Agriculture Reference
In-Depth Information
Evidence of special interest groups' influence on food logistics agencies
has also surfaced frequently. For instance, many recent reports indicate that the
politicians and farmers in the surplus states heavily influence the minimum sup-
port prices in India (Dev et al. 2004). The inherent interests are simple: higher
support prices mean more secured markets for farmers, larger procurement for
the parastatals, and higher tax revenues for the politicians in the surplus states.
Guaranteed markets make farmers happy, especially the larger ones, and the
happier the farmers, the greater are the chances for politicians to get re-elected,
at least in surplus states.
A simple comparison of price series and land-allocation data will better il-
lustrate how support prices have been influenced. Between 1996/97 and
2000/01, the government's support prices for wheat and rice in India grew about
25 and 10 percent faster than their respective wholesale prices, and the farmers
in the surplus states responded to these increases by allocating more land to rice
and wheat during the same period. For example, although area under rice in-
creased by about 4 percent at the national level, it increased by 27 percent in
Haryana, 21 percent in Punjab, and about 15 percent in Andhra Pradesh during
1995/96-2000/01. In the case of wheat, land allocation has increased by about
10 percent at the national level, 26 percent in the state of Andhra Pradesh, 17
percent in Haryana, 16 percent in Madhya Pradesh, 50 percent in Maharashtra,
and 5 percent each in the states of Punjab and Uttar Pradesh.
23
This behavior
clearly defies the very notion of floor prices, distorts the incentive structure in
agriculture, and in fact slows down the natural process of diversification away
from cereals to high-value agriculture.
Similar stories are also common in other countries. In the Philippines,
NFA has used its monopoly power to import food grain, even when the coun-
try had enough stock to meet its food security. Special interest groups succeeded
in reversing liberalization policies, such as re-instituting monopoly control over
international trade in both Indonesia and Pakistan and reviving movement re-
striction in Pakistan.
Experiences of Reduced Intervention and Liberalization
The experiences of trade liberalization, carried out under structural adjustment
programs, also support the contention that reduced intervention can contribute
to efficiency gains and market development. Countries in Asia that have pur-
sued this route (especially Bangladesh) have been able to allocate more re-
sources to development and antipoverty projects, increase competition in do-
mestic markets, maintain price stability, and enhance overall social welfare. In
Bangladesh, the share of public food in antipoverty and development programs
has increased from as low as 32 percent during the pre-reform period (1971/72-
23. The price figures are from a high-level committee report (GOI 2003); land allocation fig-
ures are authors' calculations based on GOI (2001).
