picture is very clear which shows rising trend in growth upto late 1990s and a downward shift in the growth trajectory after that. Thus, both the approaches, trend growth based on 10 years periods and rate of change computed from 5 yearly moving average show clear and sharp deceleration in growth of output after late 1990s.
Fig.2: Year to Year Growth Rate in Agri-food GDP Based on 5 Yearly Moving Averages II GROWTH RATE IN FARM INCOME
In India estimates of farm income at National or state level are not prepared and published. However, data on income of agriculture sector is available from National Accounts Statistics. This includes income received by cultivators and agriculture laborers together. This income is generally used as a proxy for farm income. Researchers generally use GDP or NDP of agriculture at constant price as a measure of agriculture income. This measure as such does not include affect of price on farm income. For capturing effect of changes in relative prices on farm income this paper uses Net Domestic Product (NDP) of agriculture at current price deflated by general price index used as a measure of agriculture income, instead of using NDP at constant price as a measure of farm income. Growth trajectory of farm income based on moving set of 10 years data beginning 1971-72 to 1980-81 and extending upto 1999-2000 to 2008-09 is presented in Figure 3. The growth rate series show that NDP agriculture (agriculture income) at current price deflated by WPI with base 1981-82 moved in accordance with the movement in real prices of agriculture sector in most of the period since early 1970s. During the period from 1971-72 to 1980-81, when food price relative to overall price followed a decline, the growth rate in farm income was almost zero. This shows that despite around 3per cent growth in agriculture output in that period, farm incomes did not increase at all. As the prices of food relative to general price started improving after 1980-81 the growth rate in farm income also started rising. When the food price index relative to WPI increased from less than 100 in 1980-81 to close to 110 by late 1980s the growth rate in farm income reached above 4%. As the food prices continued to increase in real terms during 1990s, the growth rate in farm income remained more than 4% in this decade. After late 1990 s, real price of food started declining- the index of food price relative to WPI decline from 130 in 1999 to 114 by the year 2004. This was accomplished by declaration in growth of agri-food output.
Fig.3: Trend growth rates in agriculture income (NDP at current price deflated by Whole sale price index of all commodities) Based on 10 Year Period, decade ending with 1980-81 to 2007-08 Fig. 4: Index of food prices deflated by general price index base 1981-82=100, 1970-71 to 2008-09 The combined effect of deceleration in growth of output and decline in food prices relative to other prices, pulled down growth rate in farm income. Thus,
growth in agriculture income, which was more than 4 per cent till 2001-02, declined to 1 percent by the decade ending with 2005-06. The movement in growth rates of agriculture income (figure 3) shows that when food prices rose in real terms (Fig. 4), growth rate in farm income accelerated, and, when food prices in real terms declined the growth rate in farm income decelerated. The phases of growth in agriculture output and farm income are found to coincide with the phases of movements in food price relative to general price index. These patterns show that improvement in food prices is having strong positive impact on growth rate in farm income. III Food Security Changes in percent of under-nourished population and amount of energy consumed per person over time are commonly used indicators of improvement in food security. These indicators for India are made available by two sources viz. National Sample Survey Organization of Government of India and Food and Agriculture Organization of United Nation. NSSO estimates are based on consumer survey and they do not consider supply side situation. There is some underestimation of consumption in NSSO data because exact constitution of meals/foods taken outside home is not known and is thus not fully reckoned. NSSO uses norm of 2400 KCL per person per day as the minimum dietary energy requirement for rural population and 2100 KCL for Urban population to estimate incidence of undernutrition. Population that consumes less than the threshold level of energy is treated as undernourished. FAO estimates dietary energy intake from food balance sheet. Availability of food estimated from food balance sheet is then assumed to follow same distribution across household as observed from consumer expenditure in NSSO data.
The incidence of undernutrition reported by NSSO during various rounds is presented in table 1. According to NSSO, percent of population consuming energy lower than the norm has been rising throughout since 1983. NSSO also indicates that per capita calorie intake in India kept on deteriorating during all the rounds after 1983. The NSSO data on nutrition show decline irrespective of increase are decrease in food prices relative to general price index. In other words, the selected indicators of food security viz. level of nutrition and incidence of under nutrition did not show any association with the changes in food prices in real terms. This implies that changes in food prices did not alter the pattern of food energy intake and incidence of undernutrition. Further, it implies that the range within which food prices in India moved during 1981 to 2004-05 did not make any major difference to food security, based on NSSO data. Table 1: Changes in food security status as revealed by NSSO estimates on calorie intake Population with Calorie intake below Calorie Consumption per person per day KCL 2100 Urban and 2400 Rural Year Rural Urban All India Rural Urban All India 1983 66.1 60.5 64.8 2221 2089 2190 1993 94 71.1 58.1 67.8 2153 2071 2132 1999 00 74.1 58.2 67.8 2149 2156 2004 05 79.8 63.9 75.8 2047 2020 2039 Per capita per day calorie intake reported by FAO for India is presented in figure 5 for the period 1979 to 2005 and the incidence of under nutrient is reported in table 2. Both, per capita calories intake and the incidence of undernutrition reported by FAO show that the food security performance differs over different period. Per capita calories in-take, based on FAO estimate, increased from around 2050 in early 1980 s to 2400 by the end of the decades. Since then daily intake of calories fluctuated between 2300-2400 KCL/person, except a few years. This pattern of per capita calories intake indicates a significant improvement
during the ten year period from 1979 to 1989 and sustained level of nutrition at this level afterwards. According to FAO incidence of under nourished based on 3 years average witnessed a sizeable decline from 38 per cent during 1979-81 to 20 per cent during 1995-97. The under nourished population remained around this level after that with a slight increase in year 2004-06. Fig 5: Per capita per day dietary energy intake (Kcl) in India according to FAO Table 2: Incidence of undernutrition in India as per FAO estimates Years Under nourished Population Million person % 1979 81 261.8 38 1990 92 210.2 24
1995 97 193.5 20 2000 02 223.0 21 2001 03 212.0 20 2004 06 251.5 22 Juxtaposing nutrition trends reported by FAO on trend in farm income and prices presented in figure 2 leads to following inferences: 1) Nutrition status in India improved despite increase in real food prices during 1979-89. 2) Nutrition level did not deteriorate when food prices increased in real term during 1989 to 1999. 3) Nutrition didn t improve based on either of the two indicators when food prices in real term declined during 1999 to 2005. IV SUM-UP Effect of food prices on farm income is on expected lines. NSSO data on nutrition indicate that the range in which food prices varied in India during last 3 decade did not alter the trend and pattern of nutrition. In contrast to this, FAO indicators on nutrition show significant changes in nutrition. The tentative conclusion which can be drawn from the growth trajectory of farm income and output, trend in real food prices and nutrition pattern based on FAO data are: (a) when agriculture income and food production increased at high rate, food security improved despite rise in food prices. (b) When agriculture income and food production increased at low rate, food security deteriorated despite fall in prices.
(c) Growth rates in food production and farm income accelerated when food prices increased in real terms and they showed deceleration when food prices declined in real terms.