India has entered a regime of “permanent surpluses” in most crops and facing a great depression…

Reading Harish Damodaran is a must to get some idea on Indian agriculture.

In this piece, he writes on how there is a surplus in most crops in India. The policymakers continue to think we live in age of shortage leading to familiar responses of quotas and restrictions. What we need is a change in thinking as we are possibly facing a great depression in Indian agriculture:

In short, the farm supply curve has been flattened, both by better seed technology and improved roads, electricity, irrigation and communication infrastructure. Farmers are also more aware about prices and the latest hybrids/varieties, crop protection chemicals, machinery and agronomic practices — from laser levelling and raised-bed planting to seed treatment — than, say, 20 years ago. As a result, they take far less time to respond to high prices.

The flip side of a more elastic supply curve, however, is that it makes gluts commonplace and shortages temporary. We have, indeed, entered a regime of “permanent surpluses” in most crops — a reality our policymakers are unable to grasp, stuck as they are in the era of the Essential Commodities Act.

The moment prices now go up, the immediate reaction is to impose stock-holding limits, allow duty-free imports, restrict exports and inter-state movement of produce, and even let loose income tax sleuths on alleged hoarders. These so-called supply-side management measures have acquired legitimacy with the policy of “inflation targeting”, whose success — given the 45.86 per cent weight of food items in the consumer price index — rests disproportionately on reining in farm produce prices. And adding the impact of demonetisation on the predominantly cash-based produce trade — the liquidity crunch in rural areas is far from over — the Great Depression moment in Indian agriculture has truly arrived.

There is practically no agri-commodity today that isn’t a victim of “permanent surpluses”. Two years ago, garlic fetched an average Rs 60 per kg rate in Rajasthan’s Kota mandi. Enthused by it, farmers in the Hadoti region planted more area, only to see prices halve last May, thanks to demonetisation. This May, rates at Kota further halved to Rs 14/kg.

In July 1932, an Iowa farmer named Elmer Powers wrote about hog prices collapsing to a third of their levels five years ago — how it had reduced him to “resharpening old razor blades” and using “any kind of soap instead of shaving cream”. That was at the height of the Depression. Then, too, US farmers dumped truckloads of milk and cream on roads. It led to the Roosevelt administration passing the Agricultural Adjustment Act, whose chief goal was “restoring farm purchasing power”.

The time has probably come for a similar New Deal for the Indian farmer.

Hmm..We need more and more people writing about agriculture.

Also need to study in detail what really happened in New Deal.

One Response to “India has entered a regime of “permanent surpluses” in most crops and facing a great depression…”

  1. MS Says:

    Wow, this is counter-intuitive to what many of us think on farmers and agriculture…would be interesting to see the official policy position on this

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