In purchasing power parity terms, developed countries have higher prices for agriculture produce as compared to other goods and products. Developing countries exhibit the opposite phenomenon – low food prices, with almost everything else priced much higher. This is because there is much pressure to keep food prices as low as possible for the sake of the poor – both, in the villages and the urban areas. It is hoped that subsidies of various kinds will compensate the farmers for their losses. Unfortunately, this is not enough; it also sets in motion a vicious cycle that perpetuates the problem. As was the case with the LPG subsidy, it is the better off sections who benefit the most.
With a large section of the population – around 60 percent as compared to around 5 percent in developed countries – involved in agriculture and the rural economy, they are the most affected by poor returns on food production, because they are rendered bereft of purchasing power. And, then, the government has to subsidise the food they are provided, mostly of poor quality from the fair-price shops. To make things worse, bumper crops often lead to collapse in prices, which creates a disincentive against improved farming practices, as also investment on machinery, infrastructure, etc.
If one were to calculate the amount of money the union and state governments spend on financing this negative cycle, the amount would be considerably greater than the funds put into creating infrastructure and services for the agriculture sector. Ironically, the states that have exhibited the best growth in this sector are the ones facing the biggest crisis. The laggards have simply exported their village folk to other states as various kinds of unskilled, semi-skilled and skilled labour.
The solution lies in getting most people involved in agriculture into other livelihoods, while at the same time imparting skills for value-addition in the village, itself. Also, by gradually increasing remuneration for agricultural products, while subsidising the poor in other ways. This would involve raising the minimum wage and free delivery of basic services like education and health. In the digital age, when the effort has been made to link all citizens of the country with banking services, it is far more possible to provide subsidies of various kinds directly to the beneficiaries. It would be possible, in the totality, to provide a substantially better quality of life to the poor, at half the cost the system bears at the present.