In the past five years since the global food spikes began, it has become clear that agriculture plays an extremely important role in global markets. Swings in supply and demand have led to huge price volatilities which have affected the poor the most. In such a scenario, the debate about the continuing need for government intervention in agricultural markets is back on the table. At one end of the spectrum there are those who feel that since the initial economic conditions for government intervention have ceased to exist, governments should withdraw from the food grain market. On the other hand, the current price volatility in the international market has meant that a case for government intervention still exists.
Now, it is well established that food shortages hurt the poor the most. Low-income households spend a disproportionately higher amount of their incomes on food and hence a rise in prices massively reduces their consumption and threatens their food security. The above debate thus becomes all the more important in such a context. Developing country governments thus, do not leave the provision of adequate food supplies to the vagaries of the weather or the market. Government intervention in the agriculture sector is thus predicated on the belief that uncertainty in markets is undesirable from the viewpoint of producer welfare and national food security.
Despite the shrinking share of agricultural contribution to developed and developed economies, government intervention in some form or the other in agricultural markets is fairly commonplace. Most governments intervene in agricultural markets to ensure remunerative prices for producers and affordable prices for consumers. Just as the reasons of intervention, the ways of doing it too vary from case to case. Governments sometimes set prices directly or offer subsidies to farmers. They may also use tariffs and export taxes to raise revenue and/or to manage domestic prices. Subsidized food prices for poor consumers are fairly common. Intervention in the markets for agricultural inputs is also widespread: It is common to find subsidies for agricultural uses of diesel or fuel, electricity, fertilizer, and credit, not to mention government services such as extension and education.
It is alarming that crisis such as those in the Horn of Africa are not only becoming more frequent but also are more protracted than before. In such a scenario, the important issue for us is whether government pricing and procurement policies have achieved their stated objectives and if not so, what are the ideal policies for doing so. We believe the present climate of food price spikes and rapidly varying global climatic conditions is the most apt time for a re-opening of these discussions. With a projected global population of eight billion by 2025, feeding these massive numbers should be our number one priority. This can only be achieved if we bring back attention to the agriculture sector and envision ways of creating high-yielding, vibrant and bumper harvests on a sustained basis.
One of the research themes of AgriPolicy Outreach is to take up a range of questions related to the appropriate role for government in agricultural pricing and procurement in African and South Asian countries. Some specific questions to be addressed during the research are -
• What are the recent experiences of countries in the region with output price controls and public procurement? What policies have been put in place, and what have been the political forces that have led governments to adopt these policies?
• How have these policies affected incentives for producers? In this discussion, it would be useful to distinguish between producers with differing degrees of market orientation. For example, have incentives been reduced more for large and more commercial producers, relative to quasi-subsistence farmers? Have incentives been altered for farmers to produce export commodities as opposed to domestic food crops?
• How has public procurement programs intersected with private traders? Has public storage displaced private storage, or have public buffer stocks added to the total storage?
• Have governments been able to manage domestic supply effectively, or have policy distortions simply encouraged smuggling and other forms of evasion?
Inputs, insights & questions from our readers are most welcome.
The complete research paper on Agricultural Pricing and Public Procurement(separately for Sub-Saharan African and South Asian countries) will be published shortly and will be made available on www.agripolicyoutreach.org for free download.
The Author and Research Assistant on the project is Uttara Balakrishnan, Yale University. The findings, interpretations and conclusions expressed herein are those of the authors and do not necessarily reflect the view of Global Development Network or its Board of Directors.