The Food Security Bill transfers the risk of overproduction to farmers, and of inflation to consumers.

On the face of it, the Food Security Bill ticks off all the boxes that should matter on the issue of providing adequate food to anyone who needs it.

There are provisions for the supply of food to the poor, prices at which they should be supplied, meals for the starving, the extension of procurement, and investment for food production. It could be argued that even those who are dissatisfied with the specifics of each provision cannot challenge the fact that these concerns find a place in the Bill.

But in the process of covering all the relevant elements, little attention has been paid to the macroeconomic dynamics of this exercise. And when the Bill is placed in its macroeconomic context, it is difficult to miss the damage the Bill will actually do to food security.

MACROECONOMIC CONTEXT

It may be fashionable today to brush aside the entire crisis in the Public Distribution System as one of corruption. Indeed, the reforms suggested in the Bill are primarily directed at reducing the scope for corruption. But there is a fundamental macroeconomic problem that has led to the collapse of the Public Distribution System.

The system basically consists of the government procuring foodgrains from the farmers at predetermined remunerative prices, and selling it in fair price shops after providing a specific subsidy. This system worked quite well when it could sell most of what was procured. Once the offtake from the PDS declined, however, the government was left with huge unsold stocks. Since it had already paid for these stocks, the food subsidy soared, with the unsold stocks feeding no one but rats.

It would be reasonable to expect that any strategy for food security that leaves the government confident enough to bring in a Bill that guarantees substantial entitlements would begin by addressing this macroeconomic challenge. It has to find a way to continue to support farmers without being left with unsold stocks.

The Food Security Bill doesn't explicitly address this issue. And the use of terminology that seems to implicitly provide the government's answer to this challenge only passes the buck to the farmer.

This can be seen in the section of the Bill on the revitalisation of agriculture that speaks of four main initiatives: securing the interests of small and marginal farmers, increasing investment in agriculture, remunerative prices, and, interestingly enough, ‘prohibiting unwarranted diversion of land and water from food production'.

There are a number of specific questions each of these provisions raise, including defining an ‘unwarranted diversion', and the methods of preventing such a diversion. But ignoring such issues for the moment, all these measures are designed to increase production and procurement. If the offtake from the PDS remains the same, it will only leave the government with even larger amounts of unsold stocks.

MINIMUM SUPPORT PRICE

Supporters of the Bill that was introduced in the Lok Sabha last year could argue that there are a number of initiatives that would actually increase the offtake from the PDS. The lower prices prescribed for foodgrains, the creation of community kitchens, and special initiatives against starvation, would all add to the offtake from the Public Distribution System. But once the hungry are fed, the offtake from the PDS will necessarily taper off.

If the government continues to guarantee procurement, it would once again be left with unsold stocks. This would, perhaps, explain the major strategic change in the Food Security Bill — it doesn't guarantee procurement. Indeed, it only promises to procure at Minimum Support Prices. It could easily choose to procure only as much as is likely to be lifted from the Public Distribution System. The farmers would then be left in the lurch. They would have produced foodgrains based on the remunerative prices that were promised, but would now be left holding unsold stocks.

The macroeconomic consequences of the farmers being left with unsold stocks aren't hard to predict. They would immediately face a crash in market prices. This would leave them unwilling to grow the same crop the next year. This would then result in a shortage and a rapid increase in prices. Foodgrain production can then be expected to follow the cycle of overproduction, fall in prices, underproduction, and inflation.

FOOD SUBSIDY

It is at the last stage of the cycle that the government would once again be affected. In order to procure for the round after inflation has set in, it would have to offer higher prices. This could increase its food subsidy many times. The pressure on the government to raise prices in the PDS would then increase, thereby reducing the quality of food security.

It is in this context that the provision in the Bill to shift to cash transfers becomes particularly ominous. The government could work out the amount of cash to be transferred in lieu of the supply of foodgrains at the time when market prices are low. The consumers would then have to bear the burden of the higher prices when the cycle reaches its phase of inflation.

The Bill, thus, actually transfers the risk of overproduction to the farmers, and that of inflation, to the consumers. Thus, under the guise of providing food security to the poor and starving, the Bill actually erodes, if not destroys, the security of both the farmers and consumers.

At a time when increased risks have been known to cause farmers' suicides and inflation makes hunger worse, the Food Security Bill must be seen as one of the most cynical uses of political doublespeak.

(The author is Professor, School of Social Science, National Institute of Advanced Studies, Bangalore.)

(This article was published on March 1, 2012)
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