Archive for the ‘Agriculture’ Category
The amount of rains in monsoon season is always a very important economic indicator every year. This year it will be all the more as we had a severe drought last year and had deficient food production which needs to be replenished. Inflation also will depend on monsoon. India also needs to push agriculture reforms and a better growth will lead to more investments. And then there are so many connections to monsoons in India – rural income/demand etc.
IMD has released its forecast (HT: India Industry Tracker Blog, a blog by my colleague on indian industry) for south-west monsoon (June-Sep) for 2010. IMD uses a two-stage forecasting strategy for long range forecasting of the south-west monsoon rainfall over the country as a whole. The first long range forecast is issued in April and the forecast update is issued in June.
The industry blog further explains how IMD categorises rainfall amounts:
The IMD categorises rainfall into various sub-sections:
- Drought — rainfall less than 90% of the LPA
- Below normal monsoon — rainfall between 90-96% of the LPA
- Near normal monsoon — rainfall between 96-104% of the LPA
- Above normal monsoon — rainfall between 104-110% of the LPA
- Excess monsoon — rainfall more than 110% of the LPA.
So, the first forecast for 2010 is:
IMD’s long range forecast for the 2010 south-west monsoon season (June to September) is that the rainfall for the country as a whole is likely to be Normal.
Quantitatively, monsoon season rainfall is likely to be 98% of the long period average with a model error of ± 5%. The Long period average rainfall over the country as a whole for the period 1941-1990 is 89 cm.
For a graphic on India’s monsoon forecast vs actual rain, see this. Need to run some statistics on this.
RBI Executive Director Deepak Mohanty has been giving excellent speeches of late.
His two recent speeches are also worth a read.
Both are extension of his previous speeches.
In monetary policy implementation, he discusses the RBI monetary framework over the years and the transition from monetary targeting to multiple indicators. He says RBI’s move from money to interest rates is in line with developed economies:
It is very difficult to analyse agriculture sector for paucity of data. You don’t get long time series for most variables. RBI’s handbook on Indian economy provides some data but is not enough.
Planning Commission has launched an excellent website/databank which gives you loads of data on Indian agriculture.
Thomas Lubik and Stephen Slivinski of Richmond Fed explain the basics of output gap in their short note. Much of the policy based discussion is based on how much the output gap is. So. it is nice to brush through basics.
The output gap is a measure of how far away an economy is from a desirable level of output. It can be important in policy discussions because it presents a gauge of when the economy might be overheating or underperforming and can have immediate implications for the stance of monetary policy.
A typical story is that during a recession actual economic output drops below a desirable, or “potential,” level, which creates a negative output gap. In a boom, output rises above its potential level, resulting in a positive gap.
In the latter case, the economy can be described as “overheating.” This would generate upward pressure on inflation and might prompt the central bank to “cool” the economy by raising interest rates. On the other hand, an economy that is performing below its potential may require a more stimulative monetary policy.
The authors explain there are two ways to calculate output gap:
- Potential output – actual output
- Natural output – actual output
“Potential” output is the level that would occur if product and factor markets were perfectly competitive – meaning there are no real rigidities, such as the existence of monopolistic producers that can restrict output to artificially low levels.
“Natural” output, on the other hand, describes the level of output that can be achieved under imperfectly competitive markets. Here there are real rigidities, but no nominal distortions such as the costly and time-consuming process needed for prices to adjust.
However, there are not much differences when the gap is calculated using the two approaches.
The authors also explain the various ways in which the gap could be calculated – CBO, their own model and Fed Model. They also look at the estimate of output gap from these models. They say the output gap though useful is very difficult to estimate:
The output gap is meant to be a useful indicator for monetary policymakers because it signals to what extent the over- or underemployment of productive resources during the business cycle might feed inflation. The main challenge, however, is to compute the output gap “correctly.”The computations can be based on purely statistical measures derived from historical data or be based on an approach suggested by modern theory. Different models produce different gaps, however. This suggests that the uncertainty surrounding the various measures renders the output gap a potentially faulty gauge for assessing the economic situation and guiding monetary policy.
A nice primer. Typical economics problem. Output gap is a very useful concept but difficult to estimate.
Surabhi Mittal and Deepti Sethi of ICRIER have a very good paper giving an overview of food security issues in South Asian economies:
Food security is defined as economic access to food along with food production and food availability. Agriculture in the SAR (South Asian Region) is caught in a low equilibrium trap with low productivity of staples, supply shortfalls, high prices, low returns to farmers and area diversification – all these factors can be a threat to food security. South Asia still has the highest number of people (423 millions) living on less than one dollar a day. The region has the highest concentration of undernourished (299 million) and poor people with about 40 per cent of the world’s hungry. Despite an annual 1.7 per cent reduction in the prevalence of undernourishment in the region in the past decade, the failure to reduce the absolute number of the undernourished remains a major cause for concern. Estimates by the Food and Agricultural Organisation (FAO) indicate that by 2010, Asia will still account for about one-half of the world’s undernourished population, of which two-thirds will be from South Asia.
Though SAARC countries have established a food bank to meet the needs of food security in the region, it has not been operational even during times of crisis. This is despite the felt need of member nations to evolve mechanisms to make the SAARC Food Security Reserve operational.
It is against this background that this study has been undertaken. Conducted in collaboration with think-tanks from South Asian countries, it aims to identify issues relating to food security, the policy initiatives taken to tackle these issues, evaluate these policies and suggest measures to overcome identified constraints in order to improve the food security situation in the region.
It discusses the agrcultural growth and aspects of food security in each South Asian economy. Then it looks at safety net programmes in each of these economy. This compilation of the various safety net programmes is very useful.
I didn’t know that there is a Food Bank in South Asia however it has not been used. The authors then point the need to work on this food bank and increase trade for addressing food security. It should also look at agricultural research as a solution to the food woes.
A good crsip paper on food security issues.
This is an old RBI paper (released in 2008) and I happen to go through it only now. The timing is more appropriate now as we go through a agri crisis.
The paper was written by Prof. Pulapre Balakrishnan, Ramesh Golait and Pankaj Kumar. It highlights the supply side constraints in Indian agriculture.
The Study addresses slow growth of the agricultural sector since 1991. The Study documents the movement of the factors that have been recognised as determining agricultural growth during this period with a view to identifying the proximate causes of the slowdown. The focus in this Study is exclusively on crop agriculture. Factors, such as, relative price movement at the aggregate and at the disaggregated (crop-wise) level, import penetration, shrinking farm size, investment in agriculture, research and extension and agriculture credit have been investigated to ascertain their impact on agricultural growth in India since 1991.
The major findings of the Study are :
- The Study does not find evidence to the contention that relative price movement might have played a determining factor in explaining slow growth of agriculture since 1991. The profile of relative prices over the past 15 years indicates too mild a shift, if at all, to consider relative price movements as central to understanding the slowing of agricultural growth since 1991. The role of import liberalisation in determining this price movement appears to be marginal too, except perhaps for some crops in some periods.
- The Study finds that smaller farm holding-size, by making it more difficult for the majority of Indian farms to access new technology and adopt more efficient forms of farm production organisation, may have adversely affected agricultural growth.
- The Study reveals that among the factors likely to be responsible for slow growth is stagnation of public investment for almost a quarter of a century, along with a slowing of irrigation expansion since 1991.
- The Study observes that production is increasingly being carried out in a more open economy, even though import penetration is very low currently for most crops. The Study suggests the need for expansion of publicly-provided research and extension to support farming under a changed environment.
- The Study documents, public expenditure on research and extension, historically low as a share of agricultural output in India by international standards, has registered a slower growth in real terms since 1990.
- The Study cautions against the reading that greater spending alone is the solution to the current impasse in Indian agriculture. The Study provides evidence, intended as an illustrative case, that steady growth of real expenditure since 1991 has actually coincided with a slowing rate of expansion of the percentage area irrigated. This indicates a declining efficiency of public investment and suggests that governance is as much an issue as greater allocation of funds.
Much of this is well-known but the authors put it nicely. The low investment in agriculture research (pathetic actually) is a point made in very few papers on agricultural economics. The authors also point the idea is not simply throwing too much money into agriculture (which we always do) but make it more efficient.
Mr Shard Pawar, Minister of Agriculture has given an insightful speechexplaining India’s agriculture woes this year. There are n number of suggestions/criticisms on Govt’s role in this crisis, but it is important to know the situation as well.
Read it carefully.
Dhrijesh Tiwari from Indian Agricultural Ministry explains the agriculture stats system in the country in this short note.
In India, agricultural statistics system is decentralized both horizontally and vertically. Primary statistics are collected by the provincial governments and consolidated for the country by the national Ministry of Agriculture. Major data sources for agriculture statistics are
(i). Agriculture Census
(ii). Livestock Census
(iii). Marine Fisheries Census
(iv). Input Survey
(v). Land Use Survey
(vi). Land Use Survey of National Remote Sensing Agency
(vii). General Crop Estimation Survey
(viii). Integrated Sample Survey of Major Livestock Products
And all this is within Ministry of Agriculture. Further:
Apart from the Ministry of Agriculture, there are several other Ministries at the national level which are engaged in generation of related statistics as part of their functioning. Table below gives a quick look of that:
Table 1: Decentralized agriculture statistics in IndiaAnd the list is not exhaustive!! He then suggests ways to integrate the agri stats system and the important role National Statistical Commission has to play in the process.
Fertilizers – Ministry of Chemicals & Fertilizers
Agricultural Trade – Ministry of Commerce
Rainfall – Ministry of Science & Technology
Reservoirs – Ministry of Water Resources
Agricultural Population – Ministry of Home Affairs (decadal),Ministry of Rural Development, Ministry of Statistics (periodical)
Floods – Ministry of Home Affairs
Agriculture GDP – Ministry of Statistics
While the table above is not exhaustive, it gives an idea as to how widely spread is the domain of agricultural statistics in India.
This is a major problem with Indian Statistics sytem in general. There are just too many sources and it is a monumental task to have any idea about government’s policies in any sector. The media is replete with suggestions to press reforms in various sectors (with each expert suggesting his sector is top priority). Here is my 2 paisa suggestion- please reform and update the statistical system.
The conference is divided into 3 sessions. First , at macro level -impact of WTO on food prices etc. Second at a micro level – impact of food prices on poor. Third one is on alleviating poverty in India. I am participating as a discussant in the conference and will be discussing the papers presented in the 3rd session.
I will keep you posted on the thoughts shared in the conference.
I worte a research paper analysing the food consumption pattern of Indian households. The analysis is absed on NSS Surveys and points out some very interesting (and expected) results.
Let me know your comments.
The paper says India needs to do 10 reforms to achieve a per-capita GDP of $20,000 (Rs8.58 lakh today) by 2050. Currently it is around (as per wikipedia) $4,542 at PPP and $1,089 in nominal terms. These 10 reforms could also add 2.8% pa to India’s existing growth rate.
1. Improve governance
2. Raise basic education levels
3. High end education
4. Inflation targeting
5. Introduce a credible fiscal policy.
6. Liberalize financial markets.
7. Increase trade with neighbours.
8. Increase agricultural productivity.
9. Improve infrastructure.
10. Improve environmental quality.
The list of reforms reminded me of two one-time famous list of reforms- Washington Consensus (WC) which was a 10 point reform list released in 1990 and Mckinsey’s 13 reform list for India (free subscription; you can see the list of 13 reforms here as well) in 2001. WC was a set of reforms applicable to all countries that would help countries become developed and Mckinsey was focused on India that would help India achieve 10% growth rate.
WC has been hugely criticised by wide number of people (see the wikipedia entry for its straight-jacket approach and is also called a laundry list. WC was thrashed to pieces when countries that adopted WC failed miserably- Thailand, South Korea, Argentina etc. Mckinsey report on the other hand just lost that fanfare after few days of media coverage.
On just comparing the three lists, I see only 2 common points- fiscal policy discipline and trade liberalization (GS report only mentions trade liberalisation with neighbors). GS has got a big point – improve governance which covers most things related to government policies. On comparing McK and GS reports, I see agriculture, trade, fiscal policy, infrastructure as common points.
I really don’t understand these reform lists. It is easy to suggest reforms but many questions still remain. For instance, How do you decide, which reform is more important? No country can do all the reforms at one go and it is difficult. In practice what happens is you choose some reforms, run them parallely. Some gain momentum, some tug along and some die. So how do you decide? If we look at McK reforms it has reforms which have not been done yet- labor reforms, property rights system and GS report has new set of reforms – education, inflation targeting etc. So, if you look at the two lists what you get is something like 15 odd reforms and you don’t know where to begin. These studies are problematic and you can make n number of reform lists. A better approach is to follow Rodrik et al study – Growth Diagnostics which identifies the constraints and works on them first. Also, these studies should understand second best institutions work equally well.
Another thing I noticed is how the list changes with time and focuses on the “In things”. In 2001, you had lots of talk on SSI reservation, property rights, labor reforms etc and McK report mentions them. These days, we hear a lot about education, financial market liberalisation, inflation targeting etc and that is what we see in the GS report.
And a final most important point, most reforms in McK report have not been done at all or are moving at a slow pace. Still India has touched growth levels of nearly 10% (9.6% in 2006-07) and has been above 9% for the past 3 financial years🙂
PS. I remember attending a talk by one of India’s eminent economists at the time this Mck report was released. He said I had asked the team to come to my office and explain their list of reforms. The team never showed up.
I have been writing quite a bit on the food crisis and rising prices (My analysis of the crisis is here).
I came across this nice short report from International Rice Research Institute) on the crisis in the most important crop-rice. The main reasons for price rise are the same and so are the suggestions to solve the crisis.
I just happenned to read the Nobel Prize speech given by Theodore Schultz on receiving the prize in 1979. On reading the speech I had to recheck whether it was 1979 or 2007. Every word of the speech is relvant today. It seems all crisis are same- financial or food.
This inspired me to write a piece for Mint where I remember Schultz and suggest what his recommendation would be for the ongoing food crisis- incentivise agriculture.
Here is a good short piece on Schultz from one of his students. He had a good sense of humor🙂
It is not very often we see two crisis at a global level. I haven’t seen such times when we are seeing both financial crisis and food crisis happening together.
Though, the policy responses for both has been really different. The financial markets/experts have given a big thumbs up for all the Central Bank and government intervention but have given a big thumbs down for the government intervention in the food crisis.
The interventions in financial markets are justified as it could paralyse the entire economy but if given for food then it is said it leads to market distortions/against free-market philosophy etc.
This is actually double standards at its best. Any intervention leads to distortions be it any market. For instance, bailouts of Bear Stearns and Northern Rock though justified as important it leads to issues of moral hazard and is against the philosophy of “survival of the fittest”. In 2001, several large firms were shown the door but smaller firms in finance are provided the support.
So, it is true that the various interventions by several governments (I have highlighted a few cases here) will not result in the desired benefits, but so is the case with finance. The central banks have pumped in huge liquidity but it is seen that firms are still holding on to whatever finance is available and are not willing to lend or borrow. Isn’t it much like hoarding or using a euphemism- saving themselves for worst times to come?
The WSJ/Mint article shows financial firms are not disclosing correct LIBOR and this is leading to false market signals. They are disclosing rates lower than the actual as they are afraid higher rates will show that they are distressed. This is leading to overall lower interest rates as most lending/borrowing is done at LIBOR plus rates. So, there is a problem everywhere.
Did people learn anything from previous financial crisis? Nothing at all. It is still the same. Numerous research has been done to show nothing has changed (see this as well) and no lessons have been learnt. So, it can’t be said this crisis is different and hence intervention is needed.
So either we should not support government intervention at all and let markets solve the problem by itself. Or, we should understand the fact that in any crisis the response is much the same- government interventions and market distortions. There are no easy solutions/answers.
I have added my own food for thought paper on the subject. It can be found here.
I argue how this food crisis was a thing waiting to happen as this sector has been ignored for quite a while. So all these measures to control prices are at best going to be short-termism. The sector needs an urgent push from all possible angles.
As the crisis is a global one, we can’t just criticise India and its policies. The crisis would have happened sometime back but what was keeping it going was that agriculture exporting countries like Argentina, Australia etc. were doing well. Now, because of some adverse climatic conditions since 2006, we are seeing this crisis take shape.
The Hindu also covered this paper here
The 60,000 crore debt waiver has been the most discussed topic after this Union Budget (after the issue over contingent liabilities).
There have been comments from all sections of the public (Shankar Acharya does a summary of the views).
The Finance Minister mentions in his speech of the Dr. R. Radhakrishnan report:
Sir, while I am confident that the schemes and measures that I have listed above will give a boost to the agriculture sector, the question that still looms large is what we should do about the indebtedness of farmers. Honourable members will recall that Government had appointed a Committee under Dr. R. Radhakrishna to examine all aspects of agricultural indebtedness. The Committee has since submitted its report and it is in the public domain. The Committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans. However, Government is conscious of the dimensions of the problem and is sensitive to the difficulties of the farming community, especially the small and marginal farmers. Having carefully weighed the pros and cons of debt waiver and having taken into account the resource position, I place before this House a scheme of debt waiver and debt relief for farmers….
And then he suggests the proposal for debt waiver.
I am going through this report and on reading it I just ask one question- Have we progressed at all as a nation?
The same problems which must have been there at the time of independence (or even before) continue to exist. I have mentioned earlier over the crisis in the agri sector. I have even written a research paper on the subject which captures bulk of the reasons for indebtedness mentioned in the report.
However, I was not aware of several other issues like undernourishment has increased in farmers over the years (the ones who provide nourishment are undernourished) etc.
Most would criticise the political system in the country and say how the political parties have wasted resources in the country. I don’t really agree. The country as a whole has to share the blame. I had said this earlier as well.
Only in a country like India we see management graduates breaking records in salaries every year and have so many people die because of indebtedness.
1. I have done a research paper on the same.
I had posted on the issue of rising food prices earlier as well. That time I had said they might rise now it is actually rising.
Why have prices risen?
1. Global growth particularly in emerging markets
2. Supply also rises with a lag
3. Serious droughts in some parts of the world
4. A focus on Bio-fuels means the land which was supposed to for wheat (just an example) is now being used for corn putting further supply pressures.
1. Developed world – not much as food as a % of consumption is low.
2. Exporters of agricultural products- would gain from rising prices. This includes both emerging and developed countries.
3. Emerging and poor countries- would impact as food as a % of total consumption is still quite high. This would lead to higher inflation.
Rising inflation would lead to tighter monetary policy (higher interest rates) in emerging markets. This would lead to widening interest rate differential and higher capital flows. So, problems of higher capital flows would continue. To this Johnson adds:
There’s nothing wrong with capital flowing from rich to poor countries—in fact, if it happens in the right form and with deliberate speed, it can definitely help development. But the IMF’s work on financial globalization emphasizes a very important health warning: if you get too much capital, too fast, and in too footloose a fashion, there can be serious consequences for your economic stability and growth.
Inflation is also going to rise in advanced countries as well. In developed countries, both direct and indirect impact of rising food prices on total inflation is low. (Indirect impact is when food prices effect other things like say wages. So if people start having higher food budget, they would demand higher wages and hence inflation would rise.) So inflationary concerns are low but remain.
Inflation is expected to rise and Central Banks in these countries are cutting rates (Canada and US). Testing times for Central Bankers.