Promoting market-friendliness

When it comes to ensuring the availability of food to the masses at reasonable prices, the governments of developing countries have traditionally tended to rely largely on the agencies under their control. They often view the market’s ability to do so with a degree of distrust.

This has been especially the case in Asian countries where, till quite recently, indigenously produced food was invariably insufficient to feed large populations consisting mostly of people unable to afford costly imported food. The result was the creation of wholly state-controlled or quasi-government agencies for importing or procuring domestically, warehousing, and distributing foodgrains, notably staples like wheat and rice, regardless of the costs to the governments.

India is a typical case in point. The induction of food rationing system in the country by the colonial rulers in the pre-Independence era was the result largely of inadequate indigenous food output and the market’s disability to plug the demand-supply schism to provide grains to people at affordable prices.

The great Bengal famine of 1943, moreover, was the vile manifestation of market failure. At that time, the availability of food elsewhere in the country was not too poor, but the market lacked effective means of intelligence gathering and integration to ensure an even spread of available food.

Post-Independence, the setting up of the Food Corporation of India (FCI), too, was preceded by a brief — and woefully unsuccessful — experiment with liberalisation of the food trade.

The book under review concedes this stark reality even while, on the whole, it endorses the suitability of the market for catering to the food needs of people in a cost-effective and efficient manner. It carries detailed studies of the evolution of food and agricultural parastatals in six Asian countries (India, Bangladesh, Pakistan, Indonesia, Vietnam and the Philippines) to bring home this point.

The book seeks to attribute market malfunctioning to broadly three factors: paucity of marketing infrastructure and integration; want of risk management mechanism; and unabated price and supply-side volatility in the global food market.

However, the book argues, and rather forcefully, that such reasons for distrusting the market and for creating parallel quasi-state-operated marketing channels no longer hold true, at least not in the same measure as in the past. Indigenous food supplies have improved in most Asian countries, making some of them even net exporters, and poverty has declined perceptibly.

Besides, the pace of economic development, too, has quickened in most of these countries thanks largely to the on-going process of financial and structural reforms. This has, as could be expected, led to a change in the governments’ perception of the market’s overall role in economic development, though, for political exigencies, economic logic is still not wholly applied to food management.

Citing Bangladesh’s example, where the process of economic reforms began way back in 1994, the book argues that reductions in public intervention in the food economy need not necessarily lead to high prices or food insecurity. On the contrary, a decline in official interventions can promote competition in the market, reduce subsidies and release funds for development and poverty alleviation without jeopardising price stability and food security, it maintains.

Vietnam is quoted as another example where liberalisation has led to higher food production, greater technology adoption and more intense competition in the local rice market.

The book seeks essentially to rub in the fairly well-appreciated point that food parastatals in Asian countries are becoming increasingly expensive and wasteful. The alternative institutional mechanisms for achieving price stability and food security are far less expensive and market-distorting.

Interestingly, the book concludes that Asian farmers are bound to opt more and more for growing high-value foods like fruits, vegetables and oilseeds rather than staple cereals alone. “Small farmers cannot expect to make a satisfactory living from growing wheat and rice on their progressively smaller landholdings,” the authors say in support of this plea.

Having made a formidable case for why parastatals-centred policies need to change in order to reduce food subsidies and improve efficiencies in food management, the book concedes that this is unlikely to happen immediately or in one go. This is because politicians, with one eye on the electorate, have to play safe. But policymakers surely need to go through the analyses and conclusions presented in this book.

FROM PARASTATALS TO PRIVATE TRADE
LESSONS FROM ASIAN AGRICULTURE

Edited by Shahidur Rashid, Ashok Gulati and Ralph Cummings Jr
Oxford University Press
256 + XX pages; Rs 645