How to manage the food economy

As the economy moves on to a new growth trajectory, expectations from the agricultural sector would also be changing. A seven per cent-plus trend growth in per capita income can lead to a significant growth as well as diversification of the food basket. Higher incomes will enable consumers to spend on high value and better quality food items; consequently the composition of food demand will change. Given the limited availability of land, the emerging demand will have to be met through productivity growth or yield increases.

It is easier said than done. Institutional legacies like fragmented land holdings and unclear land rights, limited investment in irrigation, agricultural R&D and infrastructure as well as distortion-creating subsidies will continue to constrain yield improvement. More often than not, subsidies and higher minimum support prices lead to wrong choice of crop, fertilisers and water usage.

There have been several studies on the demand-supply balance of cereals. The basic conclusion is that India will not face an immediate shortage so far as cereals are concerned. However, there are three crops that will get affected immediately: pulses, edible oils, and sugarcane. Over the next 10 years, the demand-supply gap for pulses will treble, that of edible oils will double and for sugar it can go up six times. Unfortunately, the focus of the government's "food security" programme is mainly on cereals.

Management of the food economy will require four elements: Increasing yields for meeting domestic demand; meeting demand through a combination of growth in domestic output and imports; creating enabling conditions for a highvalue food economy (which will include items like milk and its products, fruits, vegetables, poultry and fish); and a focus on exports of select items where competitive advantage exists and international prices are expected to remain firm. None of these can be achieved without an understanding of the entire supply chain.

Since the Green Revolution, there haven't been too many breakthroughs in Indian agriculture, barring BT cotton. However, the spread of bestin-class agricultural practices can be of help. We have often noticed that two contiguous districts in the same agro-climatic zone have widely different yields. This is particularly true for pulses.

Such problems can surely be addressed. The regional differences in overall agricultural growth rate, say between Gujarat and Assam, can be very substantial. While the average yield in most of the crops is lower in India compared to the world average, our best-in-class districts can favourably compete with the best in class elsewhere. Why can't we take the best- in-class practices around the country?

As incomes increase, there is a marked shift in the share of expenditure from cereals to other food items; between 2004-05 and 2007-08, the share of cereals in rural as well as urban India has come down by a full percentage point. Interestingly enough, the National Sample Survey (NSS) data shows the per capita quantity consumed of cereals is trending down too: Between 1993-94 and 2004-05, the per capita quantity consumed in 30 days declined from 13.4 kg to 12.12 kg in rural India; in urban India it declined from 10.6 kg to 9.94 kg.

There is a significant shift from cereals to other food items. The demand for pulses, edible oils, sugar, meat, fish and egg continues to go up. In recent NSS data, one of the sharpest increases is observed in beverages, refreshments and the processed foods category. Finally, for managing the supply chain from farm to the consuming household and investing in it, one needs a stakeholder who can offer better returns to the farmer and more competitive prices to the consumer.

It is in this context that modern retailing can play a significant role. Once modern retailing starts gaining economies of scale and scope at the front end, the back-end procurement of agri products as well as warehousing, cold storage and transportation network would fall in place. This will bring down wastage and add to the overall availability of food items.

- The writer is the Economic Advisor, TATA Group