Farm crisis stays despite good rains

Analysts say India's rain-dependent farm sector, which has seen no reform and only sluggish growth, needs urgent investment in irrigation and technology to prevent food shortages in the country.
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Updated on Apr 18, 2008 03:03 PM IST
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Reuters | ByBiman Mukherji and Himangshu Watts, New Delhi

A forecast of normal monsoon rains for India has calmed fears of food shortages and galloping inflation, but another year of good rains may only prolong the deeper problems that haunt the languishing farm sector.

Rapid economic growth and better wages, powered by nearly two decades of liberal reforms that have made India's economy the third-largest in Asia, have fuelled demand for farm products at a time when output has stagnated.

At the same time, dwindling global stocks of key staples like wheat and rice, growing Asian demand and government mandates to produce crops for fuel have stretched the world's ability to feed itself.

Analysts say India's rain-dependent farm sector, which has seen no reform and only sluggish growth, needs urgent investment in irrigation and technology to prevent food shortages in the country where about two-thirds of the people and a fifth of its economy depend on agriculture.

"We are living hand to mouth as our total consumption is more or less equal to our output and stocks. If we have a single year of bad rains, we will have to import at high prices," said D.P. Singh, president of the All India Grain Exporters Association.

The government on Wednesday forecast near-normal monsoon rains, which could lift output and rural incomes, but analysts and traders say India's food security is precariously balanced and estimates are not always accurate.

"A great deal will depend on (the) coming monsoon. If rains are good then the situation will normalise, otherwise it will lead to a bigger crisis," said B.B. Bhattacharjee, an economist and vice chancellor of New Delhi's Jawaharlal Nehru University.

But a bigger crisis could be exactly what India needs.

The market-friendly reforms that helped India rise to be Asia's third largest economy were triggered by a foreign exchange crisis in the early 1990s.

"It is only when they are pushed to the wall by extraneous factors like international prices, or an acute spell of drought, they are sensitised to the issue (of investing in irrigation)," said Som Pal, a former agriculture minister.

He said the government needed to invest 4 trillion rupees ($100 billion) over a decade to irrigate 80 percent of India's farms.

Green revolution

Bhattacharjee said India's farm output has not taken a quantum leap since the late 1960s when government policies to boost irrigation and introduce high-yielding varieties boosted agricultural production in northern India.

"More than 40 years have passed since the green revolution, now we are in an era of diminishing returns. Unless we augment the technology, we can't have a long-term solution to food production," he said.

Som Pal said farm productivity has stagnated for generations at between 1.0 to 1.2 tonnes per hectare, compared to four tonnes in irrigated areas.

A poor harvest forced India to import wheat in 2006, the first overseas purchases for six years, and again in 2007 at a higher price, helping world prices rise.

Singh said India's irrigation, which feeds only 40 percent of cultivated land, was woefully inadequate and groundwater levels, particularly in the top grain-producing states of Punjab and Haryana was falling.

As the economy is expected to expand much faster than farm output, analysts say there is a palpable risk of shortages, which will have to be met with costly imports.

India's agriculture sector, where many indebted farmers facing soaring fuel and fertiliser costs have committed suicide, has serious short-term problems, said T.K. Bhaumik, an economist with Reliance Industries Ltd.

Bhaumik said food prices were likely to remain firm, making the poor vulnerable if output fell, while the government may not find adequate supplies in international markets.

"If you are a rational farmer, you see that everywhere in the world outside India grain prices are going up. He will also expect higher prices. Prices are not likely to come down this year. I don't think it is possible," Bhaumik said.

The world's biggest rice importer, the Philippines, received offers for only 325,750 tonnes of rice against the import tender of half a million tonnes at prices at least 25 percent higher than last month, reflecting a continuing supply squeeze.

New Delhi is battling its highest inflation in three years, and food prices have been a major driver.

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