Differential impact of food price changes on the welfare of farm households in India

Abstract

Agricultural produce pricing policies are often employed as important policy tools in developing countries like India to provide farmers with remunerative prices for their produce in order to augment production and improve their material welfare. They also aim to safeguard the consumers from excessive increase in food prices. However, tremendous increase in food prices in recent years has drawn the attention of policy makers and researchers to the beneficial effects of such price rise on the farm incomes and welfare. Food price spikes increase the vulnerability of both rural and urban poor and marginalized communities to food insecurity. However, increase in food prices is also justified as beneficial to the food producers’ and instrumental for increasing the farm incomes and rejuvenating growth in rural economy. Efforts to predict the welfare impacts of food prices inflation on food producers are aggravated by the complex behavioral patterns of semi commercialized farm households in developing countries like India, as the produce is meant partly for self-consumption and partly for sale. Hence, mediation of welfare effects through food prices for such farm households depends upon the net sale position of the household. Farm households in India are characterized by highly skewed land distribution patterns along with regional constraints on access to other resources and infrastructure. This has a direct implication on distributional impact of food prices on farm households. Hence, income gains could be real for farmers with large landholdings but often attributed to all farmers without regard to their holding-size. Farmers with small holdings are typically net food buyers of essential food commodities and thus vulnerable to rising food prices.