A recent article in a leading weekly magazine focussed on the plight of farmers in Punjab and Haryana. Another year of a bountiful harvest has resulted in huge stocks of grain piling up at the mandis. Private traders are postponing purchases since they know that foodgrain prices must fall very soon, that is, as soon as the government procurement has been completed. So, farmers are now completely dependent on government purchases, which constitute the sole source of demand. However, the Food Corporation of India and other public agencies are now holding on to food stocks, since these are more than sufficient to meet the requirements of the public distribution system as well as any future emergency caused by droughts. Indeed, the current harvest has been so good that we now seem to have more stocks than our storage capacity. Not surprisingly, government traders are dragging their feet in so far as fresh purchases are concerned. With the monsoons just round the corner, the farmers face the scary possibility of seeing a substantial portion of their production rotting in the open. The private misery of the farmers is compounded by the tremendous social costs associated with the excess stock of foodgrains. The government has to pump a huge sum of money into the economy in order to procure these stocks. To the extent that these stocks lie unutilised in the warehouses of the FCI, there is no matching supply of goods circulating in the economy. This can fuel inflationary pressures in the economy. And of course there is also a tremendous wastage in the form of rotting grains. Since all this coexists with an inordinately large section of the population not even getting one square meal a day, there is something obviously wrong with the entire food policy in the country. Is Indian agriculture producing too much food? This last question may seem ludicrous to many in view of the fact that we cannot provide adequate nutrition to roughly one third of the population. Unfortunately, the economist?s answer must be that our total production of food today is too large relative to the market demand for food. The poor who do not get enough to eat are simply unable to pay for the food that they so desperately want or need. They are priced out of the market since they do not have the incomes or purchasing power with which to back their demand for food. There is no easy solution to this conundrum. A seemingly obvious solution is to increase the amount of food supplied to the poor, perhaps through the public distribution system. However, there is now a two tier system of food prices in the PDS. Those households which are below the poverty line can avail of food at highly subsidised prices. So, in order to increase the purchase of food by the poor, the government would have to lower the price of foodgrains even further. Arguments in favour of such a policy would be particularly strong if this was to be a one shot exercise. After all, the government would simply be utilising stocks which would otherwise be eaten away by rats or perish. However, there are at least two reasons why such a policy cannot be reversed. First, the situation of excess production is unlikely to be a purely temporary phenomenon. Unless the rain gods turn particularly nasty, food production in the near future will continue to be in excess of domestic demand. So, the problem of ?too much food? is unlikely to disappear. Second, even if there is a sudden drop in food production causing the excess stocks to disappear, no government will find it politically feasible to reverse the reduction in the price of food supplied to the poor. One need only recall the long and acrimonious debates within the last two ruling coalitions on this issue in order to establish the veracity of this assertion. Hence, any attempt to increase the offtake from the PDS must involve a more or less long term or permanent increase in the amount of the food subsidy. This makes it difficult to recommend such a policy at a time one of the first priorities of government policy should be to restore the fiscal health of the government by paring down subsidies. One must also remember that the subsidy ultimately comes out of the government budget. So, every rupee spent on subsidising food means one rupee less spent on the provision of primary health care or irrigation or in other areas which also benefit the poor. Some of these other interventions are better targeted in the sense that the bulk of the beneficiaries are actually the poor and underprivileged, in stark contrast to the PDS where there are substantial leakages. A comparison has to be made on the distributional consequences of an additional rupee of expenditure on poorly targeted schemes which satisfy a basic need such as hunger versus well targeted schemes whose benefits to the poor may be less direct. Another possibility is to channel a much larger volume of foodgrains into rural works programmes. The essential idea is to employ workers in the creation of rural infrastructure, using the excess food stocks to pay workers in kind. Unfortunately, this solution also has some fundamental problems. If the main purpose of such schemes is to provide additional employment, then the projects which can be carried out must be highly labour intensive. This places a constraint on the kind of infrastructure or assets which can be created. Typically, these will be assets which are not particularly durable ? roads which are washed away during the first monsoon being a good example. On the other hand, if primacy is given to the creation of durable assets, then the projects which will be chosen cannot be very labour intensive. So, for any given volume of non-food resources which the government is willing or able to deploy in the rural works programmes, only a small labour force can be employed. This will in turn imply that only a small fraction of the excess food stocks can be liquidated in rural works programmes, given the overall scarcity of non-food resources with the government. The government has responded to the present crisis by relaxing the restriction on export of foodgrains. But, it has been unduly cautious by stipulating a ceiling on the export of wheat ? only one million tonnes of wheat can be exported. It is debatable whether this additional source of demand will be substantial enough to shore up domestic prices sufficiently. The usual argument against removal of export restrictions on foodgrains is that this will lead to an unduly large increase in domestic prices. Given the huge stocks available with the FCI, even a substantially generous export ceiling would have had a negligible effect on domestic prices. However, the major problem with the government?s food policy is the high procurement or guaranteed price to the farmers. The procurement price today is way above the market price. A lower guaranteed price would force farmers to allocate their land in line with market demands, leading to diversification in favour of high value products. In the short run, a smaller area of land would be devoted to foodgrains. A more prosperous agriculture would result in larger employment and increased incomes in the hands of the poor. An increase in the incomes of the poor and hence in their demand for foodgrains would provide farmers the incentive to reallocate their land so as to enable them to supply the ?right? quantity of food.