Wake-up call for food security

By Paras Kharel

For a country where 31 percent of the population lives below the poverty line and about 80 percent of an average household income is spent on food, the recent sharp rise in food prices is alarming. Nepal Rastra Bank's inflation data show that the prices of food grains and cereal products have risen by 19.7 percent, oil and ghee by 33.8 percent and pulses by 15 percent in the year to mid-April 2008. This has contributed to an inflation rate of 8.9 percent.

Escalating food prices is a global phenomenon that has been making news headlines since the beginning of this year. World prices of rice and wheat have doubled while maize has become dearer by a third within a year. Dismissing the domestic food-price inflation as an inevitable result of integration into the world economy offers little consolation to the man in the street who finds his purchasing power declining by the day. The global food crisis has prompted governments and multilateral institutions alike to take steps to ease the impact on the poor and seriously ponder over possible strategies to avert future crisis. Unfortunately, Nepal has made precious little efforts in that direction, except for banning exports of rice and wheat.

The World Bank estimates that rising food prices could push a staggering 100 million people globally back into poverty. Soaring food prices have triggered protests, some fatal, across the developing world. It is a measure of the gravity of the situation that the Philippines has made hoarding of food grains punishable by life imprisonment. The food-price inflation is attributed to a host of factors: increased demand from fast growing economies like China and India; diversion of food grains and cultivable land to the production of biofuels; supply shocks induced by adverse weather conditions; and an exponential increase in speculative investments in commodities futures in the wake of the US subprime crisis.

Statistical illusion

In contrast to other counties, Nepal has seen no public demonstrations sparked by inflation. This does not mean that people are not affected by surging food prices. Given the disproportionate share of food in an average household budget, the hoi polloi are deeply hurt. Still, one gets to hear some bureaucrats declaring that Nepal is not facing any food crisis, peddling the statistics that this fiscal year paddy production has increased by 16.8 percent, while the output of wheat, maize and millet is expected to rise by 3.8 percent, 3.2 percent and 2.2 percent, respectively. They tend to forget that the imposition of restriction on exports of wheat and rice by India had immediately sent prices shooting up in some tarai districts.

Relevant to availability and price is not production per se but the amount of produce that is put on sale in the domestic market. Even if there is surplus production, the bulk of which is in the tarai, the country's bread basket, there is no way to tell how much of it enters the domestic market and how much disappears through the porous border with India. Thanks to their open border, informal trade between Nepal and India is rampant, with one estimate putting it at 38 percent of formal trade.

In the past, the influx of subsidized, cheap Indian produce into the Nepali market, induced by a glut across the border, forced down prices to rock bottom levels rendering Nepali farmers unable to even recoup their cost of production. Now, even with an export ban on rice and wheat in place since May, there is no guarantee that the increased production this fiscal year will translate into an upswing in domestic supply. After all, from 1999/2000 to 2004/2005, we lived with the incongruity of overall food production being more than enough to meet the national requirement and people in some three dozen chronically food deficit districts staring at starvation.

The open border frustrating the goals of domestic policy measures is not unique to the current food crisis, of course. The same is the case with fiscal and monetary policies. Border regulation has always been a political hot potato. It is unlikely to happen any time soon. Policymakers would do well to bear in mind that a regulated border is indispensable for any national policy objective to be met significantly.

The increase in food grain production this fiscal year being bandied about may be attributed to a favourable monsoon more than anything else. It would make more sense to consider a longer period. Paddy production, along with productivity, had declined for the last three consecutive years. From being the highest in South Asia in the early 1960s, Nepal's agricultural productivity became the lowest in the region by the 1990s. The agrarian country has been a net importer of food grains since the 1980s. Increasing population pressure has led to land fragmentation, affecting productivity. Low returns in agriculture are inducing the younger generation to abandon the profession altogether. The phasing out of agricultural subsidies by the government even as Nepali farmers faced a losing battle competing with subsidized imports from India contributed to the sector's decline. The argument was that the subsidies were not reaching poor smallholders and were only benefiting rich farmers. Perhaps a better move would have been to devise an effective delivery mechanism.

Use of subsidy

With the food crisis assuming serious proportions, even multilateral institutions averse to any kind of subsidy, primarily in non-developed countries, now have 'targeted' subsidies on their list of standard prescriptions for easing the hardship faced by the poor. If 'targeted' subsidies to alleviate the impact of a crisis are okay, then what's wrong with providing subsidies--'targeted' of course--to poor farmers so as to avert the crisis itself?

Policies, protectionists or otherwise, should be guided by national interests. Nepal should realize that even major world powers consider food security as a strategic goal, stated or unstated, and have subsidy policies, among others, geared towards that goal--never mind that subsidies in the developed world are held partly responsible for the present crisis. The US Congress recently passed a farm bill providing for a lavish $66 billion domestic support. The EU's Common Agriculture Policy bestows subsidies worth 55 billion euros--40 percent of EU budget--on the farmers of the 27-member bloc. China still sticks to a mandated self-sufficiency rate of 95 percent. With food security in mind, Japan has bought 12 million hectares of croplands around the world, from Southeast Asia to South America. Japan's overseas croplands are three times the size as on its mainland. As the World Trade Organization (WTO) allows its members to provide a de minimis domestic support equivalent to 10 percent of their agricultural GDP, Nepal can, theoretically, provide about Rs 23 billion in subsidies to its farmers. Resource constraint, if nothing else, warrants a resetting of priorities. Despite contributing 32 percent of GDP and employing two thirds of the labour force, agriculture and related areas get barely eight percent of the national budget. Increased investment in agricultural infrastructure and R&D, complemented by land reforms, and price support as well as maintenance of adequate buffer stocks and prompt delivery of food to deficit areas by the Nepal Food Corporation are crucial for achieving nationwide food security.

Given the worldwide realization of the price of decades-long neglect of agriculture, Nepal should respond to the wake-up call with urgency by giving top priority to the sector without any delay. This will also be consistent with the new thrust of multilateral aid agencies on agriculture development.

(Published on The Kathmandu Post, 24 June 2008)