Only innovation, not money control, can combat food inflation

Few areas indicate policy paralysis in the UPA government more than agriculture, and, by implication, inflation.

While important in itself, corruption is not the Congress-led ministry’s number one headache — food inflation is. Galloping food prices — even if the rate of rise is falling, in absolute terms the average Indian family’s grocery bill is way higher today than in 2004 or 2006 — have fuelled general inflation.

This, in turn, has caused a panicky government to curb money supply by raising interest rates to dizzying levels. Deprived of cheap capital, consumers are not buying and producers are not expanding capacity. The result: a perfect storm in the economy, and falling ratings for the Manmohan Singh government.

Asked about food inflation, a senior Congress minister agreed recently that it would probably prove electorally crippling. “But no government can do anything about it,” he shrugged, “food prices will continue to rise for the next 10 years.”

The shrug was more than a shrug; it was a cop-out. Why did the minister say “10 years” and not “seven”, or “20”? Frankly, more than a thought-out statement, it was just an attempt to end an uncomfortable discussion. Likewise, the shot of the Congress at explaining or redressing food inflation — blaming it all on agriculture minister Sharad Pawar or hyping the opening up of multi-brand retail — has been too pat and aimed at symptoms rather than causes.

To some degree the setting up of massive cold chains — the back-end of big retail, as it were — and the easing of domestic trade in agricultural produce will help contain localised food price spikes. In a broader framework, free trade agreements with Europe or with Australia and New Zealand could bolster, say, milk supply. India is the world’s largest milk producer but is probably not going to be in a position to meet the demands of an expanding population. In recent years, milk prices have jumped almost on a monthly basis.

Commodities such as pulses and oilseeds/edible oils are chronic problem points for India. With land being lost to everything from urbanisation to jatropha cultivation, India will need to find secure external sources for pulses, which are hardly consumed in other large agricultural markets. Already India imports from countries as far apart as Australia and Canada. Some years ago, an Indian business conglomerate offered to lease land in Africa and grow pulses for home consumption, provided the government in New Delhi offered it price guarantees. The agriculture ministry demurred and the plan died.

Yet, all of these trade-related solutions cannot blind us to the elephant in the room: the need to revitalise Indian agriculture. This is a 20-year-old story that refuses to move. In the 1990s, the first alarm bells rang when the rate of growth of population overshot the rate of growth of food production for the first time since the Green Revolution. In 2005, Prime Minister Manmohan Singh and President George W Bush announced the India-US nuclear deal as well as a dramatic new partnership in agricultural research and innovation. The first went through, the second is still waiting.

The slow pace of innovation in agriculture, the distorted economics of the Indian farm, and the inability of political parties to break lobbies of entrenched big farmers who benefit from the status quo: all of these are inhibiting food security.

The innovation issue is particularly crucial. This past week, in his ‘2012 Annual Letter’ as co-chair of the Gates Foundation, philanthropist-businessman Bill Gates termed the small outlay for agricultural research “short-sighted and potentially dangerous”: “Only $3 billion per year is spent on researching the seven most important crops. This includes $1.5 billion spent by countries, $1.2 billion by private companies, and $300 million by an agency called the Consultative Group on International Agricultural Research (CGIAR). Even though the CGIAR money is only 10% of the spending, it is critical because it focuses on the needs of poor countries.” In contrast, only a fraction of the country and corporate spending goes towards research to help small farmers in countries such as India.

Small innovations can make big differences. Gates referred to India’s use of a “new rice seed called Swarna-Sub1, which is both very productive and can survive in flooded fields”. As Swarna-Sub1 begins to be used in regularly inundated eastern India and Bangladesh, it could yield incremental rice to feed 30 million people. Somewhere, to some microcosmic extent, rice prices would stabilise. In other fields — computer chips, for instance — the inverse correlation between innovation and inflation is treated as a given. Why not in India’s food economy?