Transcript Structure and Impact of Rising Food Prices in India

Structure and Impact of
Rising Food Prices in India
Empirical Review and Qualitative Assessment
Abusaleh Shariff
National Council of Applied Economic Research, New Delhi
Presented in an international workshop on “Indian Agriculture: Improving Competition
Markets and the Efficiency of Supply Chains” jointly organized by Australian Centre for
International Agriculture Research, and NCAER, New Delhi, 16 February, 2011
Presentation is based on a draft paper – ‘Food Security in the Context of Food Price Rise in India: An empirical review, by
Abusaleh Shariff and Ganga Shreedhar, January 2011
Motivation for this Study
• Global Food Price Increase 2008-9 | Domestic Food Inflation 2009-10
• Structure of Food stress and implication for markets & Food Security?
• Product specific price movements in recent months /years
•Income and price dynamics of food consumption (demand)
•Food Consumption behavior & differentials
•Understanding Coping mechanisms
•Safety Net Policies and Efficiency
Shariff's PPT
2
Quantitative and Qualitative Methods
(1) Monthly Price movements May 2006- June 2009
 25 food and fuel items | 78 towns/cities
(2) Nationally representative sample survey of households,
 human development survey, NCAER-2004-5|N=40,000 ruralurban
 Price, income & substitution effects - rice, wheat and milk
(3) Qualitative rapid surveys and focus group interviews
 Coping mechanisms - UP, MP, Karnataka and Delhi-NCT.
(4) Review safety net/social protection policies –
 PMT Score method - improve targeting efficiency
Food Price Surge: 2007-08
• Focus on the poor and vulnerable
• Rural and Urban differentials
• Diversity in Coping behavior
• Efficacy of programs mitigating food crisis
• Improving food security of the poor
International Cereal Price Links
• International Rice and Wheat Price surge
- from mid-2007 to mid-2009
• Prices in India did not rise
• Rather Indian price rise dramatically only from
mid- 2009 and continued into 2010, when
actually international food prices crashed!
Market Size and Price Movements
Specific Food Items
• 78 Towns / Cities
Size Class
< 1 lakh
1-5 lakh
5-10 lakh
10-25 lakh
25-50 lakh
50 + lakhs
Note: Town/city class size cutoffs are chosen so as to ensure that a reasonable percentage of total population is covered in each of the category.
• 25 Food Items Monthly Price Movements
Wheat, Rice (common variety) , Wheat Flour Atta (processed)
Milk, Pulses, Vegetables – Onion etc , Cooking Oil
Fish, Meats, Chicken, Eggs
Kerosene
Commentary
Monthly Cereal consumption Shares and Quantities
India
Cereal/ Sector
Rural
Urban
All
Share of selected cereal consumption (%ge)
Rice
56.1
52.3
55.3
Wheat
36.5
41.8
37.9
Other Cereal
10.9
5.7
9.3
Monthly Household Consumption
(Kgs./Reporting HHs)
Rice
37.8
24.5
33.9
Wheat
30.6
22.8
28.1
Other Cereal
17.4
8.8
15
Mean for all HHs
All Cereals
63.5
Source: Calculated by the author using HD- Survey (2004-05).
45.7
58.3
Commentary
Monthly Per Capita Consumption by Income Quintile
Kgs/Liters
Select Items
Quintile
Rice
Rural
Rice Urban
Wheat
Rural
Wheat
Urban
Milk Rural
Milk Urban
Vegetables
Rural
Vegetables
urban
Lowest
7.1
4.7
6.4
5.3
2.9
3.2
3.7
3.5
Q2
7.3
4.9
6.2
5.1
3.3
4.0
3.8
3.7
Q3
7.3
5.0
6.1
4.9
4.1
5.1
4.2
4.4
Q4
7.0
5.0
6.3
5.0
5.4
6.2
4.2
4.8
Highest
6.5
5.3
6.4
5.0
6.9
8.1
4.5
5.4
Total
7.1
5.0
6.3
5.0
4.4
5.2
4.0
4.2
Commentary
Household Quantity Consumed
a day before interview, selected States
Multivariate Analysis Suggests
Rice consumption is relatively more sensitive to price rise
Possibly due to substitution to cheaper cereals which is mostly
wheat
Home Grown Rice help sustain consumption upto 30%
Home Grown Wheat help sustain consumption upto 13%
Home produced Milk help sustain consumption upto 50%
Results
Sources of Household Grain Consumption
Source: Calculated by authors using IHD-Survey (2004-05).
Comments
Sources of Household Rice and Wheat
(b) Wheat by Income Quintiles
(b) Rice by Income Quintiles
Q5
Q5
Q4
Q4
Q3
Q3
Q2
Q2
Q1
Q1
0%
20%
Rice Paid/Market
40%
60%
% share
Rice Home Grown
80%
Rice PDS
100%
0%
20%
Wheat Paid/Market
40%
60%
% share
Wheat Home Grown
80%
Wheat PDS
100%
Short Term Coping Mechanisms Reported by Households (%)
State
Reduced
Breakdown
Increased
Child
Child Sent
food
of
debt
withdrawn
for meager
intake
social
from School
wage
Sold utility
Migrated
Sold livestock
assets
out
network
All
Rural
UP
MP
Karnataka
All
Urban
UP
MP
Karnataka
Delhi
83
66
45
23
11
25
13
18
70
48
49
35
20
41
19
45
95
80
68
11
3
5
13
8
80
68
9
26
12
33
6
1
93
76
29
25
11
5
14
6
91
50
31
31
20
4
21
13
100
83
45
19
12
2
10
7
93
83
13
21
6
8
7
0
91
86
39
28
9
3
19
6
Comments
Typology of Low Food Stress
Sustain quantity at the cost of quality
PDS present and generally accessible
Marginal dependence on general market
Income and consumption smoothening possible
No takers for NREGA, even women
Can deal with idiosyncratic shocks except health crisis
Moderate Food Stress
RURAL
Face food shortages, inadequate home production,
Irregular and limited PDS but high dependence,
Depends on market to bridge consumption needs
Low income and consumption smoothening
Migration both seasonal and long term
Conditional (higher wage) demand for NREGA
Difficulty in dealing with idiosyncratic shocks and health crisis
URBAN
Face food shortages, no home production
Irregular and limited PDS but high dependence
Depends on market to bridge consumption needs
Low income and consumption smoothening
Some are recent-migrants
Difficulty in dealing with idiosyncratic shocks and health crisis
High Food Stress
RURAL
Young earners migrate leaving old and vulnerable in village
Low productivity agriculture and lack of irrigation
Poorly developed non-farm employment
Lack of awareness about NREGA
Nonexistent wage-empl. opportunity in and around village
URBAN
Unstable families in urban fringe, uprooted from rural parts
Manual labor, beedi rolling, cycle rickshaw etc
Poor employment and low wages, and lower occupational diversity
No home produced food, No or low PDS access
Total dependence on general market
Low capacity for income and consumption smoothening
Cannot deal with idiosyncratic shocks,
High incidence of sickness
SAFETY NETS
Public Distribution System
Exclusion and Inclusion Errors
Recent period has seen increased public spending on safety
nets & food subsidy for food security…..
Central Government Safety Net Outlays
Central Government Food Subsidy Bill
Comments
Source: (Ministry of Finance, Various years) (Central Statistical Organization, Ministry of Statistics and Program Implementation, 2010)
MG-NREGS, Rural Wage Employment
MG-NREGS allocation is about 0.7% of GDP
Nearly as much as the food subsidy bill
Agri. Debt Waiver and Relief
2008One time schemed in response to the spate of famers’
suicides perceived to be driven largely by the inability to
repay debts.
Total expenditure 2008/09 was Rs 150 billion (about $US 3.3
billion)
PDS Card Ownership by Income Quintile
Exclusion and Inclusion Errors in PDS
Rural India
Urban India
Poor (25.9)
Non-Poor (74.1)
Poor (22.8)
Non-Poor (77.2)
Deprived (35.3)
Better Off (64.7)
Deprived (39.1)
Better Off (60.9)
BPL
APL
42.1
43.2
22.2
56.6
Poverty Estimates by Standard Measure
Rural India
52.2
32.7
39.1
46.2
Urban India
36.3
46.1
19.0
59.0
Deprived Estimated using PMT Score Method
Rural India
55.4
28.6
34.7
51.2
Urban India
33.7
44.3
17.0
62.2
No Card
14.8
21.2
15.1
14.7
17.6
22.0
16.0
14.1
22.0
20.8
The Overlap- Poor Versus Deprived
Rural India
Poor (std. method)
25.9
Non-Poor (std. method)
74.1
Urban India
Poor (std. method)
22.8
Non-Poor (std. method)
77.2
Deprived (PMT)
Better Off (PMT)
35.3
64.7
41.8
58.2
17.2
39.1
60.9
46.2
53.8
7.7
82.8
92.3
Add on Threat Leading to Malnutrition:
Incidence of Diarrhea among the Under-5 year Old Children
India
Income class
Rural
Urban
Total
All
10.2
6.9
9.4
Lowest
10.3
8.1
9.8
2
12.1
6.6
10.9
3
11.0
6.3
9.8
4
8.3
6.4
7.8
Highest
5.9
5.6
5.8
Quintiles
Thank you
Wheat - Prices lower in smaller towns price rises at
town size increase
Wheat Flour – price highest in smaller towns lower in
large cities
Even a small processing value added and marketing
increases the price considerably and add on
transportation make prohibitive in rural areas
Centralized processing of Cereals must be discouraged
back
Cereal Consumption
High consumption in Rural - 64 kgs
Urban - 46 kgs
Share of Rice is higher more so in Rural area
Wheat relatively an Urban Cereal
back
Per Capita Cereal Consumption
by Income Class
Marginal differences between income class
- both Rice and Wheat | Rural and Urban
Extremely large differences between income class
- Milk and Vegetables and other value added
Not surprising !
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Multivariate Impact
Variable
Dependent Variable
Independent Variable
_cons
Wheat
Rice
Milk
Log of PCM Wheat con. (Kg.)
Log of PCM Rice con. (Kg.)
Log of PCM Milk con. (litre)
Coef.
P>t
Coef.
P>t
Coef.
P>t
2.78
0.000
2.81
0.000
1.74
0.000
Log of Wheat Prices (Rs/Kg.)
Price Effect
back
Log of Rice Prices (Rs/Kg.)
Log of Milk Prices (Rs/litre)
-0.39
0.000
-0.54
0.000
-0.16
0.000
PDS Wheat
0.02
0.012
na
na
na
na
0.13
0.000
na
na
na
na
Home Grown Wheat
-0.14
0.000
na
na
na
na
Home Grown Other than Wheat
0.06
0.000
na
na
0.30
0.000
na
na
-0.30
0.000
na
na
0.48
0.000
0.03
0.038
Source of Cereal
PDS Rice
na
na
na
na
na
na
na
na
na
na
na
na
na
na
Home Grown Rice
Home Grown Other than Rice
Milk Production at Home
Home Grown Cereals
Number of obs.
32139
38805
31028
Prob > F
0.000
0.000
0.000
R-squared
0.70
0.72
0.39
Adj R-squared
0.69
0.72
0.39
Root MSE
0.54
0.60
0.74
Market Dominates
Urban Cereals
85 - 90% Market dependence
Rural Cereals
50% Market, 35% Self, 10-15& PDS
Marginal Difference by income class
Middle income HHs use more PDS!
back
Multiple Coping Mechanisms
80 - 90% reduce consumption
70-80% face breakdown of social networks:
Inflation impact households uniformly; and make them cautious
High Indebtedness 50% in rural areas
About a quarter HHs withdraw children from school
And another 10% resort to child labor
Sale of livestock, and household assets also reported
Rural households migrate out in search of income (18%)
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Food Subsidy Outlays
Food subsidy bill represents the basic direct cost
incurred by the center from procurement, stocking and
supplying to various food based safety nets such as
PDS
Food Subsidy Outlays:
0.6% of the GDP in 2006/07
0.8% of the GDP in 2008/09 and 2009/10
Rs. 400 billion - partly cost of rising MSPs and
procurement and no corresponding increases in the
issue price of grain for safety nets like PDS
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