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Agriculture and The World Trade Organisation

Gurdarshan Singh Bhalla
Jean-Luc Racine
Frédéric Landy

III. Food security and food safety

7. Food Security and New International Trade Agreement: Perspectives from India

S.S. Acharya

Texte intégral

1The main objective of this paper is to review the current status of food security and insecurity in India and identify the key emerging issues that have potential to significantly affect food security in the next decade or two. It also reviews the kind of policy instruments pursued in the past and identifies implications of new international trade agreements for food security. The paper has been divided into seven sections. The first section presents the concept of food security or food insecurity. A brief review of India’s agricultural and food policy is presented in section two. The current status of food security/insecurity in India is discussed in section three. Some aspects of emerging food security scenario are presented in section four. The implications of new international trade agreements for food security in India are discussed in section five. Emerging global food security issues are presented in section six and some concluding observations are given in the last section.

Concept of food security

2A commonly accepted definition of food security is that “all people at all times have both physical and economic access to sufficient food to meet their dietary needs for a productive and healthy life” (USAID, 1992). Food security also connotes freedom from famine and chronic malnutrition which requires provision of means with the individual or family or a country for adequately meeting the nutritional needs on a daily and annual basis. In this sense, achieving food security is a broad concept and implies not only producing sufficient food but also making food accessible to the entire population throughout the year on a sustainable basis. There are three important dimensions of food security which need attention. These are availability of food on a sustainable basis, accessibility of food and utilization of available food. An individual, family, community or a nation which has lost or is at the risk of losing any of these dimensions, is food insecure. The food insecurity may be transient or chronic and mild or acute. The essential requirements for the achievement of food security can be summed up as follows:

3A. Availability of Food:

4(i) Satisfactory level and growth of food production

5(ii) Sustainability of growth of food production

6(iii) Stability of aggregate supply, i.e., minimum fluctuations in production levels or availability from year to year

7B. Access to Food:

8(iv) Physical access to food, i.e., availability of food in all the regions and villages and to all families

9(v) Economic access to food, i.e., availability of food to individual family at affordable prices

10(C) Food Utilization

11(vi) Intra-family allocation of food to ensure its availability to individual members as per their needs

12(vii) Maintenance of standard of health for all individuals to enable them to consume and absorb minimum food.

13Each of these components of food security are influenced by several factors relating to both the national as well as the household socio-economic environment. The experience suggests that adequate food availability is a necessary, but not sufficient, condition to achieve adequate food access. Food access, in turn, is a necessary, but not sufficient, condition for adequate food utilization. A conceptual framework of major components of food security and factors influencing these are shown in Figure 1.

14Given this framework, while the long term solution to the problem of food security lies in evolving a development strategy which includes adequate increases in food production; growth in employment and incomes of the masses; and improvement in access to education and primary health care; in the short run, market intervention and targeted distribution of subsidised food can improve food security and reduce hunger. However, it needs to be recognised that averting hunger may prevent starvation deaths but will not eradicate malnutrition. Hence, food security must look at hunger, poverty and malnutrition as an integrated whole. The nutritional status is influenced not only by food but also by non-food factors, such as clean water, sanitation and health care. Food security will result in good nutrition only if non-food factors are effectively dealt with (Anderson, 1996).

Agricultural and food policy in India

15In most of the developing countries, the evolution of agricultural policies was mainly guided by the concern for food security for rapidly rising populations. In many of the developing countries, the necessity for the governments to assume a leading role in improving food security arose from the low level of production, particularly of foodgrains, perceived inadequacy of normal market forces to generate surpluses at a rapid rate and low purchasing power of the masses. The policy framework which emphasised foodgrains production has been instrumental in not only accelerating agricultural growth rate but also in achieving reasonable successes in reducing food insecurity in many Asian countries like India, China, Indonesia, Malaysia, Thailand, and Pakistan. However, the policies which accorded priority to export crops rather than foodgrains, led to acute shortfalls in domestic cereal production and food shortages in many African countries (Bhalla, 1994).


Major Components of Food Security

Factors influencing National Food Security

Factors influencing Individual or Household Food Security

Availability of Food

i] Availability of Resources: Natural, man-made, human

i] Resources commanded by the household to produce food or access it from outside;

ii] Use of resources and levels of domestic production of food;

ii] Actual on-farm production of food.

iii] Availability of food outside the country

iii] Availability of food in the neighbourhood.

Access to Food

i] Capacity to access food from outside the country – both physical and economic

ii] Prices of food in the international market

iii] Infrastructure and marketing system to distribute and transfer food in all the areas.

Utilization of Available Food

i] Wastage of food at different stages of marketing chain.

i] Education and social status which influence spending behaviour and intra-household allocation of food among members of the family particularly women and children

ii] Socio-economic factors including educational levels which influence dietary habits and consumption patterns

ii] Place of women in the family

iii] Health status of the masses.

iii] Health status of members of the family to absorb minimum nutritional needs

  • 1 For a detailed summary of evolution of Agricultural Price Policy in India, see Acharya & Agarwal (1 (...)

16In India, before independence, the policies were aimed at maintenance of popular support for the colonial rule rather than the long range development of the food production base (Knight, 1954). The government’s active involvement in the matter of food was acutely felt after the Bengal Famine of 1943. The emphasis of the policy, however, revolved around controlling the foodgrain prices. Even after independence, for about a decade, the main objective of food policy revolved around keeping the cost of living in check. Several committees were appointed and, as recommended by them, measures aimed at controlling the food prices were initiated1.

17In the fifties and up to the mid-sixties, as the main concern of the food policy was to ensure that the gap between demand and supply did not result in the excessive rise in consumer prices, considerable quantities of cereals were imported by India. During the mid-sixties, India was importing about 16 percent of the net availability of foodgrains. This period was a turning point in the approach to food security in India. Apart from the increased dependence on imports for meeting the food needs, it was two severe consecutive drought years, which led to the launch of a new strategy of agricultural development for increasing the output of foodgrains. The strategy was based on the recognition that for building a sound agricultural economy, there are three foundations viz: (a) provision of an improved technology package for the farmers, (b) creation of an efficient system of delivery of inputs and services including credit, (c) assurance of quick market clearance and a remunerative price environment for the farmers. As a part of this strategy, apart from investment in irrigation and infrastructure, the Food Corporation of India (FCI) was established as the sole agency of the state for the purchase, storage, transport and distribution of foodgrains. Simultaneously, the Agricultural Prices Commission was set up to advise the government on matters relating to agricultural price policy in the context of the need to raise production of agricultural commodities particularly of foodgrains and give relief to the consumers.

18A large number of policy instruments were used to achieve the stated objectives. The policy and instruments were reviewed from time to time. The main instruments of food management policy in India currently in vogue include the following.

  1. Fixation of minimum support prices for all major cereals and pulses. The support prices are announced before the sowing season for 24 farm products including paddy, maize, sorghum, pearl millet, ragi, wheat, barley, pigeon pea, green gram, black gram and chick pea

  2. Arrangements for purchase of the produce offered by the farmers at guaranteed prices. The designated nodal agency for undertaking price support operations is the Food Corporation of India (FCI) for cereals and the National Agricultural Cooperative Marketing Federation (NAFED) for pulses

  3. Building up of a buffer stock of cereals through price support operations and imports

  4. Distribution of cereals at prices lower than the economic cost under public distribution system and through anti-poverty, employment generation and nutrition programmes

  5. Control and/or restrictions on the activities of private trade through a series of legal and other instruments like levy on rice millers, limits on stocks with traders and millers and mandatory quality standards

  6. Regulation of imports and exports through canalization, quantitative ceilings or tariffs

  7. Creation of physical and institutional infrastructure for improved performance of the marketing system which include primary market yards, roads and communication facilities

  8. Provision of food and input subsidies to reconcile the objectives of foodgrain producers and consumers.

19It may be mentioned here that one of the main objectives of the policy has been to assure a remunerative and relatively stable price environment for the farmers for inducing them to adopt new technology and modem inputs and thereby augment the availability of foodgrains. Further, the policy also sought to make available foodgrains to the masses at reasonable prices.

Current status of food security or insecurity in India

20The new strategy adopted by India since the mid-sixties to reduce food insecurity paid rich dividends. The change in the status of food security can be measured from several angles.

  1. The most significant change has been the increase in the domestic output of foodgrains, particularly cereals. The production of cereals went up from 72.0 million tonnes during the triennium ending (TE) 1964-65, to 90.5 million tonnes during TE 1974-75,130.2 million tonnes during TE 1984-85, 171.5 million tonnes during TE 1994-95 and further to 176.8 million tonnes during TE 1996-97. Between TE 1974-75 and TE 1994-95, the average incremental output of cereals in the country was around 4 million tonnes per year (Table 1).

    • 2 In the context of assessing self-sufficiency over a longer period, net production plus net imports (...)

    Owing to the increases recorded in the output of foodgrains, the dependence on imports for meeting the food needs of the population went down considerably. The net imports as a proportion of net availability2 which during the quinquennium ending (QE) 1955 to QE 1975 ranged from 4.0 to 7.7 percent, declined to negligible levels in the subsequent period. During the last two decades, India has been, at the margin, importing as well as exporting foodgrains, with net imports averaging at less than 0.17 million tonnes per year (Table 2).












TE 1951-52







TE 1964-65







TE 1974-75







TE 1984-85







TE 1994-95







TE 1996-97







Source: Compiled from Government of India, 1998a


Year (Average)

Net Production

Net Imports

Net Imports +

Net Production

Net Imports as % of Net Availability



















































*Less than 0.1
Source: Government of India, 1998b, PP S-24 and S-25.

  1. The increase in output of cereals has kept pace with the increase in population. Per capita net output of cereals which had increased from 110.4 kg per year in 1951 to 130.9 per kg per year in 1964, went up to 170.6 kg per year in 1997 (Table 3). Between 1949-50 and 1996-97, the production of foodgrains increased at the rate of 2.51 percent per annum (Table 4). The growth rate of output of cereals during this period at 2.90 per cent per annum was considerably higher than that of pulses. During the nineties, though the growth rate has decelerated compared to that during the eighties, it continues to be higher than the growth of population. The production of foodgrains during the period 1991-92 to 1996-97 increased at the rate of 2.60 percent per annum.



Population (Million)

Net Production (Million Tonnes)

Per Capita Net Production (Kg per year)





























































All Cereals


All Foodgrains

1949-50 to 1996-97







1949-50 to 1964-65







1967-68 to 1980-81







1980-81 to 1991-92







1991-92 to 1996-97







Source: Government of India (1998a).

  1. Apart from the increase in level of output of cereals, the instability in the availability of cereals from domestic sources went down considerably. Between TE 1964-65 and TE 1996-97, the output of cereals increased by 104.8 million tonnes, in which the contribution of wheat and rice was as much as 98.3 million tonnes. With rice and wheat contributing the bulk of additional output, the share of coarse cereals, a component subject to wide inter-year fluctuations in the total output of cereals, decreased from 34 percent during TE 1964-65 to 18 percent during TE 1996-97.

  2. Further, a more dispersed growth of cereals, during the last decade, helped in increasing physical access to food in different regions. The contribution of rice, the production of which is more dispersed to the incremental production of cereals during the last decade was considerably higher than that of wheat. Moreover, the growth of production of rice itself was more dispersed geographically. Between TE 1984-85 and TE 1994-95, the contribution of West-Bengal, Tamil Nadu, Orissa, Madhya Pradesh, Karnataka and Bihar, taken together, in the incremental output of rice, was as much as 13.2 million tonnes whereas these states had contributed only 2.1 million tonnes to incremental production between TE 1974-75 and TE 1984-85 (Acharya, 1997a).

  3. Another important development contributing to the food security has been the increase in economic access of masses to cereals. With the retail prices of rice and wheat increasing at a rate lower than the increase in average per capita income in the country, the proportion of average per capita per day income required to buy a kg of wheat declined from 57 percent in 1973-74 to 20 percent in 1994-95, and that of rice from 75 percent to 30 percent during this period (Acharya, 1997a). Stated differently, the percentage of average per capita income required to buy a quintal of wheat and rice declined from 15-22 percent during 1973-74 to 5-10 percent during 1994-95 (Table 5).





























Source: Acharya, 1997a

  1. A related development which needs to be noted is, that while the availability of cereals increased and their relative prices decreased, per capita consumption of cereals has tended to decline in recent years (Kumar, 1996). It declined from 176 kg in 1987-88 to 163 kg in 1993-94 in rural areas, and from 136 kg to 129 kg in urban areas during this period. This can be interpreted as shifts in tastes and preferences towards livestock products, fruits and vegetables. A longer term analysis based on data from NSS surveys also reveals a declining trend in per capita consumption of cereals in both rural and urban areas from early seventies to 1993-94, which is accompanied by the decline in the proportion of expenditure on foodgrains and cereals and increase in milk and milk products, meat, eggs, fruits and vegetables (Selvarajan and Ravishanker, 1996).

  2. An important development related to the improvement in the nutritional security is that with improved availability of staple cereals at declining real prices, the subsistence and small farmers in several regions diverted the resources from low yielding coarse cereals to other crops which inter alia helped in increasing the output of oilseeds/edible oils, sugarcane, vegetables, fruits, spices and condiments, thereby stepping up the availability of other food items. As shown in table 6, there has been considerable increase in the per capita availability of food items other than foodgrains.






Edible Oils* (kg)




Sugar (kg)




Milk (kg)




Eggs (No.)




Fishes (kg.)




Fruits (kg.)


Vegetables (kg.)


* Includes vegetable fats.

  1. Another important development relating to food security is the buffer stocks of foodgrains with the public agencies and the public distribution system created in the country which helped in not only reducing the inter-year fluctuations in supply but also in checking the starvation deaths during the periods of severe droughts or floods.

  2. Along with these positive developments on the food production front there have been some failures also. These relate mainly to the output of pulses and nutritional levels of the masses in the country. The production of pulses, which is an important source of protein for the majority of the population, increased from around 10 million tonnes during TE 1974-75 to 13.60 million tonnes during TE 1996-97. However, the growth rate was considerably lower than the growth of population. The production of pulses increased at a modest rate of only 0.56 percent per annum between 1949-50 and 1996-97. The growth rate which was 1.41 per cent per annum up to 1964-65, turned negative during the period 1967-68 to 1980-81. However, it recovered to 1.42 percent during the period 1980-81 to 1991-92 and accelerated to 2.47 per cent per annum during the nineties. Per capita net output of pulses which was 22 kg in 1951 came down to around 15 kg during 1974 and 1984 and further to around 13 kg per annum during the nineties. As a consequence, the dependence on imports to meet the domestic demand for pulses has continued to be large.

  3. Another area of concern relates to the number of hungry people. According to National Sample Survey, during 1993-94, 6.4 million people were starkly hungry (without two square meals a day) and 44.8 million were partially hungry in the country (NSSO, 1997). In percentage terms, figures may be small, yet, the number is substantial.

    • 3 Taken from World Bank (1995).

    As regards the level of nutrition, the average per capita calorie intake is closer to the accepted norm, food intake of even the poorest sections has improved somewhat (Kumar, 1996), the average life expectancy has gone up and the infant mortality rate (IMR) has decreased. However, the situation is far from satisfactory. The IMR at 80 per thousand live births is quite high. Nearly 63 percent of the under-5 children are still malnourished. Under-5 mortality rate is as high as 122 per thousand live births. Further, the maternal mortality rate (MMR) at 420 per hundred thousand live-births is also high3.

Some emerging issues in food security

21Apart from the concerns relating to the level of nutrition and intra-household allocation of available food in families, there are several issues which need to be kept in view while analysing the implications of new trade agreement under the WTO. These issues mainly pertain to the emerging demand and supply scenario, the need for continuing with some of the existing instruments of food management policy and unilateral liberalization of the Indian economy.

Emerging demand and supply scenario

  • 4 For example, see Bhalla, 1994; Bhalla, 1995; Kumar and Mathur, 1996; Rosegrant et al., 1995.

22As already mentioned, the growth of production of cereals has decelerated from around 3.1 percent per annum during the eighties to 2.6 percent per annum during the nineties so far. In this context, it needs to be recognised that despite the anticipation of a deceleration in the growth of population, the growth in demand for cereals may not slow down if the growth of income is accompanied by redistribution in favour of the poor. Further, with the rise in income, the consumption pattern of some households is shifting away from cereals to livestock products which is increasing the demand for foodgrains as feed. Several scholars have projected the demand for foodgrains4. Even the most conservative estimates of demand for cereals suggest that the incremental output of foodgrains would need to be higher than that achieved so far since the early eighties.

23Apart from foodgrains, the growth of production of other food items like oilseeds, fruits and vegetables would also need to be stepped up. In this connection, it needs to be noted that there has been considerable diversification of area from low yielding coarse cereals to non-foodgrain crops during the last one and half decades (Acharya 1997a). While the diversification of cropping pattern needs to be encouraged for several considerations, given the limits to expansion of net sown area, unless efforts for technological developments, water resource augmentation and improvement in the methods of water use are stepped up, the food security situation could become quite serious.

24The acceleration of the growth of agricultural production is also warranted owing to its linkages with reduction in poverty at a rapid rate and thereby increasing the economic access to food. It is in this context that investment in the farm sector, particularly in hitherto left out regions needs to be stepped up. While, there is a need for additional investment in agriculture, a disquieting feature has been the decline in the investment in agriculture by both the public and private sector during the eighties. In recent years, while the investment by the public sector has continued to decline, that by the private sector has shown some recovery. However, there is a need for strengthening the incentive framework for agriculture with a view to attracting more private investment in agriculture. This assumes added importance in areas where the levels of agricultural production continue to be considerably lower than the potential.

Approach to agricultural reforms

25It is in the context of strengthening the incentive framework for agriculture that the stipulated agenda for agricultural reforms needs a careful analysis. It may be mentioned that after the launch of economic reforms programme in India in 1991 and India becoming a signatory to the new world trade arrangement, the agricultural sector policies have been subjected to a rigorous review. Though the programme of economic reforms did not initially cover agriculture, it was recognised that the economic reforms may not succeed in their objective of broad based growth in incomes and productive employment without sustained development of this sector. The reforms package for Indian agriculture suggested by pro-liberalisers is based on the diagnosis that while the sector remained net unprotected, the subsidies arising out of inappropriate pricing of inputs and outputs led to inefficient resource use, eroded the capacity of the government to finance public investment in agriculture and benefited only the producers of few crops, and that too in some regions. The suggested agenda for the agricultural sector, therefore, revolved on setting the prices right and included withdrawal of subsidies on farm inputs, liberalization of trade in agricultural commodities, abolition of food management system and its attendant costs and targeting of Public Distribution System (PDS) to only the poor. The essence of the package was that the subsidies on farm inputs and food be phased out and adjustment in agricultural prices be made for arresting the deterioration in the terms of trade for the agricultural sector. Owing to the serious implications of these reforms for food security, a cautious and gradual approach to reforms has been preferred.

Withdrawal of input subsidies

26The basis on which the reduction/withdrawal of input subsidies is being suggested in certain quarters are as follows:

  1. The bulk of benefits of these subsidies have gone to the farmers of irrigated areas with serious implications for inter-regional and inter-farm disparities in development.

  2. Farm input subsidies have placed an unsustainable burden on central and state government finances which have severely limited the public sector’s capacity for financing investment in agriculture and irrigation.

  3. The subsidies led to adverse environmental effects. Over-irrigation by farmers led to water logging and salinity in certain areas. Similarly, under-pricing of electricity has led to over-drafts and depletion of ground water in some areas.

  • 5 For more details see Acharya (1997b).

27Each of these arguments for withdrawal of subsidies needs careful scrutiny. It may be recalled that the input subsidies enabled the country to keep the prices of foodgrains low and yet provided reasonable return to the farmers to motivate them to adopt new technology and increase production. The low foodgrain prices not only increased the economic access to food but also enabled the industry and the governments to keep the wage bills low. Marginal and small farmers, with very low or negligible marketed surplus, account for 40 percent of the area irrigated by canals and 39 percent of that by tubewells. These farmers account for 42 percent of electrified wells and 35 percent of tube-wells with electric pump-sets. As regards fertilizers, nearly 40 percent of the unirrigated lands also receive fertilizer application. Thus the benefits of input subsidies have been shared by all the sections of the society. The implications of raising the prices of critical inputs for agricultural growth, incomes of small and marginal farmers and food security of the masses are quite serious5.

28As regards the burden of subsidies on finances of the government, agricultural subsidies need to be considered along with the subsidies and revenues foregone in other sectors of the economy. Both official and unofficial estimates of the subsidies in the non-farm sector put these at many times more than the farm input subsidies. Moreover, the subsidies on power for agriculture and canal irrigation are over-estimates and all of the so-called subsidies in agriculture are not the subsidies to the farm sector. There is a need for more analytical scrutiny of subsidies including revenues foregone in the non-farm sector as the pains of their withdrawal may be much less.

29As far as environmental impact of subsidies is concerned, it needs to be recognised that over-irrigation by farmers from canals and withdrawal of groundwater in excess of recharge depend on several other factors. In some cases, it is the uncertainty of availability of canal water in the second round and in others, it is the shortage of labour compelling the farmers to do early sowing of paddy requiring more water for irrigation in summer months. There are several approaches including farmers’education to address these problems. Raising input prices or user charges is not the panacea to solve all these problems.

Unilateral liberalization of trade

30The trade in agricultural commodities has been considerably liberalized and duties on imports brought down. For example: (i) basmati rice is freely allowed for export without MEP (minimum export price), (ii) ceiling on exports of other cereals have been raised, (iii) even pulses, edible oils and oilseeds are allowed for export, (iv) exports of fresh fruits and vegetables and processed and packaged foods including livestock products are being encouraged, (v) imports of pulses, edible oils and some oilseeds are allowed under OGL (open general license), (vi) import duties on pulses and edible oils have been brought down to levels as low as 5 percent and 15 percent respectively. The changes in trade policy for agriculture already effected, represent a fundamental departure from the past regime. The impact of liberalized trade on the food security of small and marginal farmers and farm families of dryland and rainfed regions needs to be carefully considered.

31The world market price structure continues to be distorted. The recent experience with raw cotton, edible oils, pulses and wheat show that the freeing of trade or increased linkage with the world market has increased price instability in the domestic market. One important factor leading to price instability is that the demand-supply for most of these commodities is very delicately balanced in the domestic market and the Indian domestic market is quite a significant part of the world market. Recognising that the small country assumption does not hold good for India, the move towards liberal trade regime should be accompanied by safeguards like appropriate levels of tariffs in the interest of both domestic consumers and producers. The tariff regime which is now in place is very different to the commitment made by India while signing the new trade agreement.

32There is considerable evidence to show that the opening up of the trade in agricultural commodities would raise the prices of staple cereals like rice and wheat. Unrestricted trade in staple cereals has serious implications for economic access of masses to food and poverty levels. The prices of staple cereals cannot be detached from the average income level of masses. For household food security, it may require larger outgo on food subsidy. Further, this has serious implications for the diversification of land use pattern from food to non-food crops. In the past, this was facilitated by a regime of declining prices of staple cereals in real terms. For several reasons, the diversification has to be encouraged. The marginal and small farmers would continue to be unviable unless they switch over to higher value crops and could buy the needed cereals at reasonable prices. While in some areas, it is the resource use efficiency consideration, in others, it is the demand for labour which calls for diversification. An increase in the prices of staple cereals would reverse the ongoing process of diversification, which could be quite serious for food and nutrition security of the masses in different regions.

Price support

33For sustained growth of agricultural and food production, greater attention in future would need to be given to hitherto left out regions like Bihar, Orissa, West Bengal, Eastern Uttar Pradesh and parts of Assam, Madhya Pradesh and Rajasthan where the gap between potential and existing yields are quite considerable. For inducing the farmers in these regions, apart from stepping up of the efforts to transfer modem inputs and increasing the availability of credit, adequate investment in yield-raising infrastructure would need to be encouraged. An important inducement in this connection would be to strengthen the marketing infrastructure and effective implementation of the price support policy. As price support policy would need to be in place even in a liberalized environment in all the areas of the country, an agency would be needed to undertake price support purchases as also to maintain foodgrain buffer stocks and undertake public distribution of foodgrains at least for the vulnerable sections of the society.

Food management system

34So long as a policy of minimum support price is pursued, an agency is needed to implement the policy. The agency is expected to intervene in the market and purchase all the quantities offered at the minimum support price. In the case of cereals, the FCI is performing this role since its inception in 1965. But a case for abolition of this agency is being made in certain quarters on the basis of the high cost of its operations and consequent increase in the food subsidy. The total food subsidy reimbursed by the government to the FCI in a year includes the subsidy on sugar, preceding years arrears and carrying cost of the stocks from one year to the other. Further, as the quantity handled by the FCI varies from year to year, the figures of budgeted subsidy needs to be interpreted with care. For an objective assessment of the cost incurred by the FCI vis-à-vis the private trade in handling of the foodgrains what is relevant is the cost of procurement and distribution of a unit of grains.

35The latest estimates of procurement incidentals and distribution costs incurred by FCI for wheat pertain to the year 1994-95 (Table 7). Out of the total procurement incidentals of Rs.75.78 per quintal, mandi charges, purchase/sales tax and gunny cost, taken together, a component over which the FCI has no control, account for as much as 67 percent. In the total cost of distribution, interest and freight, a component which depends on the rate at which credit and transport facility is made available to it by the financial institutions and the railways as also the average distance the grains are transported, account for as much as 69 percent. During 1994-95, FCI incurred an expenditure of Rs. 181.29 per quintal on procurement and distribution of wheat. Out of this, 71.6 percent was on items over which the Corporation has no control whatsoever. The implication is that private trade would also have to incur an expenditure of this magnitude if it operates in the formal marketing channel, carries grains to the distance equivalent to the average lead of FCI, and concessional transport, as provided to the FCI, is also made available to it. Even the shortages during storage and transit are not unduly high. Considering both wheat and rice together, the losses or shortages during storage and transit are estimated at 0.98 percent during 1994-95. It is doubtful whether the losses in the private channel could be lower than this. Keeping aside the ideological arguments against a public sector organization, the only basis of criticism of FCI’s cost could be the establishment charges and administrative overheads which aggregate to Rs. 14.99 per quintal accounting for 2.8 percent of the economic cost of wheat. But even these are considerably lower than the net margins of the private trade (DMI, 1985; Acharya, 1985). Studies have shown that the wholesale prices of rice and wheat in the urban centers have not been lower than the economic cost of cereals handled by the FCI (Jharwal, 1994).

  • 6 This paragraph has been taken from my earlier paper (Acharya 1997a).

36A related aspect is the carrying cost of grains, i.e., the cost incurred by the FCI in carrying the inventory of grains from one year to the other. The carrying cost of FCI during 1993-94 and 1994-95 was around 29 percent of the economic cost at the godown (Table 8). The most important item of carrying cost is interest charges, which work out to around 56 percent of the total carrying cost In the absence of public agency, private trade is expected to carry the inventory from a year of bumper harvest to a lean production year and it would undertake this operation if a return at least equivalent to the carrying cost is anticipated. Considering the interest and other costs, it has been shown (Tyagi, 1990) that private trade would undertake this operation only when it would be assured of a return of more than 35 percent. Even if the difference in the rate of interest, at which the credit is available to the FCI and that to private trade, is taken into account, the carrying cost incurred by the FCI cannot be considered to be higher than that of the private trade. These observations are not to suggest that there is no scope for improvement in the efficiency of the food management system but only to emphasise that food subsidy is not the subsidy to the FCI6.






(A) Procurement incidentals

(a) Obligatory charges

Mandi Charges



Purchase/Sales Tax



Gunny cost



Sub-total (a)



(b) Handling charges

Mandi Labour



Internal movement



Forwarding charges



Sub-total (b)



(c) Storage & interest

Storage shortage



Interest charges



Sub-total (c)



(d) Others










Sub-total (d)



Total (A)

(B) Distribution Cost



Handling expenses



Storage charges



Interest charges



Freight charges



Adm. overheads



Storage shortage



Transit shortage



Total (B)



Source: Acharya (1997a)







Minimum Support Price





Procurement incidentals




Economic cost in godown (a+b)





Carrying cost

Handling expenses




Storage charges




interest charges








Adm. overheads




Transit shortages




Storage shortages




Total (c)







Source: Food Corporation of India. Quoted in Acharya (1997a)
Note: Figures in parentheses are percentages of economic cost in godown.

Market structure, costs and margins

37Another important issue relates to the nature of structure, conduct and performance of the food markets. Several characteristics of market structure for foodgrains needs to be noted. First, contrary to general belief, the structure of markets for foodgrains and other food products is dominated by the private sector. Out of the total marketed surplus of agricultural commodities, the quantity handled by the private sector is as much as 83 percent. The cooperatives handle nine percent and public agencies handle only eight percent of the total marketed surplus (Acharya, 1994). In the case of cereals also, the quantity handled by public agencies is considerably less than that by the private sector. During triennum ending (TE) 1984-85, nearly 32.4 percent of the marketed surplus of rice and wheat was procured by the public agencies. It decreased to 27.5 percent during TE 1996-97. The marketed surplus of rice and wheat increased from 54.1 million tonnes during TE 1984-85 to 80.5 million tonnes during TE 1996-97, whereas the procurement by public agencies increased by only 4.6 million tonnes during this period. Thus increasing share of the marketed surplus is now being handled by the private trade (Table 9). Second, with the increase in production coupled with the changes in cropping patterns according to the comparative advantage of various regions, not only the marketed surplus increased at a rapid rate but the demand for various marketing services has also expanded. For example, the average distance to which food products now move is much larger than ever before. As a consequence, the price spread, i.e., the difference between the price paid by the consumers and that received by the farmers has tended to increase. Third, the trade in food products is dominated by the unorganised sector. The retail trade in foodgrains is handled by around five million retailers, 90 percent of them being family-owned micro-business units. Though these units provide livelihoods to a large section of the population, the losses in handling of products are considerably large. In the existing system of marketing of food products, the handling losses have been estimated at Rs.50,000 crores annually. Fourth, the processors constitute an important segment of the market structure for many food commodities as these enter the market as bulk buyers and sellers. A common feature of many food products is the dominance of the private unorganised processing segment. Fifth, with the increasing urbanization and rise in average income levels, the processing segment of food market is growing rapidly and projected to increase by 200 percent by the year 2005 with a very high investment potential. Finally, though the market for food products is so far dominated by the unorganised sector, the share of organised-corporate sector is increasing and, as has happened in other countries, is bound to go up further. This will happen because the large scale food marketing chains are able to reduce the cost of marketing owing to both the economies of scale and deployment of improved technology for handling the products. However, this may not automatically increase the farmer’s share in the consumers rupee and economic access of masses to food. Therefore, the challenge today is to find the options which while reducing the marketing costs, also increase the real incomes of the growers. This can happen if the farmer-controlled, professionally-managed trade and business enterprises are able to capture a greater share of the market for food products.



TE 1984-85

TE 1996-97

Marketed Surplus




















38Given the dominance of the private sector in food markets, the prices received by the farmers for their surpluses depend on inter alia the capacity of the consumers to pay and the size of gross marketing margins. The gross marketing margin is the sum total of three parts viz: (a) the cost of performing the needed marketing functions like handling, storage, transportation, processing, packing, and risk-bearing, (b) the statutory charges payable at different stages of marketing like mandi fees, purchase/sales tax and other ceases, (c) net margins retained by the intermediaries. While the size of the first component is determined by the kind of technology deployed in performing various marketing functions, the statutory charges are beyond the control of market intermediaries. The third component of the gross marketing margins i.e., the net margins of intermediaries depends on several factors including the nature of market structure and market conduct.

39The framework within which food markets in India function can be divided into six components. The first is the regulatory framework which consists of two distinct sets of measures viz: the development and regulation of primary markets, popularly called “Market Regulation Programme” and regulation of market conduct through a series of legal instruments like the Essential Commodities Act, Agricultural Produce (Grading and Marking) Act and several orders promulgated from time to time in this regard. The second component relates to the creation of physical and institutional infrastructure which not only affects the size and structure but also the conduct and performance of the market. The third set of instruments consists of fixation and announcement of administered prices and making arrangements for their implementation. The fourth set of measures consists of direct entry of public agencies in the market with a view to influencing its structure, conduct and performance. The fifth set of instruments relates to the policy of imports and exports of agricultural and related commodities. Finally, fiscal and monetary policies exert considerable influence on the performance of food markets. The prices of diesel and rail freight fixed by the government affect the cost of transportation of food products. In addition, the taxes imposed by the government affect the cost of performing various marketing functions. For example, the mandi fee, purchase/sales tax, rural development cess and other taxes become important components of marketing cost. The rates of such levies have positive effects on the returns to evasion of formal marketing channels. As the public or cooperative agencies are not able to evade these, the comparison of cost of marketing or selling price in the alternative channels becomes distorted. Further, with the increase in evasion, even the statistics on quantities of various commodities marketed by the farmers becomes unreliable.

Some implications of new international trade agreement for food security

40There are six main provisions of international trade agreements under the World Trade Organization which relate to agriculture. Out of these, the provisions which have an impact on food security are related to (a) market access commitment, (b) aggregate measure of support, (c) level of export subsidies, (d) sanitary and phyto-sanitary measures, (e) trade related intellectual property rights (TRIPs).

Market access commitment

41As per market access commitment:

  1. all non-tariff barriers (like quantitative restrictions) are to be converted into tariffs and after tariffication, these are to be reduced by 36 percent by developed countries within six years and 24 percent by developing countries within 10 years. The least developed countries and those with adverse balance of payments (BOP) position are exempted from these provisions

  2. each country would allow a minimum access of 3 percent of their domestic consumption to the foreign exporters and increase it to 5 percent in the stipulated period

  3. if imports in a country surge due to unfair trade practices, additional anti-dumping duty can be imposed.

42India was considered as out of the purview of this provision owing to the adverse BOP situation, but with the situation of BOP turning to be favourable, the exemption may not be applicable to India. However, allowing imports into a country does not mean compulsory imports. It is the level of relative prices in the domestic and the international market which would determine the level of actual imports into the country. In the case of oilseeds and pulses, the trade regime is already open and tariff levels have been brought down substantially. For other food commodities, the protection is not positive. This provision, therefore, does not pose any great challenge. However, there is one contentious issue which needs to be resolved. This pertains to 3 percent access to domestic consumption. In pre-dominantly agricultural countries like India, a substantial part of the domestic production is retained by the farmers for self consumption. In the case of cereals, it is more than 50 percent. By implication only half of the produce is marketed. Contrarily, in developed countries, almost the entire produce is marketed and a substantial part is internationally traded. In such countries, the domestic consumption is a small proportion of total output. For the same level of output, the binding of 3 percent market access means substantially different quantities because the minimum level has been linked to the domestic consumption rather than the marketed quantity. This issue needs to be taken up for discussion in the WTO.

43Some other provisions related to the food and foodstuff security pertain to the food management system. In this connection, the provision of foodstuffs at subsidized prices is allowed with the objective of meeting food requirements of the poor. However, the purchases must be made at current market prices. Further, the public stocks of foodgrains for food and foodstuff security should correspond to pre-determined targets. The present food management system in India meets all these requirements excepting that the PDS caters to all the ration-card holders. What is required to meet the obligations of this provision is to target the PDS to only the poor. In fact, during the last decade, several initiatives were taken by the governments of all political parties who came to power at the center or the states, to modify and revamp the PDS to target it to the poor families.

Aggregate measure of support (AMS)

  • 7 It has been separately argued that input subsidies in the context of Indian agriculture should be t (...)

44The support to agriculture provided by various governments varies across countries. The developed countries support their agricultural sector substantially. Under the provisions of WTO, the aggregate support to the farmers is to be reduced if it exceeds 5 percent for developed countries. However, in the case of developing countries, the exemption limit is 10 percent. Resource poor and low-income farmers are exempted from reduction commitment. As far as India is concerned, the AMS during the reference period was not only less than the cut off point of 10 percent but even negative. In fact, India can and should raise the level of aggregate support to its agricultural sector for improved food security7.

45This provision would affect the developing countries in one other form also. The agreement stipulates that the developed countries would reduce the level of subsidies to their producers and if this happens, the level of prices in the world market is likely to go up. The rise in the prices of staple cereals may favour cereal exporting countries, but importing countries would lose.

Level of export subsidies

46It is well known that the developed countries provide huge export subsidies, which distort the world market. Under this clause, signatory countries have an obligation to reduce these subsidies both on value and quantity basis. On value basis, the developed countries are required to reduce the subsidies by 36 percent in six years and developing countries by 24 percent in ten years. In India, there is no explicit export subsidy on food articles. But India has to be careful as its competitors may adversely affect its exports by continuing or granting export subsidies to their producers.

Sanitary and phyto-sanitary measures

47These measures are aimed at enforcing the health safety regulations on traded goods. Every exporter is required to abide by the international quality standards. If importing countries feel that the imported goods are harmful to human, animal or plant health, they can invoke these provisions to refuse imports from a particular country.

48These measures are critically important for India which is trying to increase its share in the international trade. The chemical residues in several exportable items have been reported to be substantially higher than the prescribed standards. Exports of sesame were often affected by excessive chemical residues. Exports of HPS groundnut have been suffering due to the problem of aflatoxin. Even in the case of Indian rice and wheat such difficulties were encountered in the past. It has now become important that both exporters and government initiate action for establishing mechanisms to maintain necessary quality standards because these provisions, if not strictly adhered to, could become a serious constraint in increasing exports.

  • 8 For implications of liberalization of trade in agricultural commodities, see Nayyar and Sen (1994); (...)

49Assessment of the implications of liberalized international trade for food security depends inter alia on the response of various countries in terms of implementation of provisions of trade agreement and on the relative changes in the level of food prices in the world market and different economies. Several scholars and organizations have analysed and projected the impact of new trade agreement8. The general consensus is that (a) the actual changes and the commodities which are going to be affected more would be known only at the end of the implementation period (FAO, 1994) (b) as developed countries reduce subsidies on agriculture, food prices in the world market would go up (Gulati and Sharma, 1994 (c) though the new agreement will result in expansion in total trade and would add substantially to the world economy, food importing countries would suffer a net trade loss. One other important aspect on which there is general consensus is that despite signing of the new trade agreement, the trade in agricultural commodities would continue to be restricted due to several reasons. Some of these are: (i) the international market for agricultural commodities is residual in nature and is a small proportion of total production. The world trade as proportion of total output is 4 percent in rice, 6 percent in groundnut and coconut kernel (copra), 10 percent in sugar, 20 percent in wheat and 22 percent in soybean (ii) each country tends to protect the interests of its agricultural producers (iii) the trade in foodgrains has been traditionally controlled by a few multi-national corporations which even now have considerable dominance in the world trade in foodgrains.

50Although recent changes in trade policy for farm products in India represent a fundamental departure from the erstwhile policy regime for agriculture, yet a policy of complete free trade in farm products has not been adopted. Given that India accounts for a significant share of world output and that a relatively small proportion of world output enters into world trade for most agricultural commodities, a large participation by India in world trade is bound to worsen its terms of trade. Realization from its exports may decline and prices of imports increase. Further, free trade would accentuate regional inequalities. The trade policy for farm products would have to be selective and flexible. In this context, it would be important to keep in view that even from the point of view of global food security, the situation in India along with China is of particular interest because policy decisions made, or not made, in these countries affect not only their large populations but also the rest of the world.

Global food security and food prices9

  • 9 For a comprehensive commentary on emerging world food situation, see Anderson et al. (1997).

51For assessing the prospects of global food security over the next quarter century, the following developments need to be noted:

  1. Dietary patterns are rapidly changing in many countries in response to income increases, urbanization, changing preferences and government policy

  2. Rapid urbanization in low income developing countries is placing increasing stress on food marketing and processing systems

  3. Growing scarcity and improper allocation of water, as well as declining soil fertility in many regions of the world, are beginning to constrain food production. Farm yields in parts of Asia are approaching economically optimum levels and yield growth rates are slowing

  4. The policy induced slow-down in grain production and draw-down of cereal stocks in North America and Western Europe, combined with greater variability in agricultural production caused by weather changes, are likely to cause greater food price swings in the future

  5. Future food production in Eastern Europe and the former Soviet Union remains uncertain and sub-Saharan Africa faces a precarious food security situation

  6. Widespread conflicts and instability are further adding to food insecurity in a number of countries.

52These developments suggest potentially larger fluctuations in food production and prices and higher associated risks of food insecurity for the world’s most vulnerable countries and the people (IFPRI, 1997).

53As regards the prices of food in the world market, there are three aspects which need attention. One is the trend in world prices of foodgrains. Though there has been a sharp increase in prices of cereals during 1995-96, it ought to be considered as only a short-term phenomenon. In this connection, the IFPRI (1997) has projected a declining long-term trend for cereal prices, although at slower rates than in the past. According to these projections, until 2010, real prices of wheat will decrease only slightly, maize prices are expected to stagnate and rice prices are projected to increase. But after 2010, cereal prices in general would drop by 11 percent. The second important aspect of prices which has attracted attention is the instability in prices of cereals. The concerns are growing that cereal prices in future may be more volatile than in the past. This is because reduced stocks and uncertainties associated with developments in China and the former Soviet Union could increase price instability. These have serious implications for food insecure people the world over. In addition to price fluctuations in the international market, many low-income food insecure developing countries suffer from large domestic price fluctuations owing to inadequate markets, poor roads and other infrastructure, and inappropriate policies and institutions. In these countries, even small changes in food production resulting from better or poor growing conditions cause large fluctuations in food prices.

  • 10 Quoted in Anderson et al. (1997).

54FAO has also made projections about trade and food security situation during the next two decades10. Some significant points emerging from these are as follows:

  1. The number of food insecure people in the world will decline from 840 million in 1990-92 to 680 million (12 percent of total) by 2010. However, the regional differences are quite conspicuous. The decline in food insecurity will be rapid in East Asia and to a lesser extent in South Asia and Latin America. In Sub-Saharan Africa and West Asia, the food insecurity will increase. By 2010, food insecure people will be 33 percent of total population in Sub-Saharan Africa, 12 percent in South Asia and 20 percent in West Asia

  2. World wide the per capita availability of food per day will increase by 7 percent from 2700 calories in 1993 to 2900 calories by 2020

  3. The gap between food demand and production would increase in several areas, particularly in developing countries

  4. The trade in wheat would go up from 60 million tonnes in 1993 to 140 million tonnes by 2020. Similarly in maize, the trade would increase from 20 million tonnes to 55 million tonnes and of other cereals from 10 to 20 million tonnes

  5. The imports of cereals, mostly of wheat and also of maize, would almost double in developing countries by 2020. The USA and Australia will capture a large share of export demand.

Concluding observations

55A brief review presented in earlier sections provides quite a few lessons to learn for reducing food insecurity. Food security must look at hunger, poverty and malnutrition as an integral whole. These cause environmental degradation and lie at the root of conflict in many societies. As these conflicts become a major cause of food insecurity, abundance of food and its wide sharing are considered as primary conditions of a civilised society. It is in this context that every national government ought to do all it can to improve food security for its people. For achieving national and household food security, attention to all the three dimensions, viz: food availability, food access and food utilization is necessary. In this context, the long term solution to the problem of food security lies in evolving a development strategy which includes, apart from sustained increases in food and food stuffs production, growth in employment and incomes of the masses and improving their access to education, clean water, sanitation and primary health care. At the national level, food self-sufficiency is neither a necessary nor a sufficient condition for food security. However, self-sufficiency is being considered a part of the national security system.

56With a view to reducing food insecurity, India in the mid-sixties launched a new strategy of agricultural development. This helped the country in several ways:

  1. the production of cereals increased at a rapid rate

  2. the dependence on imports of cereals to meet domestic food needs went down considerably

  3. the growth of production of cereals was generally above the growth of population

  4. the inter-year instability in the availability of foodgrains went down

  5. the physical access of masses to food in various regions increased

  6. economic access of masses to food went up

  7. availability of other food stuffs considerably increased

  8. the average per capita calorie intake has come closer to the accepted norm, food intake of even the poorest sections has improved, the average life expectancy has gone up and IMR has decreased. However, in quite a few areas success could not be achieved. The increase in the output of pulses could not keep pace with the growth of demand. In 1993-94, nearly 51.2 million people did not get two square meals a day. The IMR, number of mal-nourished children and MMR are still very high.

57The emerging scenario for India suggests that for improved food security, there is a need for accelerating the growth of production of foodgrains, other foodstuffs and agricultural commodities. This would inter alia require upgradation of technologies in both irrigated and unirrigated areas and a step up of investment in agriculture. In this connection, special attention needs to be given to hitherto left out regions where the gap between potential and existing yields is quite large. However, this requires further strengthening of the incentive framework for agriculture. It is in this context that a gradual and cautious approach to withdrawal of input subsidies and liberalization of trade in agricultural commodities is necessary.

58The emerging scenario of global food security suggests that until 2010, food prices would rise and fluctuate more. The trade in foodgrains would increase but a larger share will be captured by USA and Australia. Participation of India in world trade for food products may worsen its terms of trade. Considering this and keeping in view the size of Indian population and consequently the food demand for reducing food insecurity in India:

  1. self-sufficiency in cereals should continue to be the strategic objective from the point of view of efficiency, equity and national security

  2. the policy of minimum guaranteed prices for foodgrains needs to be continued and effectively implemented in hitherto left out regions also

  3. a mix of input and food subsidies should remain an integral part of strategy for assured food security

  4. a policy of buffer stocking and public distribution of cereals must continue for stabilising prices

  5. an agency like the FCI needs to be retained for providing price support to the farmers and for reaching the grains to the remotest areas

  6. the production of oilseeds and pulses be encouraged by improving the incentive framework for the growers of these crops

  7. the trade policy for cereals, pulses, oilseeds/edible oils and sugar be dovetailed with domestic price policy

  8. one to two million tonnes of rice and wheat be allowed for export on a regular basis

  9. marketing infrastructure need to be strengthened

  10. farmers’groups and organizations be promoted to increasingly take up a larger share of trade in foodgrains and other food products

  11. with a view to improving the efficiency of the functioning of domestic market for food articles, domestic marketing system for food items must be liberalized.

59These apart, attention to primary health and primary education along with the creation of opportunities for employment and augmentation of incomes would need to be given for improving food and nutrition security. The women could play an important role in reducing food insecurity.



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1 For a detailed summary of evolution of Agricultural Price Policy in India, see Acharya & Agarwal (1994).

2 In the context of assessing self-sufficiency over a longer period, net production plus net imports is a better indicator than the concept of net availability which also includes changes in government stocks.

3 Taken from World Bank (1995).

4 For example, see Bhalla, 1994; Bhalla, 1995; Kumar and Mathur, 1996; Rosegrant et al., 1995.

5 For more details see Acharya (1997b).

6 This paragraph has been taken from my earlier paper (Acharya 1997a).

7 It has been separately argued that input subsidies in the context of Indian agriculture should be treated as investment in food security (Acharya, 1997b).

8 For implications of liberalization of trade in agricultural commodities, see Nayyar and Sen (1994); FAO (1994); Bhalla (1995); Ramesh Chand (1997); and Acharya (1997a).

9 For a comprehensive commentary on emerging world food situation, see Anderson et al. (1997).

10 Quoted in Anderson et al. (1997).


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