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GS Paper: Agriculture and related issues

  • Doubling farmer’s income

    Context

    • By making solar energy the ‘third crop’, promoting this innovation on a mission mode, the government can double farmers’ income.
    • The famous slogan of late Lal Bahadur Shastri, “Jai Jawan, Jai Kisan,” was extended by Atal Bihari Vajpayee to include “Jai Vigyan”. Now, Prime Minister Narendra Modi has extended it to, “Jai Anusandhan”.

    What is doubling farmer’s income scheme

    • Doubling farmers’ income is a target set by the government of India in February 2016 to be achieved by 2022.
    • To promote farmers’ welfare, reduce agrarian distress and bring parity between income of farmers and those working in non-agricultural professions.

    KUSUM Scheme

    • The scheme would provide extra income to farmers, by giving them an option to sell additional power to the grid through solar power projects set up on their barren lands.
    • It was announced in the Union Budget 2018-19.

    Component of KUSUM Scheme

    Component-A

    • Renewable power plants of capacity 500 KW to 2 MW will be setup by individual farmers/ cooperatives/panchayats /farmer producer organisations (FPO) on their barren or cultivable lands.

    Component-B

    • Installation of 17.50 lakh standalone Solar Powered Agriculture Pumps.
    • Individual farmers will be supported to install standalone solar pumps of capacity up to 7.5 HP. Solar PV capacity in kW equal to the pump capacity in HP is allowed under the scheme.

    Component-C

    • Solarization of 10 Lakh Grid-connected Solar Powered Agriculture Pumps is included in this component, Individual farmers will be supported to solarise pumps of capacity up to 7.5 HP.

    Expected outcomes of KUSUM

    • Welfare: By providing greater financial assistance to smaller farmers, instead of a one¬size¬fits¬all approach.
    • Equity: To encourage equitable deployment, the Centre could incentivise States through target linked financial assistance and create avenues for peer learning.
    • Addressing inequity within a State – This is addressed by a share of central financial assistance under KUSUM should be appropriated for farmers with small landholdings and belonging to socially disadvantaged groups.

    Punchline

    Annadata becoming the urjadata – This one policy has the potential to double farmers incomes within a year or two.

    Challenges

    • Awareness challenge: Barriers to adoption include limited awareness about solar pumps.
    • Upfront contribution: The other barrier includes farmers’ inability to pay their upfront contribution.
    • Regulatory hurdle: Progress on the implementation front has been rather poor due to regulatory, financial, operational and technical challenges.

    Constraints in the path of doubling the income

    • Outdated technology: Use of outdated and inappropriate technology is the main reason for low productivity of crops and livestock.
    • Affordability: Given the pre-dominance of small and marginal farmers in Indian agriculture, affordability becomes a significant constraint on technology adoption by farmers.
    • Low research in agriculture: Agricultural research in the country is constrained by resource inadequacy, regulations and intellectual property rights (IPR).

    The Measures Taken by Indian Government

    • Institutional Reforms: Pradhan Mantri Krishi Sinchai Yojana, Soil health card, and Prampragat Krishi Vikas Yojana- Aiming to raise output and reduce cost.
    • Technological Reforms: Various Technology mission like Technology mission on cotton, Technology Mission on Oilseeds, Pulses and Maize etc.

    Way forward

    • To secure future of agriculture and to improve livelihood of half of India’s population, adequate attention needs to be given to improve the welfare of farmers and raise agricultural income.
    • It is essential to mobilize States and UTs to own and achieve the goal of doubling farmers’; income with active focus on capacity building (technology adoption and awareness) of farmers that will be the catalyst to boost farmer’s income.

    Mains question

    Q. By making solar energy the ‘third crop’, promoting this innovation on a mission mode, the government can double farmers’ income. Critically analyse this statement.

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  • Curbing inflation in tomatoes, onions and potatoes requires streamlining their value chains

    Context

    The higher the weight of food in the overall CPI, the more difficult it is for the monetary policy squeeze alone to contain inflation.

    Inflation challenge in Indian economy

    • Under the FRBM Act, The RBI has the unenviable task of keeping inflation within the 4+/-2 per cent range.
    • But lately, despite its best efforts, inflation has remained defiant and above its tolerance band.
    • The RBI’s major policy tool, the repo rate has already been hiked by 90 basis points, raising it to 4.9 per cent in June.
    • It is likely to rise to at least 5.5 per cent, if not more, over the course of this financial year.
    • But this will not be enough to tame inflation due to the nature and structure of inflation in India.

    How India’s CPI basket is different

    • The CPI basket in India comprises of 299 commodities grouped into six major categories.
    •  The food and beverages group has a weight of 45.86 per cent (with food at 39.06 per cent, prepared meals at 5.55 per cent and non-alcoholic beverages at 1.26 per cent).
    • High weight of food in overall CPI: It is this overwhelmingly high weight of food in overall CPI, based on the consumer expenditure survey (CES) data of 2011-12, that distinguishes Indian inflation from many other developed countries where the food weight is much smaller.
    • It is much lower in Germany (8.5 per cent), the UK (9.3 per cent), the US (13.42 per cent), Canada (15.94 per cent), France (16.49 per cent), Australia (16.8 per cent), China (19.9 per cent), and Japan (26.3 per cent). Even developing nations like South Africa (17.24 per cent), Brazil (25.5 per cent), and Pakistan (34.83 per cent) have lesser weightage of food in overall CPI than India.
    •  The higher the weight of food in the overall CPI, the more difficult it is for the monetary policy squeeze alone to contain inflation.

    Tomato inflation

    • Interestingly, of the 299 commodities that comprise CPI, the highest contributor to overall inflation was tomatoes at 8.9 per cent.
    • Inflation in tomatoes was stupendously high at 158.8 per cent (year-on-year).
    • One of the prime reasons was the low base effect as inflation in June 2021 was minus 14.4 per cent.
    • Due to low price realisation last year, this year tomato farmers shifted acreage to other crops.
    • On top of that, some tomato growing areas got flooded, while many others faced heat waves that further depressed tomato supplies.
    •  It is for this reason a scheme called TOP (Tomatoes, Onions, and Potatoes) and allocated Rs 500 crore to streamline their value chains.
    •  But the scheme went to the Ministry of Food Processing, and was expanded to TOTAL by including several other vegetables.
    • Without having a champion, like Verghese Kurien was for milk, this scheme (from TOP to TOTAL) got diffused in focus and has not shown any visible impact in improving the value chains of vegetables.
    • Way forward: The real solution to tomato inflation may lie beyond the ambit of the RBI.
    • Processing: It requires linking tomato value chains to processing of at least 10 per cent of tomato production into tomato paste and puree during bumper years and using them when fresh tomato prices spike.
    • Reduce GST: Further, to enhance the affordability of processed tomatoes, its GST rates need to be reduced from 12 per cent to 5 per cent.
    • This would also help farmers to stabilise their incomes and avoid the typical cobweb problem they face in case of perishables.

    Way forward

    • So, monetary policy alone may not be as effective in the Indian case.
    • Revise CPI: India desperately needs to revise its CPI with the latest consumption survey weights.
    • Our parliamentarians must recognise the limitations that the RBI faces in taming inflation.

    Conclusion

    The upshot of all this is that the nature and structure of inflation in India is different than in developed countries.

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  • What is Essential Commodities Act?

    The Centre has invoked the Essential Commodities Act of 1955 to ask States to monitor and verify the stocks of Arhar/Tur Dal available with traders.

    Essential Commodities Act

    • The ECA, 1955 was established to ensure the delivery of certain commodities or products, the supply of which, if obstructed due to hoarding or black marketing, would affect the normal life of the people.
    • The list of items under the Act includes drugs, fertilizers, pulses, and edible oils, as well as petroleum and petroleum products.
    • The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.
    • Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.

    How ECA works?

    (1) Centre notifying stock limit holding

    • If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
    • The States act on this notification to specify limits and take steps to ensure that these are adhered to.
    • Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.

    (2) States can opt-out

    • A State can, however, choose not to impose any restrictions.
    • But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.

    What happens for non-compliance?

    • As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
    • The excess stocks are auctioned or sold through fair price shops.
    • This improves supplies and brings down prices.

    Ex: The Union Government has brought masks and hand-sanitizers under the ECA to make sure that these products, key for preventing the spread of Covid-19 infection, are available to people at the right price and in the right quality. Later this move was reverted.

    What about Food Items?

    (1) Items covered:

    Rice, wheat, atta, gram dal, arhar dal, moong dal, urad dal, masoor, dal, tea, sugar, salt, Vanaspati, groundnut oil, mustard oil, milk, soya oil, palm oil, sunflower oil, gur, potato, onion and tomato.

    (2) Price Stabilization Fund (PSF):

    The government utilizes the buffer of agri-horticultural commodities like pulses, onion, etc. built under Price Stabilization Fund (PSF) to help moderate the volatility in prices.

    Recent amendments to the ECA

    In 2020, the EC Act was amended for the stock limit to be imposed only under exceptional circumstances such as famine or other calamities.

    • Exceptional circumstances: It allowed the centre to delist certain commodities as essential, allowing the government to regulate their supply and prices only in cases of war, famine, extraordinary price rises, or natural calamities.
    • Commodities de-regulated: The commodities that have been deregulated are food items, including cereals, pulses, potatoes, onion, edible oilseeds, and oils.

    Exceptions provided

    • The government regulation of stocks will be based on rising prices, and can only be imposed if there is
    1. A 100% increase in retail price in the case of horticultural produce and
    2. A 50% increase in retail price in the case of non-perishable agricultural food items
    • These restrictions will not apply to stocks of food held for public distribution in India.

     

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  • Why rice and wheat bans aren’t the answer to inflation

    Context

    There are reports suggesting that the government is mulling a ban on rice exports to tame inflation.

    Background

    • This is surely not the first time an attempt is being made to ban wheat and rice exports.
    • It was also done in 2007-08, in the wake of the global financial crisis.
    • Perhaps government will also impose stocking limits on traders for a host of commodities, suspend futures trading in food items, and even conduct income tax raids on traders of food.

    Issues in India’s rice export strategy

    • Highest ever volume: India exported the highest-ever volume of 21 million metric tonnes (MMT) of rice in 2021-22 (FY22) in a global market of about 51.3 MMT, which amounts to about 41 per cent of global exports.
    • Reduces price: Such large volumes of rice exports brought down global prices of rice by about 23 per cent in March (YoY), when all other cereal prices, be it wheat or maize, were going up substantially in global markets.
    • In fact, in FY22, the unit value of exports of common rice was just $354/tonne, which was lower than the minimum support price (MSP) of rice.
    • Below MSP buying or leakage from PMGKAY: This meant that rice exporters were either buying rice (paddy) from farmers and millers at below the MSP or that quite a substantial part of rice was given free under the PM Garib Kalyan Ann Yojana (PMGKAY) was being siphoned away for exports at prices below MSP.
    • Artificial competitive advantage: Free electricity for irrigation in several states, most notably Punjab, and highly subsidised fertilisers, especially urea, create an artificial competitive advantage for Indian rice in global markets.
    • Suggestion: This is a perfect case for “optimal export tax” — not a ban — on rice exports.
    • If we can’t raise the domestic price of urea, which is long overdue, we should at least recover a part of the urea subsidy from rice exports by imposing an optimal export tax.

    Why export ban on wheat and rice is not a solution

    • Small contribution of cereals in inflation: In May, the consumer price index (CPI) inflation was 7.04 per cent (YoY). The cereals group as a whole contributed only 6.6 per cent to this inflation.
    • Within that, wheat, other than through PDS, contributed just 3.11 per cent and non-PDS rice contributed 1.59 per cent.
    • So, by imposing a ban on wheat and rice exports, India can’t tame its inflation as more than 95 per cent of CPI inflation is due to other items.
    • Interestingly, inflation in vegetables contributed 14.4 per cent to CPI inflation, which is more than three times the contribution of rice and wheat combined. And within vegetables, tomatoes alone contributed 7.01 per cent.
    • What all this indicates is that agri-trade policies need to be more stable and predictable, rather than a result of knee-jerk reactions.
    • Irresponsible behaviour: Export bans on food items also show somewhat irresponsible behaviour at the global level, unless there is some major calamity in the country concerned.
    • The recently concluded WTO ministerial meeting as well as the G-7 meet expressed concerns about food security in vulnerable nations.

    Way forward

    • Efficient value chain and processing facilities: In commodities like vegetables, most of which are largely perishable, we need to build efficient value chains and link these to processing facilities.
    • The same would go for onions, which often bring tears to kitchen budgets when prices shoot up.
    • A switch to dehydrated onion flakes and onion powder would be the answer.
    • Our food processing industry, especially in perishable products, is way behind the curve compared to several Southeast Asian nations.

    Conclusion

    If India wants to be a globally responsible player, it should avoid sudden and abrupt bans and, if need be, filter them through transparent export taxes to recover its large subsidies on power and fertilisers.

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  • Fertlizer subsidy issue

    Context

    The global prices of urea, DAP, MOP, phosphoric acid, ammonia and LNG have soared by two to two-and-a-half times in the last year

    Resource richness of Indian agriculture

    • No country has as much area under farming as India.
    • Land under cultivation: At 169.3 million hectares (mh) in 2019, its land used for crop cultivation was higher than that of the US (160.4 mh), China (135.7 mh), Russia (123.4 mh) or Brazil (63.5 mh).
    • Ample water: With its perennial Himalayan rivers and average annual rainfall of nearly 1,200 mm – against Russia’s 475 mm, China’s 650 mm and the US’s 750 mm – India has no dearth of land, water and sunshine to sustain vibrant agriculture.
    • But there’s one resource in which the country is short and heavily import-dependent — mineral fertilisers.

    India’s important dependence

    • In 2021-22, India imported 10.16 million tonnes (mt) of urea, 5.86 mt of di-ammonium phosphate (DAP) and 2.91 mt of muriate of potash (MOP).
    • Import value: In value terms, imports of all fertilisers touched an all-time high of $12.77 billion last fiscal.
    • In 2021-22, India also produced 25.07 mt of urea, 4.22 mt of DAP, 8.33 mt of complex fertilisers (containing nitrogen-N, phosphorus-P, potassium-K and sulphur-S in different ratios) and 5.33 mt of single super phosphate (SSP).
    • Import of raw material: The intermediates or raw materials for the manufacture of these fertilisers were substantially imported.
    • Total value of fertiliser imports: The total value of fertiliser imports by India, inclusive of inputs used in domestic production, was a whopping $24.3 billion in 2021-22.

    Two costs involved in import

    • 1] Foreign exchange outgo for import: The first is foreign exchange outgo:
    • Imports are mostly from the following countries:
    • Urea: Imported from China, Oman, UAE and Egypt
    • DAP: Imported from China, Saudi Arabia and Morocco.
    • MOP: Imported from Belarus, Canada, Russia, Israel and Jordan.
    • LNG: Imported from Qatar, US, UAE and Nigeria.
    • Ammonia: Morocco, Jordan, Senegal and Tunisia (phosphoric acid); Saudi Arabia and Qatar.
    • Rock phosphate: Jordan, Morocco, Egypt and Togo.
    • 2] Fiscal cost: The second cost is fiscal.
    • Fertilisers are not only imported but also sold at subsidised prices.
    • The difference is paid as a subsidy by the government.
    • That bill was Rs 1,53,658.11 crore or $20.6 billion in 2021-22 and projected at Rs 2,50,000 crore ($32 billion) this fiscal.
    • Unsustainably high costs: Both costs are unsustainably high to bear for a mineral resource-poor country.

    Suggestions

    1] Reduce consumption of high-analysis fertilisers

    • There is a need to cap or even reduce consumption of high-analysis fertilisers – particularly urea (46 per cent N content), DAP (18 per cent N and 46 per cent P) and MOP (60 per cent).
    • Incorporate urease and inhibition compounds in urea: This can be done by incorporating urease and nitrification inhibition compounds in urea.
    • These are basically chemicals that slow down the rate at which urea is hydrolysed and nitrified (which increases leaching).
    •  By reducing ammonia volatilisation and nitrate leaching, more nitrogen is made available to the crop, enabling farmers to harvest the same yields with a lesser number of urea bags.
    • Liquid nano-urea: Together with products such as liquid “nano urea” –it is possible to achieve a 20 per cent or more drop in urea consumption from the present 34-35 mt levels.
    • Liquid nano-urea with their ultra-small particle size is conducive to easier absorption by the plants than with bulk fertilisers, translating into higher nitrogen use efficiency.

    2] Promote the sale of SSP and complex fertilisers

    • A second route is by promoting sales of SSP (containing 16 per cent P and 11 per cent S) and complex fertilisers such as “20:20:0:13” and “10:26:26”.
    • Restrict DAP use: DAP use should be restricted mainly to paddy and wheat; other crops don’t require fertilisers with 46 per cent P content. 
    • India can also import more rock phosphate to make SSP directly or it can be converted into “weak” phosphoric acid
    • The latter, having only about 29 per cent P (compared to 52-54 per cent in normal “strong” merchant-grade phosphoric acid), is good enough for manufacturing “20:20:0:13”, “10:26:26” and other low-analysis complex fertilisers.

    3] Incorporate MOP into complexes

    • As regards MOP, roughly three-fourths of the imported material is now applied directly and only the balance is sold after incorporating into complexes.
    • It should be the other way around.
    • India, to re-emphasise, needs to wean its farmers away from all high-analysis fertilisers. 

    4] Use of NPKS complexes and indigenous sources

    • The moment to use more NPKS complexes and SSP, is already happening.
    • It requires a concerted push, alongside popularising high nutrient use-efficient water-soluble fertilisers (potassium nitrate, potassium sulphate, calcium nitrate, etc).
    • Exploiting alternative indigenous sources needs to be considered (for example, potash derived from molasses-based distillery spent-wash and from seaweed extract).

    5] Revise nutrient application recommendations

    • Farmers need to know what is a suitable substitute for DAP and which NPK complex or organic manure can bring down their urea application from 2.5 to 1.5 bags per acre.
    • It calls for agriculture departments and universities not just to revisit their existing crop-wise nutrient application recommendations, but disseminating this information to farmers on a campaign mode.

    Conclusion

    The costs associated with the use of fertilisers are unsustainably high to bear for a mineral resource-poor country such as India. We need to act on the measures to reduce our import dependence.

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    Back2Basics: High-analysis fertilisers

    • Fertilizers that have more than 30% total available nutrients are called high analysis fertilizers, whereas those with less than 30% total available nutrients are called low analysis fertilizers.
    • A 15-15-15 is a high analysis fertilizer; a 5-10-10 is a low analysis fertilizer, and a 10-10-10 is right on the borderline.

  • Oil palm

    Context

    Supply disruptions during the pandemic and the Russia-Ukraine war have led many nations to think about “self-sufficiency” in critical food items or at least reduce their “excessive dependence” on imports of essential food products.

    Challenges facing global trade

    • The World Trade Organisation’s (WTO) recently concluded12th Ministerial Conference in Geneva, struggled to find answers to some of the complex questions pertaining to global trade.
    • The Ministerial Conference is the top decision-making body of the agency whose basic goal is to ensure that trade flows as smoothly, predictably and freely.
    • Trading rules for dire situations: As far as agriculture, trade and food security are concerned, the challenge is to figure out the most appropriate trading rules in dire situations like pandemics, wars, social/political disruptions or natural disasters.
    • Export bans: Recent examples include Russia’s export ban on wheat and sunflower oil, Ukraine’s ban on exports of food staples, Indonesia’s ban on palm oil exports, Argentina’s ban on beef exports, Turkey, Kyrgyzstan and Kazakhstan’s ban on a variety of grain products, and India’s wheat export ban.
    • Sudden actions such as these exacerbate the pressure on global trade leading to a spike in the prices.

    India’s import dependence for edible oil

    • India imports 55 to 60 per cent of its edible oil requirements.
    • India’s edible oil import bill in 2021-22 (FY22) crossed $19 billion (for more than 14 MMT of imports) (see figure).
    • Palm oil comprises more than 50 per cent of India’s edible oil imports, followed by soybean and sunflower.
    • Atmanirbharta in edible oil: The “excessive dependence” on imports has raised the pitch for “atmanirbharta” in edible oil. 
    • The Prime Minister launched the National Edible Oil Mission-Oil Palm (NEOM-OP) in 2021.

    Self-reliance Vs Self-sufficiency

    • “Self-sufficiency” and “self-reliance” are two different concepts with very different policy implications.
    • What is self-sufficiency? Self-sufficiency would imply replacing all imports of a commodity (say edible oils in India’s case) at any cost (thus raising import duties exorbitantly).
    • What is self-reliance? Self-reliance would continue to embed the principle of “comparative advantage” in the endeavour to reduce dependence on imports.
    • Case of India’s agriculture: The country’s agri-exports in FY22 touched $ 50.3 billion against its agri-imports of $ 32.4 billion.
    • This means that Indian agriculture is largely globally competitive. 
    • But its biggest agri-import item, edible oil, accounts for 59 per cent of India’s agri-import basket.

    Way forward

    • 1] Develop oil palm: Given the way international prices of edible oils have surged in the last year or so (by more than 70 per cent), it may be time for India to ramp up its efforts in developing oil palm.
    • Why oil palm? The Prime Minister launched the National Edible Oil Mission-Oil Palm (NEOM-OP) in 2021.
    • Challenges in traditional oilseed: Achieving atmanirbharta in edible oils through traditional oilseeds such as mustard, groundnuts and soya would require an additional area of about 39 million hectares under oilseeds.
    • Danger to food security: Such a large tract of land will not be available without cutting down the area under key staples (cereals) – this could endanger the country’s food security even more.
    • So, a rational policy option to reduce import dependence in edible oils is to develop oil palm at home and ensure that it gives productivity comparable to that in Indonesia and Malaysia — about four tonnes of oil per hectare, which is more than 10 times mustard can give at existing yields.
    • India has identified 2.8 million hectares of area where oil palm can be grown suitably.
    • So far the objective of NEOM-OP is to bring in at least 1 million hectare under oil palm by 2025-26.
    • 2] Declare oil palm as a plantation crop: The other option is to declare oil palm as a plantation crop and allow the corporate players to own/lease land on a long-term basis to develop their own plantations and processing units.
    • This does not seem plausible in the current socio-political context.

    Challenges

    • Long gestation period: It takes four to six years to come to maturity; during this period, smallholders need to be fully supported.
    • The support (subsidy) could be the opportunity cost of their lands, say profits from paddy cultivation, which is largely the crop oil palm will replace in coastal and upland areas of Andhra, Telangana and Northeast India.
    • Pricing formula: Further, the pricing formula of fresh fruit bunches (FFB) for farmers has to be dovetailed with a likely long-run average landed price of crude palm oil with due flexibility in the import duty structure.
    • Appropriate import duty: One needs to identify trigger points when import duties need to be raised as global prices come down, and when to reduce these duties in case of rising global prices.
    • Oil recovery: Besides this, the processing industry needs to ensure an oil recovery of at least 18 to 20 per cent – that must be built into the pricing formula.

    Conclusion

    Overall, unless India thinks holistically and adopts a long-term vision, the chances of reducing India’s imports of edible oils from 14MMT in FY22 to 7MMT by FY27 look bleak.

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  • Rising global food prices: Causes and Solution

    Context

    This increase in global food prices which manifested itself in the three food price crises since the 1960s offers some pertinent lessons for global food systems and the international community.

    Managing year-to-year volatility Vs. periodic spikes in food prices

    • Year-to-year volatility is easily managed by most countries through changes in their trade and domestic policies.
    • But steep and severe periodic price shocks can lead to some sort of a crisis at the global and national levels.
    • Implications: The crisis can emerge in the form of food shortages, trade disruptions, a rise and spread in hunger and poverty levels, depletion of foreign exchange reserves, a strain on a nation’s fiscal resources, a threat to peace, and even social unrest in some places.

    History of food crises after since adoption of Green Revolution

    • Data from Food and Agriculture Organization of the United Nations, the World Bank/International Monetary Fund show that since the onset and the adoption of Green Revolution technology in the early 1960s, the world has been struck thrice by food price crises.
    • First shock-1973-76: The first shock was experienced during 1973-76 when the food price index (based on prices in U.S. dollars) doubled in nominal terms.
    • Declining trend: For the next two decades, food prices in real terms followed a declining trend and were at their lowest around 2002.
    • After this, nominal as well as the real prices of food began rising.
    • Second crisis-2008: This momentum built up to culminate in the next food price crisis of 2008, which was further intensified by 2011.
    • While the price shock began softening after 2014, food prices did not move back to their pre-2006 level.
    • Third crisis-2020: This time the increase in the food price index happened very quickly and it turned out to be very big – it has taken the food price index to its historically highest level.
    • Cause outside agriculture: All the three food price crises were triggered by factors outside agriculture.
    • They were not caused by any serious shortfall in agriculture production.
    • The interval between crises is reducing: The interval between two consecutive price shocks has narrowed down considerably and the severity of shock is turning stronger.

    What are the causes responsible for the recent food price crisis?

    • 1] Covid-19 and Ukraine crisis: It was triggered by supply disruptions due to COVID-19 and further aggravated by the Russia-Ukraine war.
    • The current food price spike first began in vegetable oils and then expanded to cereals.
    • Higher the global trade higher disruption: The effect of global trade disruption will be higher for commodities that are traded more and vice-versa.
    • 2] Diversion of food for biofuel: Another factor underlying the rising trend and spikes in food prices is the diversion of food for biofuel needs.
    • When crude prices increase beyond a certain level it becomes economical to use oilseeds and grains for biodiesel and ethanol, respectively.
    • The second reason for the use of food crops for biofuel is the mandates to increase the share of renewable energy resources.
    • 3] Increased cost of agrochemicals and fertilisers: Food prices are also expected to go up in the current and next harvest season because of an increase in the prices of fertilizer and other agrochemicals.

    Way forward for India

    • Transmission of international prices to domestic prices can be prevented only if there is no trade.
    • 1] Trade policy changes: This transmission of global prices to the domestic market can be moderated through trade policy and other instruments.
    • When international prices go too low, India has checks on cheap imports to protect the interests of producers; and when international prices go too high, the country liberalises imports and imposes checks on exports to ensure adequate availability and reasonable food prices for domestic consumers.
    • 2] Buffer stock: The policy of having a buffer stock of food staples has also been very helpful in maintaining price stability, especially in the wake of global food crises.
    • 3] Strategic liberalisation: India should continue with a policy of strategic liberalisation, as followed in the past, to balance the interests of producers and consumers.
    • 4] Maintain image as a reliable and credible exporter: The importance of agriculture exports to mop up food and agriculture surplus from the country is increasing.
    • Ongoing trends in domestic demand and supply imply that India will be required to dispose of 15% of its domestic food output in the overseas market by 2030.
    • This underscores the need to maintain India’s image as a reliable and credible exporter.
    • However, it is important to differentiate between the two situations: disturbing normal export and regulating exports exceeding the normal level.

    What are the implications for India?

    • Increased prices in India: Export and import in the agriculture sector constituted 13% of gross value added in agriculture during 2020-21.
    • Therefore, some transmission of an increase in global prices on domestic prices is inevitable.
    • Wheat export ban and implications: The recent ban on wheat exports and restrictions on the export of other food commodities by India need to be seen in the light of an abnormal situation created by spikes in international prices.
    • Some experts see it as a setback to India’s image as a reliable exporter as this move is seen to disrupt (regular) export channels.
    • A closer examination of data reveals that India’s action to ban or restrict food exports is not disrupting its normal exports.
    • India was a very small exporter of wheat, with its share in global wheat trade ranging between 0.1% to 1% during 2015-16 to 2020-21.
    • The international market is looking for around 50 million tonnes of wheat to compensate for the disruption in wheat exports from Russia and Ukraine.
    • If India had not imposed a ban on wheat export, it would have resulted in a severe shortage of wheat within the country.

    Global impact and suggestions

    • As the steam of Green Revolution technology slowed down with the start of the 21st century, food prices began increasing in real terms.
    • New breakthroughs required: The world requires new breakthroughs such as Green Revolution technology, for large-scale adoption in order to enable checks on food prices rising at a faster rate.
    • Increase spending on agri-research: This in turn requires increased spending on agriculture research and development (especially by the public sector and multilateral development agencies).
    • Strengthen global agri-research system: There is a need to strengthen and rejuvenate the global agri-research system under the Consultative Group on International Agricultural Research (CGIAR) which is heading towards disarray.
    • Rethink biofuel protocols: Biofuel protocols have contributed to the global food crisis for the second time in the last 15 years.
    • Diversion of land under food crops and food output for biofuel should be carefully calibrated with implications for food availability.

    Conclusion

    • The last three food price crises were primarily caused due to an increase in energy prices and disruptions in the movement of food across borders.
    • Factors related to climate change are going to be an additional source of supply shocks in the years ahead.
    • Therefore, the global community must plan to have a global buffer stock of food in order to ensure reasonable stability in food prices and supply.

    Back2Basics: Consultative Group on International Agricultural Research (CGIAR)

    • CGIAR (formerly the Consultative Group for International Agricultural Research) is a global partnership that unites international organizations engaged in research about food security.
    • CGIAR research aims to reduce rural poverty, increase food security, improve human health and nutrition, and sustainable management of natural resources.

  • India specific factors that have bearing on inflation trajectory

    Context

    Inflation is turning into a global concern fueled by multiple global factors. However, in India there are a few other triggers that will have a bearing on the inflationary trajectory.

    Global inflation concerns

    • All that could have possibly triggered higher inflation globally has already occurred — multiple waves of the pandemic, supply disruptions, an overdose of policy stimuli, war, sanctions, energy shocks, geopolitical adversity and weather disruptions.

    1] Impact of MSP on inflation

    • The MSP that is fixed by the government for kharif and rabi crops has been one of the key policy instruments.
    • Policymakers in India have often acted with alacrity to protect the interests of farmers over the years.
    • In the last 20 years, the weighted average MSP for kharif crops saw double-digit growth four times — in 2007, 2008, 2012 and 2018.
    • Food inflation shot up to 12 per cent in 2007-08 as against 8 per cent in 2006-07 and 4 per cent in 2005-06.
    • The inflationary surge continued in 2009 as a monsoon failure hit agricultural output hard.
    • Global agricultural commodity prices started to rise in 2010 again and the FAO food price index reached an all-time high in July 2012.
    • One of the key reasons for the increase in food prices was the oil price surge and a rise in demand for biofuel production.
    • The global upside in food prices coincided with a 22 per cent increase in MSP for Kharif crops in India.
    • Following the rise in MSP, food inflation in 2012 increased by 14.6 per cent as against 3.6 per cent the preceding year.
    • In  2018, for the first time, the MSPs for all 23 kharif and rabi crops were fixed at a margin of at least 50 per cent higher than the cost of cultivation.
    • The cost of cultivation (A2 + FL) includes the paid-out cost and cost of imputed family labour.
    • Accordingly, the MSP of kharif crops in 2018 saw an annual increase of about 14 per cent.
    • However, despite the significant rise in MSP, food inflation in 2018-19 was muted at 0.3 per cent.
    • This was because farm input costs were under control and the terms of trade for farmers remained positive.

    2] Impact of GST on inflation

    • Raising the revenue-neutral rate: In the upcoming meeting, there is talk of changes in GST slabs and rates with an eye on raising the revenue-neutral rate from around 11.5 per cent, which is far lower than the 15.5 per cent estimated at the time of the launch of GST.
    • Avoid the shock: However, a GST rate shock to the system is best avoided given the global inflationary backdrop and the fragility of consumer balance sheets.

    3] Influence of weather

    • While the dependence of agricultural output on the quantum of rainfall has reduced, variance in the spatial and temporal distribution of rainfall is emerging as a key risk.
    • A look at 2021 — a normal monsoon year with rainfall at 99 per cent of its long period average — is instructive.
    • The late excess rains delayed the crop cycle and led to crop damage in several parts of the country.
    • Likewise, the spatial distribution of rainfall remained uneven in 2021.
    • Thus, even with normal rainfall in 2021, there were several disruptions to the crop cycle and farm cash flows.

    Conclusion

    The government has taken various steps lately to rein in inflation. However, the RBI will have little freedom in case the GST council decides to accord revenue protection to states via higher GST rates or if the monsoon is not in line with expectations. One hopes these events pan out right, like the MSP hike, when most other things have gone wrong.

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  • How to keep inflation under control

    Context

    The economy now seems to be largely out of the shadow of Covid-19, and only a notch better than in 2019-20. But the big question remains: can India rein in the raging inflation that is at 7.8 per cent (CPI for April 2022), with food CPI at 8.4 percent, and WPI at more than 15 per cent?

    Need for bold steps on three fronts to tackle inflation

    • Unless bold and innovative steps are taken at least on three fronts, GDP growth and inflation both are likely to be in the range of 6.5 to 7.5 per cent in 2022-23.
    • 1] Tightening of loose monetary policy: The Reserve Bank of India (RBI) is mandated to keep inflation at 4 per cent, plus-minus 2 per cent.
    • The RBI has already started the process of tightening monetary policy by raising the repo rate, albeit a bit late.
    • It is expected that by the end of 2022-3, the repo rate will be at least 5.5 per cent, if not more.
    • It will still stay below the likely inflation rate and therefore depositors will still lose the real value of their money in banks with negative real interest rates.
    • That only reflects an inbuilt bias in the system — in favour of entrepreneurs in the name of growth and against depositors, which ultimately results in increasing inequality in the system.
    • 2] Prudent fiscal policy: Fiscal policy has been running loose in the wake of Covid-19 that saw the fiscal deficit of the Union government soar to more than 9 per cent in 2020-21 and 6.7 per cent in 2021-22, but now needs to be tightened.
    • Government needs to reduce its fiscal deficit to less than 5 per cent, never mind the FRMB Act’s advice to bring it to 3 per cent of GDP.
    • However, it is difficult to achieve when enhanced food and fertiliser subsidies, and cuts in duties of petrol and diesel will cost the government at least Rs 3 trillion more than what was provisioned in the budget.
    • 3] Rational trade policy: Export restrictions/bans go beyond agri-commodities, even to iron ore and steel, etc. in the name of taming inflation.
    • But abrupt export bans are poor trade policy and reflect only the panic-stricken face of the government.
    • A more mature approach to filter exports would be through a gradual process of minimum export prices and transparent export duties for short periods of time, rather than abrupt bans, if at all these are desperately needed to favour consumers.
    • Liberal import policy: A prudent solution to moderate inflation at home lies in a liberal import policy, reducing tariffs across board.

    Way forward

    • If India wants to be atmanirbhar (self-reliant) in critical commodities where import dependence is unduly high, it must focus on two oils — crude oil and edible oils.
    • In crude oil, India is almost 80 per cent dependent on imports and in edible oils imports constitute 55 to 60 per cent of our domestic consumption.
    • In both cases, agriculture can help.
    • Ethanol production: Massive production of ethanol from sugarcane and maize, especially in eastern Uttar Pradesh and north Bihar, where water is abundant and the water table is replenished every second year or so through light floods, is the way to reduce import dependence in crude oil.
    • Palm plantation: In the case of edible oils, a large programme of palm plantations in coastal areas and the northeast is the right strategy.

    Conclusion

    We need to invest in raising productivity, making agri-markets work more efficiently.

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  • What is Liquid Nano Urea?

    During his visit to Gujarat, Prime Minister inaugurated the country’s first liquid nano urea plant at Kalol.

    Liquid Nano Urea (LNU)

    • Urea is chemical nitrogen fertiliser, white in colour, which artificially provides nitrogen, a major nutrient required by plants.
    • LNU is essentially urea in the form of a nanoparticle.
    • It is sprayed directly on the leaves and gets absorbed by the plant.
    • Fertilisers in nano form provide a targeted supply of nutrients to crops, as they are absorbed by the stomata, pores found on the epidermis of leaves.
    • According to IFFCO, liquid nano urea contains 4 per cent total nitrogen (w/v) evenly dispersed in water.
    • The size of a nano nitrogen particle varies from 20-50 nm. (A nanometre is equal to a billionth of a metre.)

    Significance of LNU

    • This patented product is expected to not only substitute imported urea, but to also produce better results in farms.
    • Apart from reducing the country’s subsidy bill, it is aimed at reducing the unbalanced and indiscriminate use of conventional urea.
    • It will help increase crop productivity, and reduce soil, water, and air pollution.

    Using LNU

    • The liquid nano urea produced by Indian Farmers Fertiliser Cooperative (IFFCO) Limited comes in a half-litre bottle priced at Rs 240, and carries no burden of subsidy currently.
    • By contrast, a farmer pays around Rs 300 for a 50-kg bag of heavily subsidised urea.
    • According to IFFCO, a bottle of the nano urea can effectively replace at least one bag of urea.

    How efficient is LNU?

    • While conventional urea has an efficiency of about 25 per cent, the efficiency of liquid nano urea can be as high as 85-90 per cent.
    • Conventional urea fails to have the desired impact on crops as it is often applied incorrectly, and the nitrogen in it is vaporized or lost as a gas.
    • A lot of nitrogen is also washed away during irrigation.
    • Liquid nano urea has a shelf life of a year, and farmers need not be worried about “caking” when it comes in contact with moisture.

     

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