Uses of Land, Agricultural Price and Food Security

The competing uses of land for agriculture, industry, housing and urbanization have great relevance for agricultural production and food security, specially in an era of trade liberalization. This chapter theoretically shows using a Two-Sector General Equilibrium Model that if the capital intensive industrial sector expands due to inflow of capital, the land intensive agricultural sector will decline due to Rybczynsky effect. But this will not affect food security of the country if the trade surplus of the industrial sector can sufficiently finance the import of foodgrains. Technological progress in the agricultural sector may be also helpful in this context. Agricultural production largely depends on public investment and there is some complementarity between public and private investments. The public investment for agriculture in India has declined in 1990s and it has created shortage in the supply of foodgrains leading to food price inflation in the country. The demand is growing rapidly with high rate of GDP growth but supply fails to grow proportionately. Food security depends on the prices of food items also. This chapter has shown theoretically and using time series econometric results that sluggishness in agricultural production has led to price rise in the event of growing demand. It also shows that public policies have failed to maintain price stability in the market for foodgrains.