India's most important structural imbalance in a graphic

A report by Deloitte has this graphic which captures the essence of India's most worrying economic-demographic imbalance.

An oversized 58% of the workforce involved in agriculture contributes just 15% to the GDP. India's biggest challenge in the coming years will be to manage the transition of a large share of this 58% into manufacturing and services. Given the already large share of services sector, manufacturing may have to absorb the major share of those moving out of agriculture.

Hawthorne Effect in RCTs

Angus points to this study by a group of researchers that appears to point to significant "pseudo-placebo effects" in RCTs. It can also be viewed as an example of the significant role of expectations in shaping the responses to various interventions.

In two separate RCT experiments in rural Tanzania, farmers were supplied better varieties of cowpea seeds. In the first traditional RCT, the control group were informed and supplied traditional seeds while the treatment group were similarly supplied modern seeds. In the second double-blind RCT, both groups (and experimenters) were unaware as to what type of seed they received, though they were aware of the experiment.

The traditional RCT showed a significant, over 20% increase in yields from the modern seed, whereas, the productivity increase due to seed effect in the double-blind RCT was virtually zero. Most interestingly, a comparison of the two control groups revelead that the production increased in the double-blind control group by as much as the two treatment groups. This is a measure of the pseudo-placebo effect - it captures the crop and harvest differential due to beliefs and associated behavioral responses, not to modern seed.

The researchers found that farmers responded to being supplied with modern seeds by planting in their most productive lands, increasing their plantation areas, and also by maintaining optimal spacing. Each of these, especially the last, contributed towards improving yields.

In other words, "the expectation of receiving the treatment can cause people to modify their behaviors in a way that produces a significant "average treatment effect" even if the actual intervention in not particularly effective". The double blind RCT showed that virtually all of that improvement comes from changed behavior, not from any improved effectiveness due to the use of the modern seed. They write,

The double-blind analysis learns us that the increment in output is not due to the quality of the seeds at all, but instead to a behavioral response of the farmer (who plants the – suspected – modern seeds further apart). Positive treatment effects evaporate when controlling for this. The main conclusion is not to shun RCTs — far from it. However, we should interpret the outcomes of RCTs with proper caution, especially when jumping from output to outcomes and impact. The magnitude of the pseudo-placebo effect depends on the participants’ subjective expectations with respect to the degree of complementarity of the intervention and privately supplied inputs.

They caution against drawing inferences from preliminary findings and advocate repeating the experiments to analyze the changes in responses as expectations evolve,

Biased assessments also occur when participants have the wrong set of expectations about complementarities. To attenuate this source of bias it would be advisable to repeat experiments over various production cycles, allowing participants to learn about the nature of the innovation offered to them. As knowledge accumulates, their response becomes better tailored to the innovation, enabling the analyst to obtain an estimate of the total impact of interventions that captures both the innovation effect as well as the optimized behavioral response.

Aside from the learnings about the interpretation of RCT results, this study is an excellent example of the power of shaping behavioural expectations and responses. It raises the possibility of shaping expectations of a target group - farmers, women, teachers, students, patients, poor etc - by nudging them through creative marketing and awareness creation initiatives. Atleast in certain areas, this has the potential to be cheaper and more sustainable than the convetional hard interventions.

Assualt on incentives - the case of farm loan waivers

Talking of assault on incentives and the moral hazard concerns arising from loan waivers, Mint writes,

The loan waiver announced in February 2008 had a cut-off date of December 2007. The general elections were held about 18 months later. It seems likely that farmers are now anticipating that the next election will be held sometime in the middle of 2014; so it is a good time to begin defaulting.

The Mint report points to a working paper by Martin Kanz (see presentation here) which examined the impact of the 2008 farm loan waiver and found that "debt relief does little to improve the fi nancial position of benefi ciary households" but has strong eff ects on expectations of the beneficiaries. About the material impact of debt relief, he writes,

"Debt relief does not lead to a measurable increase in investment, an improvement in the productivity or a reduction in the variance of realized returns to agricultural investment among households that had their debt cleared under the program."

About its impact on shaping expectations, he writes,

"Households in the treatment group state that they would be much more likely to default on cooperative bank loans in the future, and this propensity is increasing in the amount of debt relief they received. Similarly, recipients of full debt relief are signi cantly less concerned about the reputational consequences of defaulting on bank debt, which suggests that debt relief removes much of the social stigma associated with nancial distress...

the finding that households that had a higher total amount of debt cleared report that they would be more likely to default on cooperative bank debt in the future appears to con firm fears that debt relief is detrimental to the culture of prudent borrowing."

NREGS and mechanisation

Interference with price signals has been the bane of public policy in India. The latest example is the labour market distortions caused by wage guarantee schemes. Business Standard highlights the sharp increases in famr labour wages between January 2007 and April 2011. It is estimated that farm wages have risen by an average of 70% across the country in the past four years due to the success of the National Rural Employment Guarantee Scheme (NREGS) which has been in operation in all Indian districts since 2007.



One happy consequence of scarce and costly manual labour has been the pace of farm mechanisation, as manifested in increased use of tractors, combine harvesters, small tillers, de-weeders and small power-driven sprayers.



The BS article writes about the factors driving increasing mechanisation,

"Such high wages not only squeeze farmers’ margins, but also crimp availability of labour. Factors like MNREGA and the prevalent socio-economic conditions lead to a 30-40 per cent shortage in manpower, which, in turn, leads to escalating costs year after year... the overall harvesting cost of sugarcane in Tamil Nadu has risen from Rs 300 a tonne to Rs 500-600 over recent years. And, that it touches Rs 700 a tonne during peak harvest... a pair of bullocks cost Rs 50,000 and feeding these requires another Rs 5,000 per month. Though used only for a month, they need to be fed for the entire year... bullocks are a hugely expensive proposition in Indian farming."

Power sector reforms - farm power and tariff revision

The Business Standard reports that the Union Power Ministry have advised State Governments to transfer the massive losses, estimated at Rs 1.06 lakh Cr at end of 2009-10, off the balance sheets of state distribution utilities. It has also advised that states take action to ensure no further cash losses.



If the bailouts or restructurings happen, it will be the second time in almost a decade that state distribution utilities have received such help. At the turn of the century, as part of the first flush of reforms in electricity sector across the country, many state electricity boards were bailed with a Rs 41,400 Cr package. State governments assumed the debts and issued long-term bonds.

Like with the earlier bailout, the present need for bailout appears to have been triggered by similar reasons - the near inevitability of widespread defaults to central generating utilities by state and private sector distribution utilities. This is a clear sign that very little appears to have changed with the sector except in processes and formalities.

In fact, for all the structural reforms that have been enacted in the sector over the past decade, central and state governments have refrained from addressing the twin-elephants in the room - limiting free power for agriculture and regular increases in power tariffs. Unbundling, private sector participation in generation, liberalization of regulatory restrictions in transmission and distribution, and operational improvements like loss reduction, can only get you to the starting line.

Any earnest and meaningful effort to reform the sector has to place farm sector reforms and periodic tariff revision at its center. There is nothing secret nor mysterious about this. Any trading enterprise can survive only if its cost of purchase and service delivery matches its price of delivery. In simple terms, the power procurement cost plus the transmission and distribution cost have to match the aggregate tariffs.

In fact, its importance for the long term health of the sector itself cannot be over-emphasized. The problems faced by privatized distribution utilities in Delhi, who too have massive pending dues with generators, is a reflection of the magnitude of the problems. If the present trends are allowed to continue, it will adversely affect the prospects of private sector generation too. Unlike state generation utilities, private generators will not be able to manage their operations without regular payments on their power sales.

In many respects, the current sorry state of affairs is a serious indictment of the state and central power sector regulators. It is also a classic case of how easily important reforms can be subverted and given lip-service in implementation. It also drives attention to the important issue of tariff revision and the need for public conditioning to accept such revisions.

1. The Electricity Act 2003 and the various state regulatory acts clearly mandates that utilities should not bear state subsidies and state governments should transfer upfront (and not reimburse) the subsidy amounts to utilities for all subsidies being implemented by them. The regulators are supposed to safeguard the interests of the regulated utilities through the annual tariff revision filings. They are mandated to fix tariffs in a manner that reflects utilities' cost of power procurement, a reasonable level of operational efficiency improvements (read loss reduction), and required capital and operational expenditures.

But regulators across states have made a mockery of this, accommodating the interests of their paymasters, the state governments, at the expense of the utilities they were statutorily mandated to protect. Tariff filings in most states have been reduced to a charade, an academic exercise, and most often unprofessional at that, that has no relevance to realities in the field. Regulators, barring a few occasions, have failed to exercise their due powers and force states to bite the bullet on tariff and farm power related issues.

2. The policies of state governments since the reforms were initiated is a classic example of how easy it is to subvert well-intentioned and critical reforms. States have not raised tariffs on domestic consumers for many years now. Assuming inflation and the general increase in cost of procurement, the real subsidy has increased massively. Free power to farmers has remained a holy cow. Even the issue of mere metering of agriculture services raises unbelievable amount of passions.

Even with the latest crisis facing utilities, and despite being fiscally constrained, state governments are unlikely to take any meaningful steps to address this issue on a sustainable basis. It will require commitment at the highest levels to stand even a reasonable chance with pushing through such reforms.

3. Despite nearly two decades of liberalization, the one area where public debate, both in the political realm and in popular media, has remained entrapped in the mindset of the bygone era is that relating to cost-recovery and tariff revision. We cannot shy away for too long from the inevitable fact that consumers have to pay the full cost of any service consumed by them.

Public and political opinion needs to be conditioned into accepting the reality that there are no free lunches. Apparent free lunches are unsustainable and cause serious indigestion down the line. Reforms are not just cheap talk. For any meaningful reforms in sectors like utility and municipal services, important structural reforms have to complement with cost-recovery in service delivery. In simple terms, the culture of free or subsidized delivery has to end. At best, cost-recovery can be ensured in the aggregate through some form of cross-subsidization.

There can be a silver-lining to the crisis. If utilities are to be bailed out, it is a great opportunity for all stakeholders - regulators, state and central governments - come together and agree on some minimum steps with reforming farm power and tariff revision. This blog has always talked about scalable and practical steps in public policy reforms. However, the time may have come to stretch the definition of practicability given the serious magnitude of crisis facing power sector in India. I can think of three such minimal set of steps

1. All agriculture services should be metered. Leave alone bringing in efficiency and accountability in farm power consumption, this is an absolute essential requirement for many upstream reforms. For example, current estimates of distribution losses are badly flawed in the absence of any reliable estimate of agriculture consumption. It is common practice for utilities and regulators to use this as a sinkhole to doctor various operational efficiency and tariff figures that suit their respective agendas.

2. There is scope of considerable reforms with the terms of free farm power supply. To start with, free power supply should be restricted to only certain types of farmers, with the restriction being confined to easily enforceable or detectable parameters or proxy parameters. As I have blogged earlier, governments should move over to a system of fixed monthly units for agriculture consumption, to be reimbursed into the farmers accounts when they pay their monthly farm and domestic supply bills. Its benefits are manifold and the availability of Aadhaar, atleast in certain areas, makes the logistics simpler.

3. Periodic tariff revision, for all categories of consumers, must be made mandatory. In fact, even a simple, rule of thumb increase based on inflation or some other fixed parameter, will be one of the biggest boost for the sector. Just as was done to encourage unbundling of state utilities in the first generation of reforms, state governments should be directed to enter into MoUs or agreements with their utilities or mandate rules that define the terms for periodic tariff revisions. A mandatory and automatic requirement to periodically revise tariffs, agreed between all states and the centre can overcome, atleast partially, the political and collective action problems that accompany such hard reforms.

Changing Inflation dynamics in India

An excellent recent speech (via Mostly Economics) by the Executive Director of RBI, Deepak Mohanty, reveals certain interesting trends in India's inflation dynamics. A few points from the speech



1. The role of food inflation



He finds a structural break in the mid-2000s in India's WPI-based inflation, which is the measure of the policy headline inflation. The historical average long-term inflation rate of around 7.5%, which moderated in the first half of 2000s to about 5.2%, started rising in the second half to touch an average of 5.5%. More worryingly, the volatility in WPI inflation increased sharply.







The driving force behind this rise was primary food inflation, in particular protein items. He says,

"Protein inflation has assumed a structural character and is partly driven by demand factors. Within the protein group, persistence was lower for pulses as well as 'egg, meat and fish', but it was markedly higher for milk... Increase in demand for protein appears to be an inevitable consequence of rising affluence. This process was further accentuated by renewed global food price shock during 2010-11. Among the processed food items, the persistence of inflation for edible oils was high."

2. Core inflation



The inflation in non-food manufactured products, which represents the core-inflation, and which has a weight of 55% in the WPI, too has inched upwards since 2009-10. It averaged 4% in the 2000s, and even moderated in the second half of the decade, only to start rising from 2009-10. Deepak Mohanty claims that "the non-food manufactured products inflation shows a major structural break towards the middle of 2009-10 around the time the global commodity prices rebounded".







In fact, he even finds that industrial raw material prices also showed a structural break in early 2009 and the average price increase has been high and volatile.







The coincidence of the recent rise in core-inflation and the similar rise in industrial raw material costs, with the global commodities price increases, lends credence to the view that both are interconnected. He writes that the "pass-through from non-food international commodity prices to domestic raw material prices has increased particularly in the recent years reflecting growing interconnectedness of domestic and global commodity markets".



3. Demand side factors



The less discussed side of our inflation story is the rise in the purchasing power and resultant demand-side pressures, an inevitable consequence of the last decade of high growth. In fact, the the NSSO surveys (61st round and 66th round) shows that the nominal wage rates of skilled workers in both rural and urban areas increased much faster in the second half of the 2000s than in the first half. While the real wage rates declined in the first half, it increased significantly in the second half of 2000s. The wages of the rural unskilled labour has increased sharply, both in nominal and real terms, since the beginning of 2010.







As indicated earlier, a clear manifestation of this trend is the sharp spike in the consumption share of protein items in the rural and urban consumption baskets. The increase in wage rates of the unskilled rural labourers has certainly played a role in contributing to this spike in protein consumption.







In the formal sector, company finance data suggest that the wage bill has risen at a faster rate since the middle of 2009-10.

The downward spiral with public policy?

Consider the following news stories

1. The MGNREGA moves from being an unemployment insurance program to becoming a market wage jobs entitlement program. The pressure to raise wages every year is increasingly driven by populist considerations,

"The wage rates for workers under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) have been increased. According to the rates revised by the Ministry of Rural Development with effect from January 1, 2011, the wages will go up by 17-30 per cent."

2. In fact, if ever a government wanted to design a policy that boosts aggregate wages across all sectors, there could not have been anything better than MGNREGA. Businessline has these latest Labour Bureau figures,

"Andhra Pradesh, for instance, has seen farm wage rates – the average taken for ploughing, sowing, weeding, transplanting and harvesting operations – going up 40.3 per cent in 2009 and 27.8 per cent in 2010. It is no different in other States, where, in the last year alone, the price of agricultural labour surged 15 to 20 per cent in Haryana, Bihar, West Bengal and Assam, 32 per cent in Punjab, and 43 per cent in Orissa."

(Given the concerns about the low wage rates in China and its impact on structural imbalances there, it may be worthwhile for the Chinese government to embrace its version of an employment guarantee scheme!)

3. To square the circle, the wage boost coupled with the upward movement of fertilizer prices (thanks to this), means higher cost of agriculture production, which naturally generates pressure for higher Minimum Support Price (MSP). This was therefore inevitable,

"The Centre is set to announce significant hikes, ranging from 15 to 17 per cent, in the minimum support prices (MSP) of most crops to be planted during the ensuing kharif season. The higher MSPs, while expected to further fuel inflationary pressures, are meant to compensate farmers for the surge in cultivation costs experienced by them in the last couple of years".

4. And high MSP also leads the way to record procurement, with all its attendant storage problems and carrying costs. Going by current trends, wheat procurement during the ongoing 2011-12 rabi marketing season (April-June) is set to cross 27 mt (of a total wheat crop of 84.27 mt), well beyond the target of 26 mt and the previous record high of 25.38 mt in 2009-10,

"At the start of the current marketing season on April 1, wheat stocks in the Central pool were placed at 15.36 mt against the minimum buffer and strategic reserve requirement of seven mt for that date. By July 1, the stocks are likely to be in the region of 40 mt or twice the corresponding required level of 20.1 mt."

So we appear to have this vicious spiral - higher farm wages leads to higher agriculture input costs begets higher MSP begets higher food prices.... Not to speak of the impact of higher farm wages on non-farm wages and the larger economy itself. See this, this, and this.

It is really unfortunate that our vast academic community has made virtually no serious attempt to assess the economic and social impact of the most important poverty eradication strategy of the times. It is impossible to tease out the magnitude effects of the aforementioned chain of events, without rigorous field surveys, pain-staking data collection over a period of time and from different areas, and comprehensive analysis of this data. In the absence of such research, we are forced to rely on official aggregate data to draw broad, un-quantified, and often vague inferences.

Tailpiece

And as if all the aggregate wage boost was not enough, here is more sage expert advise to increase the productivity of NREGA spending,

"Why cannot we have a system, where rural labourers are paid Rs 250 for working eight hours on farmers' fields? Out of the Rs 250, Rs 125 can be underwritten by NREGA, with the balance coming from farmers. We are, then, able to dovetail welfare schemes with productive activity and raise the latter component to 70-80 per cent."

Where and when will all this end?

Update 1 (14/6/2011)

Reuters report points to labor shortages across the country and the role of NREGS in causing it. It also points to the steep increase in farm wages and its impact on food prices.

The global food loss and wastage problem

This story provided lighthearted amusement for some time recently, though its underlying message did not generate much debate. However, there are some interesting findings from a study released by the Food and Agriculture Organisation (FAO) on trends in food loss and wastage across the world,

"Roughly one-third of food produced for human consumption is lost or wasted globally, which amounts to about 1.3 billion tons per year... Food wasted by consumers in rich countries (222m tonnes) is roughly equal to the entire food production of sub-Saharan Africa (230m tonnes)."

The report makes the distinction between food loss - occurring at the production, harvest, post-harvest and processing phases - and wastage - retailers and consumers throwing perfectly edible foodstuffs into the trash. The study finds that though industrialised and developing countries waste or lose roughly the same amount of food each year – 670 m and 630 m tonnes respectively - there are important differences.

Rich countries waste food primarily at the level of the consumer and at the retailer level, especially for fruits and vegetables, by often unreasonable quality standards that over-emphasize appearance instead of safety and taste. For developing countries, the major concern is food loss due to weak infrastructure – including poor storage, processing and packaging facilities that lack the capacity to keep produce fresh. Further, on a per-capita basis, the per capita food waste by consumers in Europe and North-America is 95-115 kg/year, while this figure in Sub-Saharan Africa and South/Southeast Asia is only 6-11 kg/year.



Apart from strengthening food supply chains (by investing in storage, processing, packaging, and transportation), the report also advocates reducing reliance on retailers like big supermarkets, promotion of direct sales of farm produce to consumers, encourages retailers and charities to work together to distribute unsold but perfectly edible food that would otherwise go to waste.

These findings come at a time when the food prices have been soaring (overall cost of food in April was 36% higher than in 2010). Last month, the World Bank said that rising food prices had pushed 44 million more people into extreme poverty, and an additional 10 million people live at the margins of falling into poverty. There are two observations in this context,

1. It is ironical that while public policy explicitly tries to lower electricity transmission and distribution losses, we are, at best, ambivalent about reducing food wastage. This is despite, food wastage being a much bigger problem than the former. More unfortunately, this issue gets even less attention than issues like energy and water conservation.

2. There is some food for thought for behavioural economists and psychologists here. Apart from the hard policy and investment-driven (more storage facilities etc) choices required for cutting down on food loss, can we also nudge people into reducing their food wastage? Such subtle nudges could be incorporated into the processes undertaken at every level in the production-marketing-consumption chain, so as to reduce the likelihood of food being wasted.

For example, one way to nudge people into lowering food consumption wastage is to encourage the purchases of smaller packets of food materials from stores. Another option is some form of restrictions on promotional offers that encourage people to buy more food than they need. Given the amounts of food wasted in hotels, are there some nudges or strategies that could enable hotels more effectively manage their cooking demand schedules? In particular, what are the strategies that enable hotels to minimize wastage from buffet spreads?

But this nudge (or shove) may be one step too far!

Fertilizer subsidy rates go up (again)!

It has come faster than expected. I had blogged just yesterday about the inevitability of the revision in fertilizer subsidies for 2011-12 in view of the rising import prices. The Businessline reports,

"An inter-Ministerial panel under the Secretary, Department of Fertilisers, is learnt to have approved higher import parity prices of $612 a tonne for DAP and $420 a tonne for MOP, as against the existing levels of $580 and $390. These upward revisions would translate into increased NBS rates for phosphorus (P) and potash (K). Currently, the NBS rate on P, linked to a $580-a-tonne reference price for imported DAP, is Rs 29.407 a kg. On the proposed $612-benchmark price, it will go up to around Rs 31 a kg. Likewise, the NBS rate on K will rise from Rs 24.628 to Rs 26.5 a kg with the assumed landed price being raised to $420 a tonne."

Interestingly, even if the NBS rate on P is increased to Rs 31, the resulting higher subsidy of Rs 19,220 or so on DAP would take the gross realisation to Rs 29,970 a tonne, leaving the farmer to still pay the gap of Rs 600-700 a tonne. The report also says that the MOP prices are currently quoting at $520 a tonne, far higher than the proposed revised import parity price of $420 a tonne, leaving the farmer to again absorb the losses. Further, there will be no buffer available to cushion against future price increases, which is inevitable given the global petroleum price trends.

Two important market expectations are getting anchored here. The domestic wholesalers and retailers realize that there is nothing sacrosanct about the once a year subsidy fixation announcement. They have the incentive to raise the MRP to cover the full subsidy instead of raising the MRP based on the import prices. As I had blogged earlier, given its size, India's procurement decisions and import parity price signals will quickly get embedded into the global market prices. So what is the way out?

The price volatility problem with cash transfers

I have blogged earlier that price volatility, especially with food grains, is the most difficult challenge with cash transfers. One of the strategies to overcome this is to provide a large enough subsidy, inclusive of a volatility buffer, so that even if price increases, the buffer will cover for the increase. The nutrient-based subsidy (NBS) for non-urea fertilizers under implementation since April 2010 uses this strategy to cover for price volatility.

It is therefore instructive to examine the experience with NBS in fertilizers. Under this model, fertilizers are sold to farmers at its decontrolled MRP (minus the subsidy) and the subsidy amount paid separately to the fertilizer companies. The nutrient-wise fertilizer subsidy is fixed once a year, based on its market and import prices, and with a reasonable buffer to cushion the producers against price fluctuations over the year.

What has been the progress report with this subsidy regime in operation for more than a year now? A recent report in Businessline highlights the sharp volatility in the prices of fertilizers, as reflected in the manner in which the subsidy fixed for 2011-12 (operational from April 1, 2011) was sharply revised between November 2010 (when it was originally fixed) and March 2011 (when the subsidy amount was frozen). It now appears that even this may have to be revised.

Recent imports of DAP have been for $612 per tonne (or Rs 27,540 per tonne), which with duties, freight and other charges will retail at about Rs 30,735 per tonne. Against this, the MRP of DAP is currently at Rs 10,750 a tonne and the NBS payable from April 1, 2011 is Rs 18,474 (fixed assuming a landed import price of $580 a tonne), thereby grossing the company Rs 29,224 for every tonne of DAP. This deficit of more than Rs 1500 a tonne or Rs 75 a bag will either have to be covered through an increase in subsidy or passed on to the farmer.

Given important state elections coming up, it is almost inevitable that despite the original decision to fix the subsidy once a year, the subsidy rates will be revised again. Similarly, even on MoP, where global suppliers are apparently pushing for a landed price of $420 a tonne (which is more than the current reference rate of $390 a tonne), a subsidy revision looks certain.

Further, there is also the problem of market expectations that get formed by the subsidy price announcements. Since India is one of the largest fertilizer importers, its procurement decisions and prices signals get embedded into the global market prices. Though the subsidy rates announced includes a volatility buffer, the market prices naturally get anchored at the upper end. As the Businessline report says,

"For 2010-11, the Centre had fixed the NBS rates on nitrogen (N), phosphorus (P), potash (K) and sulphur (S) with reference to corresponding import prices of $310 a tonne on urea, $ 500 on DAP, $370 on muriate of potash (MoP) and 190 a tonne on sulphur. For 2011-12, the Centre – in a bid to talk down world prices – initially, on November 19, pegged these reference prices lower at $280, $450, $350 and $125 a tonne. But with global prices showing no signs of easing, the Centre, on March 9, announced new NBS rates for 2011-12 based on higher landed prices of $350 for urea, $580 for DAP, $390 for MoP and $180 for sulphur."

The Businessline report also quotes industry sources who claim that the government's decision to tinker with the DAP reference price has contributed to the steep increase in its import price in recent months. Also, the NBS regime has had no effect on lowering the subsidy burden. In fact, subsidy burden is also projected to go up by Rs 30,000 Cr to Rs 82, 245 Cr, up from the budgeted provision of Rs 52,837 Cr for 2010-11.

The experience of fertilizer highlights the difficulty of managing price volatility and also ensuring access to fertilizers (or food grains) at affordable prices. The much greater price volatility and political sensitivity associated with food grains means that any buffer will have to be much larger. Far from lowering it, the food subsidy outgo will therefore increase.

Admittedly, with fertilizers, given the reasonably integrated national market, it may be possible to calibrate subsidy to a price index. However, this approach cannot work with food grains whose prices vary so widely across the country at any point in time, that it is impossible to capture it in one index with any reasonable degree of reliability. So what is the way forward? More food for thought!

Montana FFA advisor blogs from Afghanistan

From the Great Falls Tribune, http://bit.ly/gvP9o8

CHINOOK, Montana — Deployed in Afghanistan with the 219th RED HORSE Squadron, Chinook teacher Robin Allen may not be in a classroom, but she's still found a way to educate her students.

Recently promoted to master sergeant, Allen has been in the military for 11 years, working as a structural craftsman. For the last four, she's also taught eighth through 12th grade agriculture in Chinook and was the FFA advisor.

Not wanting to lose that connection with her students and community, Allen decided to post journal entries on the school's website to update people as to what she was up to.

"Living in a small town, everyone likes to know what everyone is doing," Allen wrote in an email to the Tribune. "I thought it would be great to have one place that I could send messages to and everyone could read them — family, friends, community, students, etc."

Allen has posted blogs almost every two weeks since she left. While her entries share details about what she's working on, they also describe what it's like to live in Afghanistan.

In her first entry, she told the students how difficult it was for her eyes to adjust to the brightness of the sun. In another she described how an almost powdery layer of dust covers everything.

Webpage manager Paula Molyneaux said that students and teachers alike follow Allen's updates.

"I think that it upped their awareness to have one in our staff shipped out," Molyneaux said. "Really, that's what Robin wanted. This was for them to be aware that she was over there and what was happening — to give them a bigger picture of what's going on in the world."

Allen is currently working on four projects to prepare for the next special forces group to come and take over. Her team is inventorying tools and equipment and doing repairs around the compound, including tinning a roof, sheathing a porch roof and adding some trusses and laying a deck. She expects to leave in the next month.

To read Allen's blog go to http://www.chinookschools.org/.

Japan Says Don't Overreact to 'Nuked' Foodstuffs

With alarming news reports coming out of Japan on a nearly daily basis about how various foodstuffs are exhibiting raised radioactivity levels--whether the bulk of them are true or not I cannot ascertain for obvious reasons--its trading partners are becoming understandably wary of importing Japanese food products. In fact, a number of them have already begun slapping bans on imports from Japan. A few days ago, there were indications that Japan would voice its concerns at the WTO over this sort of overreaction:

Japan will ask World Trade Organisation (WTO) members not to 'overreact' to the crisis surrounding the stricken nuclear plant in Fukushima Prefecture, which has prompted import restrictions on some Japanese food products over fears of radioactive contamination, trade and diplomatic sources said.

The Japanese government delegates will make the request at an informal meeting of the WTO's Trade Negotiation Committee which convenes Tuesday, the first since the March 11 catastrophic earthquake and ensuing tsunami crippled the Fukushima Daiichi nuclear plant in northeastern Japan.

Concerns over safety of Japanese farm and dairy products are spreading globally as radioactivity levels higher than the legal limit set by the Japanese government under the food sanitation law were detected in several kinds of vegetables and milk produced in Fukushima and its vicinity in the aftermath of the nuclear accident.

Countries including Australia, Singapore, Hong Kong, the Philippines, Canada and Russia have placed restrictions on the imports of Japanese food products after the United States slapped an import ban on such dairy products and vegetables produced on farms contaminated by the crippled nuclear power complex, while some others said they would step up inspection of such products.

Japan is expected to ask the member countries and regions to abide by the WTO agreement which bans trade restriction not based on scientific grounds, telling them that Japan is taking strict measures such as shipment bans on agricultural and dairy products with radioactive levels above the limits so as to meet international requirements, the sources said.

Yoichi Otabe, ambassador extraordinary and plenipotentiary to the Permanent Delegation of Japan to International Organisations in Geneva, will explain to the meeting the stance of the Japanese government in order to prevent Japanese agriculture from being hit by harmful rumors, the sources added.

The report in fact previewed matters correctly since, just today, Japanese officials in Geneva raised this very issue at a gathering concerning Sanitary and Phytosanitary (SPS) matters. That's 'food safety' to non-trade junkies:

Japanese officials asked the country’s trading partners on Wednesday not to overreact on its food exports in response to the radiation leak at the Fukushima Daiichi nuclear power plant. A WTO official told journalists that Japan had briefed other countries on the state of food safety following the leak during a meeting of the WTO’s Sanitary and Phytosanitary Measures (SPS) Committee. Japan “urged WTO members not to overreact by implementing ‘unjustifiable’ import restriction,” the WTO official explained. He spoke on condition of anonymity.

Japanese officials said their government has already restricted the distribution of agricultural products which might be contaminated by the leak. “Japan said it has provisional regulations under its Food Sanitation Act for preventing food exceeding residual radioactive contamination levels from being supplied for public consumption. The provisional levels are based on the Japanese government's Nuclear Safety Commission's index, in line with recommendations of the International Commission on Radiological Protection (ICRP),” the WTO official continued.

The Japanese officials told the WTO meeting that their government is carefully monitoring radioactive contamination of food products. They explained that the government is trying to keep trading partners abreast of latest developments through the WTO, Food and Agriculture Organization and World Health Organization.

Japan's highly protected agricultural industry relies on export markets as an outlet for certain types of food products, and they're certainly not those it would like to lose at this point in time. All the same, these products only make up 1% of its total exports. Yet the concerted lobbying at the WTO and elsewhere abroad indicates this is no small matter for them.

Minnesota FFA chapter tackles issues of hunger, poverty at banquet

http://www.postbulletin.com/news/stories/display.php?id=1448789

The Plainview-Elgin-Millville FFA chapter in Minnesota recently hosted a Hunger Banquet at their school to help their classmates gain a greater understanding of hunger and poverty.

At a hunger banquet,guests draw tickets at random that assign them each to either a high-,
middle-, or low-income tier–based on the latest statistics about the number of people living in poverty. Each income level receives a corresponding meal: the 15 percent in the high-income tier are served a sumptuous meal; the 35 percent in the middle-income section eat a simple meal of rice and beans; and the 50 percent in the low-income tier help themselves to small portions of rice and water. Guests can also assume characterizations that describe the situation of a specific person at the income level to which they’ve been assigned. Finally, all guests are invited to share their thoughts after the meal.


FFA member Kimberly Wingard says she first participated in a hunger banquet when she attended FFA's Washington Leadership Conference.

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Are you interested in hosting a hunger banquet at your school?

Free resources are available through Oxfam America.

FFA leads former member to interesting career in entomology research

Today, special guest blogger Candice Rogers writes about how FFA led her to where she is today.

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I am so grateful to have stumbled into ag and most importantly my local chapter of the FFA my freshman year at Wasco High School.

It was a stroke of fate that all of the regular biology classes filled up and the only biology class left was ag bio. I was reluctant to partake in the “ag” side of the bio class at first, because I was ignorant about where my food came from and didn’t give ag people the respect they deserved.

Luckily, my ag bio teacher gave me a little push when he encouraged me to enter the agri-science fair. The rest was history as I climbed my way from the tiny Kern county Agri-science fair to the National Agri-science fair held in Kentucky.

It was unlike anything I ever experienced, royal blue everywhere, like a vast ocean, and I dove right in. I learned that FFA isn’t just for ranch hands and people who grew up on a farm. Before high school, I had no experience with agriculture. Now, I am 25, the entomology research coordinator for one of the top ag companies in the world and so grateful to attribute the foundation of my knowledge to FFA.

As entomology research coordinator, basically I am responsible for carrying out and supervising all the research that goes on in our lab; it’s like a lab supervisor position except some of the experiments I help design and conduct myself. So not only do I get to make the visions of our research leader come alive, I also get to use my creative mind to think of new issues we can tackle. I work with major almond and pistachio insect pests and try to figure out how to eradicate them in the most cost efficient yet environmentally responsible way possible.

Integrated pest management is the future of farming. I have a bachelor’s of science in biology, eight years’ experience in agriculture research, as well as about 45 units worth of agriculture science from a community college. I will also be getting my PCA license this year.

Today I want more people to get the same opportunities as I had. I want to encourage every high school student to become involved with FFA; you will not regret a minute of it!

Your food doesn’t just come from the grocery store, in fact, that was only one short leg of its journey. Knowledge is power, what you know could shape your entire life. My new goal is to educate others about the value of the responsible producers and sustainably grown produce.

Read more about me at my blog, http://theoldladyatheart.blogspot.com/.

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Candice Rogers is a former FFA member and National Agriscience Fair winner from Wasco FFA, California. She currently works in the agriculture industry and credits FFA for much of her success.

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Think you might be interested in a career as an entomologist? Check out this job description to find out what it takes!

Congratulations 2011 Ag Day Essay Contest winners!

Missouri FFA member Nora Faris recently won the 2011 Ag Day Essay Contest. Read her essay below or on the Ag Day website.
~~~~~
Their faces peer out at me from the glossy cover of a magazine, the bold headline touting them as “America’s Most Valuable People”. Among their ranks are political pundits, ingenious inventors, humble humanitarians, and a host of other charismatic characters. Their varied accomplishments reflect a time-tested tradition of hard work and good ol’ American ingenuity, but their lofty title as our country’s “most valuable” citizens makes me wonder. Would Americans perish from “technological withdrawal” if Steve Jobs discontinued the iPad? No. Would a national crisis ensue if Lady GaGa retired from performing? I don’t think so. If Mark Zuckerberg terminated Facebook, would the world as we know it cease to exist? I think not.

Then it occurs to me: America’s “Most Valuable People” aren’t found on magazine covers. Rather, they are found in farm fields, feed stores, and livestock barns. They are American farmers, a group whose labors, although largely unrecognized, are vital to the lives of all U.S. citizens – or at least the ones that eat.

In this modern age of supermarkets and 24-hour fast food restaurants, it has become increasingly hard for the American public to fathom where their food comes from. Long gone are the days when a chicken dinner meant selecting a bird from the henhouse. Today’s consumer, faced with an endless array of choices, selects their poultry with little knowledge of its origin, unaware of the work that went into producing and dispatching the bird. They fail to realize the vital connection between farm and food, between production and consumption. Little do they realize that without our nation’s strong agricultural infrastructure of farmers, their grocery store shelves would be bare.

As America’s population continues to grow, a farmer’s job is to keep up with the escalating demand for food. They will have to play multiple roles in their quest to provide nutritious, affordable products for more than 300 million Americans. Farmers will become inventors, developing devices that will improve crop yields and abolish dated farming practices. They will become delegates for agriculture, lobbying for the advancement of farming in their legislatures. Most importantly, farmers will become naturalists, determining the best solutions for responsible soil, water, and resource management.

Although it’s unlikely that a soybean farmer from Kansas will ever steal Kim Kardashian’s VIP publicity, their true importance to their fellow citizens cannot be denied. American farmers’ dedication to maintaining an unrivaled level of food security makes them our nation’s “Most Valuable People”, even if they drive a Case instead of a Cadillac.

A Chicago-based high school teams up with an FFA chapter to study biofuels

(http://mywebtimes.com/archives/ottawa/display.php?id=420723)

Agriculture students from Mendota have found some friends in the big city, thanks to some old fry grease.

Both the Mendota High School FFA Chapter and the Whitney Young Magnet High School Biodiesel Club are interested in producing and promoting renewable fuels made from used cooking oil.

WYMHS math teacher/biodiesel club sponsor Brian Sievers said the five members of the WYMHS Biodiesel Club built a biodiesel processor and had enough materials left to build a second one. And the students wanted to share one with a school that didn't have access to as many resources, he said.

And so the first student-to-student exchange between the club and the Mendota FFA chapter was set for March 4.

The Mendota FFA chapter had considered building a biodiesel processor and now not only will gain a system but also expertise from fellow high school students through the exchange.

"It will be a great experience for our kids to see their research and hear their perspective," said Jeff Landers, Mendota High School ag teacher and adviser to the 70-member FFA chapter. "Our students are very excited about this opportunity."

Landers plans to integrate the biodiesel processor into his agriscience classes and the biodiesel use into his ag mechanics classes.

FFA chapter members will use the biodiesel in farm equipment used on their 18-acre land lab, where they grow corn, soybeans, pumpkins, squash and gourds.

The Whitney Young club collected used cooking oil, built one biodiesel processor and produced biodiesel. Club members tested the emissions of their fuel at an Illinois Department of Transportation vehicle testing facility in Chicago.

At the same facility, they conducted tests that compared a vehicle's performance on diesel with the biodiesel they made from new oil and used cooking oil.

The students reported the biodiesel reduced emissions by about 80 percent when compared to using diesel in the same vehicle.

~~~
Want to find out more about biofuels? Visit the National Renewable Energy Laboratory website.

Fixing the free power problem

I have an op-ed in today's Mint on a possible strategy to address the challenge of free-power.

Econ 101 about India's food inflation

Monetary policy failings, hoarders, black marketers etc are all straw men in India's inflation story. A cursory reading of Econ 101 teaches us that there is nothing surprising about the high food prices in India. It is the inevitable result of an interaction of supply constraints and an inelastic demand profile.



The result of all this is obvious. For very small supply volatility, prices fluctuate sharply. As can be visualized from the graphic, small supply squeezes translate into disproportionately high price increases.

Further, there are other forces at work that may be amplifying problems at both supply and demand ends. At the supply-end, the growing importance of big retailers, without proportionate increase in production, is squeezing supply elsewhere. Since the big retailers keep enough supply channels open to hedge against any supply shocks, the impact of the resultant scarcity is felt with much greater intensity in the remaining market.

And worryingly, the demand curve, atleast for vegetables, fruits, meat, and pulses, is getting more vertical. Not only are people consuming more, they are also willing to pay even more to access these hitherto luxury foods. Or, as Paul Krugman has written, "it takes big price rises to induce people to consume less, yet collectively that’s what they must do given the shortfall in production". The increased demand for processed foods too is putting pressure on food. As people shift from consuming chicken to sausages, the amount of chicken required to generate the same meal multiplies.

So, why are producers not responding to these price signals? The simple answer is that they are not getting those signals. The hopelessly inefficient agriculture distribution chain ensures that producers get only a small portion of the increased prices. The major share is captured along the chain by various intermediaries and traders.

There are no simple solutions for this conundrum. We need to increase production. This requires incentivizing farmers to expand their acreage and improve productivity. This requires both investments in agriculture and ensuring that farmers get remunerative prices for their produce. And this lies at the heart of any lasting solution to India's food inflation problem.

Update 1 (12/2/2011)

An NYT report indicates that while demand for lentils and beans are growing at 6.5% a year, supply is increasing less than 1%. See also this report on agriculture supply constraints in India.

Update 2 (16/2/2011)

See this Room for Debate on global food price inflation. See this article that explains how diversion of land for biofuel production has increased the pressure on foodgrain prices. Wheat and soy prices increase when corn prices are high, since their acreage allotment is replaced by corn. In addition, wheat and soy get substituted for corn as animal feed. High corn prices cause higher meat, dairy, wheat and soy prices for consumers.

See this FAO monitor on global food prices.

California FFA chapter in need of donated farm equipment

Donated farm equipment that works is the only thing that will save an FFA chapter’s 11-acre alfalfa farm.

The chapter’s 380 members are ready to roll up their sleeves and do everything to keep the farm alive. But they don’t have the right tools, according to a Morgan Hill Times article today.

And unless they find someone to donate mowers, balers and tractors so they can get to work, the farm, located behind Sobrato High School, will be history.

FFA members manage the operation of a greenhouse and livestock barns and can continue taking care of those operations. But their lack of equipment has led to their alfalfa acreage to lie underdeveloped.

So students are asking their community to give any functioning farm equipment to FFA. They’re looking for tractors, power-takeoff implements and three-point implements to move dirt, till, mow, plant, level and harvest their crop. The school’s metal shop classes will also accept equipment that needs minor repairs so they can work on fixes and get the machines to work for FFA.

Sobrato’s agriculture mechanics and veterinary science teacher Joe Martin is the one to contact if you have equipment to give or can help his FFA chapter in any way. E-mail him at joseph.martin@mhu.k12.ca.us.

ILSSO > Steak, Sun, and Struggling Farmers

Bienvenidos a Rosario, Argentina!

We started yesterday off bright and early to our first authentic Argentine breakfast. Then, we departed Buenos Aires for Pergamino to visit Alejandro Calderon at his livestock and row crop farm. There he told us about his rotational grazing practices with his red and black angus beef herd.

He has discovered that raising bulls for stock is much more profitable than selling a finished animal. He also explained to us his cropping system, which includes a winter and summer rotation of corn, soybeans, wheat, and green peas. Soybeans are their preferred crop, even though there is a 35 percent export tax on anything that is sold. This tax seems to be just one of the many governmental regulations that Argentina farmers struggle with on a day-to-day basis. Even so, Alejandro has been successful with his cropping operation and has expanded to include for-hire crop services.

During the heat of the early afternoon, we broke for lunch at the fairgrounds of the Sociedad Rural. Here we were treated to a three course meal. At first we were given a meat tray that we mistook for the main course. After accidentally loading up on bread and Coke, we were than treated to a large, delicious Argentine steak! Just when we thought the meal was done, they brought out a cup of ice cream and frozen fruit. It was a refreshing treat for the warm weather.

After lunch we went to Alejandro’s machinery shed. He is one of the few farmers in the area who is able to own his own machinery. He explained the uses for his machinery and how he has begun to implement technology such as GPS.

Next we traveled to their equivalent of a local elevator. We learned that they take wheat from the local farmers, but they only trade soybeans. This 19,000 metric ton storage facility was also a dealer for agrochemicals and fertilizer. We recognized many brand names from the United States.

Finally, we boarded the bus and headed to Rosario where we stayed for the night. Many of us adventured out on the town to enjoy more local cuisine. We look forward to tomorrow and another sun filled day in Argentina where we'll add on to today’s sunburn!

Adios Amigos!

“The Red Hot Chili Peppers”

Ryan, Iowa
John, Nebraska
Jeff, Kansas
Travis, Idaho
Paige, Washington
Brady, South Dakota
Cody, Illinois
Allison, Texas
Kaite, Michigan
Alec, New Jersey
Lynsey, Florida
Derek, Minnesota
Gaby, Puerto Rico
Sarah, Tennessee
Clay, Florida
Holly, Georgia



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Current and past state FFA officers are invited to participate in the International Leadership Seminar for State Officers (ILSSO). Participants spend 10 days traveling abroad and learning about international agriculture and the global marketplace. Find out more about National FFA Global programs on ffa.org.