Sunday, 16 June 2013

A book review of my book in AERA journal

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

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

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