India takes blow to the breadbasket

Debate on dumping primary food subsidies flares as security becomes a great concern

India can no longer feed itself. The world's second-most populous nation is set to import large amounts of sugar, pulses and edible oils again this year, adding strength to warnings from experts that India will become a net importer of food within five years.

"Not only have we worsened our nutritional and public health standards over the last decade, we have also moved into a food-deficit territory over the last five years," S Narayan, a former finance secretary and economic adviser to the Indian government, said recently. "We are unable to deliver food to below poverty line families." Indian food security remains an urgent issue even though prices have settled since the commodity market turmoil of 2007-2008.

Sudden demand for biofuels sent cereal prices rising rapidly two years ago, prompting a series of export bans in many producing nations, including India. The Indian export ban on wheat, rice and sugar exports remains in place and although global prices for wheat, rice, pulses, sugar and oils have since settled, they remain well above 2006 levels. Indian food inflation also remains stubbornly high, up an annual 16.7 per cent in the week that ended on May 29. The global commodity scramble has aggravated the effects of last year's drought, which was the worst since 1972.

Retail prices for staples such as pulses and potatoes have doubled in less than a year, creating significant hardship for the common man and a big political headache for the ruling Congress party. India imports 45 per cent of its edible oils and is expected to import at least 1 million tonnes of raw sugar this year. Long-term self-sufficiency in wheat and rice is also in question, with India accounting last year for an estimated 25 per cent of the global wheat market.

Underlying trends suggest the problem will not be addressed easily. India's agriculture yields have been dropping for more than a decade, even though the population continues to grow at an annual rate of 1.7 per cent. The Indian per capita availability of cereals declined 11 per cent in the 10 years to 2005, says Professor HS Shergill, of the Institute for Development and Communication in Chandigargh, Punjab.

"It is a necessity that everywhere we invent new seeds that can double yield," Prof Shergill says. "This is needed everywhere but it's not likely to happen very soon." International commodity traders such as Cargill, Noble and Louis Dreyfuss are setting up shop in Mumbai, preparing to cash in on this anticipated challenge to Indian food security. Goldman Sachs, Fidelity International and NYSE Euronext have bought stakes in Indian commodities exchanges.

Inside India, calls are growing louder for a second Green Revolution, harking back to the committed agriculture reform that staved off famine in the 1970s. "Such a revolution is nowhere in sight," says MS Swaminathan, a politician and an architect of the first reform movement. Major seed and irrigation improvements in the late 1960s secured India's food supply for nearly 30 years, Mr Swaminathan says.

Farmers levelled Punjab and Haryana, turning them into the breadbaskets for the nation, but India's population is now 1.2 billion and still expanding. The country also has fresh challenges from climate change, demand for biofuels, crop failures from blight and urban land encroachment. Prof Shergill says 60 per cent of India's arable land remains dependent on rain, turning the annual harvest into a "monsoon gamble".

Economists have joined environmentalists and poverty activists in demanding change. "It is absolutely essential that we have a second Green Revolution," says Madan Sabanis, the chief economist at Care Ratings in Mumbai. "We have far too much dependence upon the monsoon and they are getting more and more erratic." India is on track for a normal monsoon this year and government warehouses for rice and wheat are overflowing, reflecting a recovery from the 2008 market turmoil. Many wheat and rice growers in the Punjab have switched to sugar this year, which remains scarce.

But instead of using reform to create food independence and free the country from global market fluctuations, India has so far relied on import duties, export restrictions and bans, and food subsidies. Delhi continues to close off its domestic markets from foreign disturbance, paying above global rates to its own farmers and buying whatever they wish to sell while guaranteeing minimum food quantities to families living below the poverty line.

A food security act before parliament is expected to entrench these minimums. Economists complain that India is spending 6 per cent of GDP on subsidies that distort pricing and prohibit market discipline on a national balance sheet with a huge fiscal deficit. "I am all for the removal of subsidies on primary agricultural products," says Shanto Ghosh, a principal economist at Deloitte. But others say these food subsidies are essential. Nearly two thirds of the country's population lives in the rural areas and often cannot gain access to their basic food entitlements because of an inefficient public distribution system.

"The minimum support price exists for families to provide food security," says Surabhi Mittal, a senior fellow at the Indian Council for Research on International Economic Relations. A report from the International Food Policy Research Institute suggests that while bans and subsidies did not cause the 2008 crisis, they may have made matters worse. Some are demanding the formation of a rice cartel similar to OPEC but few expect market controls to solve this problem.

Prof Shergill says deep agricultural reforms are necessary with output in Punjab and Haryana increasing at least 2.2 per cent a year, while yields stagnate or decline in the rest of the country. He blames a lack of basic mechanisation and land consolidation. Major public support will be necessary to force through the necessary reforms, says Mr Swaminathan. But generating this support could prove difficult in a modernising nation where agriculture accounts for only 16 per cent of GDP, down from 55 per cent 30 years ago. India's population is also young, with two thirds aged under 40, and has its eyes firmly set on the city, not the village.

Human indicators put the problem into stark relief: while India is climbing steady up the UN's Human Development Index, nearly half of the country's children under five are still underweight and the percentage of underweight women is greater in south Asia than in sub-Saharan Africa. "Let us focus the next five years on agriculture, not the stock markets or mergers and acquisitions," says Mr Narayan.