Why we need the Food Security Bill? Part 2

Another argument, seemingly less compelling but legitimate nevertheless, in favor of food security:

While much needed and absolutely commendable, it is commonly understood that hike in diesel prices will feed into food inflation; slightly dated but diesel costs were 7% of agricultural input costs in FY09.

Incorporating the current 7% hike in diesel prices, a preservation of farm incomes (agricultural GDP, Estimate 3 in table below) would require 2.3% rise in value of output i.e. farm prices: - value of output in case there were a 7% hike in diesel price and costs were passed on in full, is 2.3% higher than actual value in FY09, implying food inflation would have been higher by 2.3 pct points.

Figures in Rs crores

In Why we need the Food Security Bill? Part 1: How food inflation eats away real income.

Why we need the Food Security Bill? Part1

A more compelling argument in favor of food security bill, all in numbers:

High food inflation led to higher than proportionate increase in food expenditure (assuming constant consumption), leaving lesser income for other expenditure
Total expenditure increased by ~11%, food expenditure increased by 16% and other expenditure only by 8%:

The table shows lower increase in non-essential expenditure in FY10 due to high food prices:

* Food expenditure growth assumption: constant quantity; expenditure increased by increase in prices (Food articles inflation = 14.6%) and population increase = 1.4%

In FY10 consumption of all commodities other than food may not have necessarily fallen given fall in prices and excise cut. However, going forward, a large rise in food prices would entail a larger than proportionate increase in food expenditure rendering the poor poorer.

If there is a bad harvest, there isn’t enough foodgrains. If there is a good harvest, there is wastage of grains!

Budget FY11 underlines the need for accelerated investment for the construction of warehouses and cold storage facilities. The Govt has now also allowed ECB for this purpose. Besides, various excise, customs and service tax exemptions are available on equipments used in agri produce preservation and storage. Subsidies already in place included Rs 1.3 crore per cold storage facility.

Why with all the subsidies to the private sector, why does the Govt also spend on FCI rentals? FCI has been hiring godowns from private parties for a guaranteed period of seven years.

The Govt should link the subsidy to each warehouse with two years of one third warehouse space let out to the Govt, for no cost.

For the entrepreneur, if with Rs x profit per sack of grain led to a breakeven in t years, the break even under the proposed structure increases by just two-third of a year. The govt in the meanwhile can save on rent and build godowns that it now needs to do given the revised buffer foodgrain norms following the introduction of Food Security Bill.

Outsourcing malnutrition

Per cap grain availability has averaged over 300 Kg/year between 2000-10. Yet we continue to see a high incidence of malnutrition and malnourished deaths. WHO estimates 178 million malnourished children around the world.

Clearly, food production is not yet a bottleneck, and hunger is perhaps a direct consequence of the utter poverty of the lowest income groups.

The increasing number of agricultural land acquisitions in the lower income economies, by the advanced nations, is incredible, and highlights the role of govt policies and safety nets.

India's Food Security Bill is a commendable step towards achieving food security. However, more than intention, it is implementation which will determine the success of food security.