Book Review
Agricultural Prices in a
Changing Economy: An
Empirical Study of
Indian Agriculture, by Munish
Alagh. Academic
Foundation, New Delhi ,
2011. pp.
174. ISBN
978-81-7188-810-8. ISBN 10:8171888100.
JEL 54995, Price `
695
The empirical research
on agricultural price policy
that began about
four decades ago has now burgeoned
to include various
facets of agricultural policy. The
‘Agricultural
Prices in a Changing Economy: An
Empirical Study of
Indian Agriculture’ by Munish
Alagh is a useful
contribution in the growing literature
on India ’s
agricultural price policy, especially in the
context of
globalization of agri-food markets. Building
on the tradition
of past research reviews and the debate
on the subject in
a historical context, the author has
examined market
responses of Indian agriculture in the
reforms period
(1991 to 2004). The book is a timely
contribution which
contains a comprehensive
examination of the
issues related with price
responsiveness of
Indian agriculture when the global
prices of
agricultural commodities are becoming more
volatile.
Starting on the
premise that aggregate agricultural
supply function of
the Indian economy was price
inelastic, but at
crop level, the price response was
positive.
Questions were also raised on the inelasticity
pessimism debate.
Chakravarti (1969) has identified
“the inelasticity
of the marketed surplus of agriculture
as the single most
important barrier to growth”.
Elasticity
pessimism was a dominant theme in the
earlier “meta”
studies on the role of prices and markets
in Indian
agriculture. These studies have either taken a
prior position or
reflected macro policy perspectives
while analysing
the agricultural sector. This typology
of literature
could has been put to more use in the
subsequent
chapters, particularly in making the
agricultural
growth-price signals nexus more clear.
Regarding the
level and nature of growth in Indian
agriculture,
interesting debate arose in the 1970s.
Dantwala (1962,
1967, 1976) contradicted the belief
that increase in
production was due to the increase in
acreage and since
the scope of further expansion in
acreage is
limited, agricultural production may not
increase at the
same rate. Hanumantha Rao (1975)
categorically
emphasized that agricultural growth was
technology-driven
and not economic incentive-driven.
Vyas’s (2003)
analysis resonates with the view that
increase in land
productivity requires not only a better
access to non-land
inputs, but also a much more careful
use of these
inputs. Controversy settled that increase
in acreage had
remained more or less stable. Another
strand of
literature, e.g. Kahlon and Tyagi (1983)
stressed on
developing an effective price policy. The
precise role of
prices is to stimulate total agricultural
production and
individual crop production as well as
the overall effect
of prices on savings, investments and
production was to
be established and understood.
The book has a
highly focused theme and is a
compilation of 5
chapters. The topics are well selected
and maintain
consistent coherence to reach the logical
conclusion, and
collectively, over a lot of policy-
relevant issues
pertaining to agricultural prices in a
changing economy.
In fact, the volume is a mix of both
theoretical and
policy application work. The book
addresses three
topical areas:
(1) How the price
policy is supportive in acceleration
of growth and new
technology?
(2) In post-reform
period, how price policy is a potent
policy variable
for augmenting agricultural output
and assessing
policy implications.
(3) Methodological
deficiencies in the agricultural
supply response
functions.
The first chapter,
“Introduction” develops the
argument that how
level and performance of
agricultural
growth has responded to price signals
during different
phases of agricultural development.
This chapter
contains a discussion on alternative
Agricultural
Economics Research Review
versions/ concepts
of agricultural prices in a changing
economy. Newer
institutions were instituted and
policies were
implemented. The authors argue that
liberalization of
economy has strengthened the role of
markets and has
made agricultural price policy the main
instrument for not
only determining area allocation
among crops but also
in increasing aggregate
agricultural
output.
Chapter 2 analyzes
the growth and change in Indian
agriculture due to
changes in factors like agroclimatic,
demographic and
socio-economic in a regional context.
Crop-wise details
of the structure of foodgrains
production since
the mid-1960s have revealed a
remarkable
stability in area and a rapid increase in
yield. Yield
improvements, in terms of growth rates,
have been much
higher in the second period 1974-75
to 2003-04 and
compensate for the shrinking area. The
rainfed crops,
particularly coarse cereals except maize
has not kept pace
in productivity, on account of
infrastructural
bottlenecks and technological neglects.
Tests of
significance of growth rates differences of
production, area
and yield in the periods 1950-51 to
1974-75 and
1974-75 to 2003-04 have been computed.
There being
different cropping patterns, agricultural
growth rates
depend on technological factors, economic
factors and
institutional factors. Indian agriculture has
come of age with
diversification of the cropping base
in relation
presumably to demand arising from faster
economic growth
within the context of limited land
reserves. There is
a movement away from coarse cereals
towards fine
cereals and high-value crops. This analysis
provides insights
as to whether the Indian agricultural
economy would
respond to market signals.
Chapter 3 works on
the problems of an aggregate
agricultural
supply function for India .
It examines the
question on lags
in response to price stimuli in the
agricultural
sector emerging from the time period
characteristics of
crop production. Importance of
specification of
alternative models which are time
phase and policy
system specific has been highlighted.
Acreage response
model has two limitations. First, it
underestimates
supply elasticity when a crop has a
Vol. 26(No.1)
January-June 2013
dominant share in
the menu of crops, and second, it
does not take
cognizance of the farmers’ needs or efforts
to intensify
production by bringing changes in the
intensity of land
use and also through use of fertilizers
and technology.
The time element in supply is different
for different
commodities. Long-term coefficients are
larger than of
short-terms. Cost structure and supply
elasticity
discussion discerns that higher the proportion
of fixed costs,
supply will be less elastic. As an industry,
agriculture seems
to have a comparatively large
proportion of its
total costs in a fixed form.
Chapter 4 explains
the traditional theory of
economic policy in
a simple fashion based on the work
of Tinbergen
(1956). Some Indian approaches to
agricultural
policy have been discussed. Internal
functioning of
market forces won’t do: “there is a strong
reason for
elasticity pessimism if agricultural market
is left to its own
devices”. Unrestricted trade policy
for both domestic
as well as world markets would not
solve the problem
of the large fluctuations in prices.
This debate has
raised a number of questions: what are
the side effects
of trade liberalisation on economic
agents in the
economy and what policy instruments
can most
efficiently address them? Open economy
macro economies in
a partial welfare analytical frame
need to be used to
model gains and losses of policies
in India .
Chapter 5 explains
the main story of the book. This
outlines the
further scope for extending the research
issues. Work with
crop complexes at the agro-climatic
level would be
another direction of analysis. Welfare
analysis done in a
partial equilibrium framework can
be extended to
open economy general equilibrium
analysis.
The book is
commendable for the depth it provides
on the topics that
are addressed in it. It also is steeped
with interesting
facts and insights that significantly
increase its
readability. Its focussed quality makes it
easy to discern
its central theme. To summarize, the
book is
exceedingly valuable as an information source
on Indian
agricultural price policy in a changing
economy. It is
written by an author with an
Book Review 129
idiosyncratic
vision that provides many new insights
to the reader. It
is worthwhile reading and a valuable
bookshelf
addition.
Shiv Kumar
Senior Scientist
National Centre
for Agricultural Economics and
Policy Research,
New Delhi-110 012
