Workshop on
Food Security in
India
IFPRI, New Delhi
11 March, 2014
Food Security and Trade
A. Ganesh-Kumar
Well known definition (World Food Summit, 1996)“food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life”
Reconfirmed at the World Food Summit, 2009
4-pillars of food securityo Availability, Access, Utilisation and Stability
Problem is multi-level National levelo Trade has an important role
Household levelo Income and price are the primary determinants
o Trade can play a role here too
Intra-household levelo Trade has no role here
Food security
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Trade affects availability & domestic price Imports add to availability – reduces price
Exports reduce availability – raises price
Volatility in wold market affects domestic price Itself a reflection of world supply -demand balanceoSupply – influenced by long-run trends (technology, productivity,
cropping pattern), short-term shocks (weather, wars, …) and possible structural change (climate change)
oDemand – influenced by long-run trends (growth, tastes, …)
Other factors can also cause volatilityoPolicy shocks – imposition / relaxation of trade barriers
oVolatility in related markets – energy, commodity markets in general
o Increasing financialisation of commodity markets
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Where does trade fit in?
At the national level
International trade offers income earning
potential for traders and producers
Exploiting this potential requires several complementary
conditions
But is also a source of competition
Producers need to be equipped to face import
competition
oProductivity & technology are the keys
Where is India placed on these aspects?
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Where does trade fit in?
At the household level
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National level food security
and international trade
Answer to this question depends on what we mean by FOOD?
Most assessments of food availability focus only on cereals That too only rice and wheat
Government policies and interventions are also mainly in rice & wheat Public procurement, price support, PDS
National Food security Bill
Interventions involving other food items are much smallero ICDS, Mid-day meals, etc.
But food is NOT just cereals, NOT just rice & wheat alone
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What is the food availability situation in
India?
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Diets are diversifying
Cereals & sugar are losing shares
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Dairy, egg, meat, fish, F&V, beverages
are gaining shares
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Share of pulses, edible oils, salt & spices
are fluctuating
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Price rise in recent years more in the high
value products than in cereals
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Price rise in recent years more in these
high value products than cereals …
Amongst major food items Net-exporter – rice, other
cereals, spices
Changing situation – wheat, sugar
Net-importer – pulses (& edible oils)
o Very high import dependency
o Persistent deficit over several decades
Amongst high value products Net-exporter – vegetables,
meat, fishery
Self-sufficient – dairy products
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Domestic supply -demand conditions
Past trends in supply -demand gap likely to persist in the foreseeable future
Planning Commission 12 th Plan Working Group (2011) Surplus – cereals, sugar
Deficit – pulses, oilseeds / edible oils
No assessment in case of F&V (no supply forecast)
Ganesh-Kumar et al. (2012) Surplus in 2025 – rice & wheat
Dastagiri (2004) Surplus in 2020 – milk, mutton & goat meat, beef & buffalo meat,
chicken meat, and eggs
Link between FS & trade likely to be more via exports
Pulses and edible oils are the exceptions
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Few comprehensive long-run supply -
demand gap assessments
Exchange rate risk Recent times have seen high volatility in exchange rate
Linked to global economic conditions and India’s macroeconomic fundamentals
Situation likely to persist in the foreseeable future
Commodity-level price risks Sharp downswings / sharp upswings
Impacts would depend upon net-trade position
Impacts on importers & exporters would vary
Limited policy instruments to handle volatilityo Not comprehensive – not all situations can be handled
o Nor complete – cannot offset risk totally
o Inadequate market institutions to handle risk – futures markets & agricultural insurance
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But risks would persist
Net-exportables
Exports turn unattractive
Exporters would have to take a price cut
Un-exported surpluses likely
Would dampen domestic price
Farmers would suffer
Domestic consumers would benefit
No real instrument here
Net-importables
Mainly pulses, edible oils
Helps domestic consumers
But domestic producers could suffer
Tariff rate changes have been used in past to balance these concerns
Feasible due to significant tariff binding overhang
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Sharp downswings in world price
Net-exportables Exports more profitableo Exporters would benefit
Export surge would reduce domestic availability
o Domestic price would rise
o Farmers would benefit
o Domestic consumers would be hurt
Export bans have been used in past Protection for consumers at
the cost of producers
Exacerbates world market imbalances
Net-importables Mainly pulses, edible oils
Imports can shrinko Domestic prices would rise
o Hurts domestic consumers
o Reduced import competition can benefit domestic producers
Tariff rate cuts can help Limited depending upon
applied rates
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Sharp upswings in world price
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Household level food
security and international
trade
Planning Commission poverty estimates for
2011-12
Rural poverty – 217 million persons (25.7%)
Urban poverty – 53 million persons (13.7%)
Total poverty – 270 million persons (21.9%)
All the urban poor and a good chunk of rural
poor are net-buyers of food
A majority of the rural poor are agricultural
labourers and farmers themselves
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Which household?
Income level and food price level are the drivers of their food security
Income level depends upon level and dynamism of economic activity Includes agricultural performance, especially if the household is
dependent on agriculture
Trade regime & global market conditions can affect the level of economic activity
Food price depends upon national level availability situation Here trade plays an important role
But so too domestic supply chain issues
Safety nets are important
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Poor net-buyers of food
Their dependence on market for food consumption could be limited
But their income levels are low and that makes them vulnerable to shocks to their farm output
Especially so for small & marginal farmers
Expanding their markets and strengthening their income earning potential is the key
Exports play a role here
Productivity improvements to strengthen their capacity to face import competition
Complementary role of domestic supply chains
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Poor farm households
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Complementary conditions
to reap the benefits of
international trade for food
security
Efficient domestic supply chains are essential
To maintain price stability – critical for net-food buyers
To ensure farmers reap benefit of expanding markets
including exports
Enormous scope for domestic reforms
Laws, inter-state movement barriers, tax structure,
transport & storage infrastructure, trading structures and
marketing linkages, agro-processing industry, …
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Domestic supply chains
Ensuring open and stable trade policy
Export support measures (not subsidies)Meeting SPS requirements
Infrastructure development
Technological support to boost productivity & enable farmers face import competition
Market deepening including futures market and insurance for handling risks
Safety nets for consumers and producers
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Government role
Significant distortions persist in international trade regime w.r.t agriculture
Legacy issues from the Uruguay Round
Slow progress in multilateral trade negotiations
RTAs an increasing challenge to multilateral rule based trade in agriculture 377 of 583 RTAs as of 31-Jan-2014 are in force
16 RTAs involving India in force
Political issues stalling / slowing cooperation in South Asia
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Conducive global trade regime
WTO Bali deal is indication that there is still some will amongst nations to take forward multilateral trade talks
But the deal itself appears more like buying time to set the house in order
India’s huge public procurement will not be challenged for 4 years – what later?
Legacy issues from the Uruguay Round such as Base support calculation, export / domestic subsidies, etc., remain unresolved
Eventual outcome of the Doha Round remains unclear
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Conducive global trade regime …
Approach to food security has to be broad based in terms of food items
Trade can help improve food security at the national and household levels
This requires several complementary conditions to be in place
The bigger challenge, however, is to set right the complementary conditions that can help reap the benefits
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Bottom-line