Independent Research and Policy Advocacy

Aggregate Risk, Saving and Malnutrition in Agricultural Households

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Why is malnutrition in India’s central belt, which includes the state of Madhya Pradesh and Bihar, so high and so persistent despite relatively high rates of income growth? High rates of malnutrition reflect diets that predominantly feature cereals at the expense of more nutritional foods including pulses, vegetables and fruit. In turn, high cereal intensity is believed to be a consequence of agricultural land use patterns that favour wheat and rice. In recent research, we show that the link between cropping choices and nutrition exists only because of households’ savings choices. Faced with high and variable prices for pulses, households in this region primarily save in the form of stocks of wheat, using home stocks as an inflation hedge to substitute for the consumption of high-priced pulses. The attractiveness of wheat stocks as a buffer against high prices arises not just because stocks insulate households from inflation, but also because of the high costs of transacting with formal financial institutions in this region, despite the government’s recent attempts to ensure that all households have savings accounts in formal institutions.

Recent data from the National Family Heath Survey (2015-16) estimates that 44% of children under the age of 5 in the state of Madhya Pradesh are stunted, and 45% are underweight.[1] Though detailed data from this report are not yet available, earlier rounds (2005-06) confirm the limited role of income in explaining these rates: The percentage of malnourished children remains relatively stable over the wealth distribution, falling off only for the richest quintile of households. The percentage of stunted children in the lowest four quintiles of the wealth distribution was found to be 53%, 54%, 54% and 52%, respectively, falling to 42% for the richest quintile of households. Similarly, the percentage of under-weight children was 67%, 67%, 62% and 63% amongst the bottom four quintiles and 50% for children in the richest quintile.

Poor nutrition, undoubtedly, plays a major role in explaining the pervasiveness of stunting and low weight. Diets in this belt heavily favor cereals (wheat and rice) for all households, regardless of wealth or occupation. Expenditure on cereals amounts to 26% of total food expenditure in Madhya Pradesh and 28% of expenditure in the neighboring states of Uttar Pradesh, Bihar, Chattisgarh and Jharkhand. In Madhya Pradesh, as in neighboring states, this percentage shows almost no variation across households distinguished by principal occupation; it is as high (26%) amongst agricultural households who derive their income primarily from the cultivation of their own land as it is amongst households who are primarily dependent on causal wage work in unskilled labor markets (28%).[2]

While the dominant role of cereals in the diet of Indian households has often been noted, less attention has been paid to the striking importance of consumption out of home stocks for farming households. In Madhya Pradesh, a predominantly wheat growing state, data from the NSS (2011, round 68) reveal that consumption out of home stocks of wheat amounts to 42% of total wheat consumption of all households, but as much as 81% of the consumption of agricultural (farming) households. Similarly 62% of the wheat consumption and 67% of the rice consumption of agricultural households in neighboring states is also from home stocks.[3]

The hypothesis that poor nutrition reflects households’ decisions to hold large stocks of wheat as a precautionary response to price uncertainty may be surprising, only because prices of wheat and rice are far less volatile than that of other crops. This in turn is a consequence of government intervention in grain markets, both on the consumption side (through welfare programs such as India’s Public Distribution System that distribute food grains at highly subsidized prices) and on the production side (through minimum support prices). Relatively low and stable prices compared to other food crops reduces the likelihood that households will sell stocks of wheat to purchase more expensive food items, thereby lowering their value as an inflation hedge. Their value to households lies, instead, in their substitutability for other foods. Though such substitution would occur, even if households did not maintain grain stocks, these savings allow households to transfer consumption across seasons allowing more consumption in seasons characterized by poor rainfall and low incomes than would otherwise be possible. Substitution of wheat for other foods, such as pulses, does, however, come at a cost: It reduces the nutritional content of households’ diets. Additionally, the retention of wheat by farming households for consumption purposes reduces market supply and raises market prices. This adversely affects landless households. It also increases the cost of government purchases of wheat for the public distribution system.

We examined the relationship between nutritional status and savings using rich household data from a sample of approximately 2800 households from rural areas of Madhya Pradesh, collected in January 2016, matched to monthly data on market (mandi) prices for wheat and the main pulse consumed in this area, tur or pigeon pea, for the 2010-2015 period. Using this data, we tested three hypotheses. First, we assessed whether stocks of wheat are held as a precautionary response against variability in the price not just of wheat, but also tur. Second, we examined whether households’ stocks of wheat affect wheat consumption in the household in regressions that control for the effect of total savings. That is, we tested the hypothesis that the composition of a household’s portfolio of assets affects nutrition. In a final set of regressions, we considered the effect of the share of wheat in household diets on child health, as measured by their height and weight relative to WHO standards for children of the same age and gender.

Our findings support all three hypotheses. This has important implications. First, it links poor nutritional outcomes to the methods utilized by households to save against price and income uncertainty. Second, the insurance value of wheat stocks suggests that improved access to financial institutions will increase financial savings only if they offer a significant risk premium. This helps explain why the significant improvement in financial sector access in the country has not generated commensurate increases in financial savings. Finally, our research also helps reconcile two conflicting literatures. The first examines seasonality in consumption expenditures and generally finds that households are able to smooth consumption relative to income. In contrast, a second set of studies finds that children born in the monsoon months, and particularly those born in periods of low rainfall, have poorer health outcomes. We suggest that households are able to protect total food intake in the face of poor rainfall and other income shocks, but that this is achieved by increasing the share of stored grains of lower nutritional value. Thus, while they are able to maintain consumption levels and stave off hunger when incomes are low, nutrition suffers.

The findings of this paper suggest the importance of policies that help reduce price volatility, including the integration of agricultural markets. It also suggests that policies that increase the relative return to financial savings, such as flexible delivery options, lower transaction costs and financial literacy programs may also help improve nutrition. Finally, since the insurance value of wheat comes from its substitution for other crops, educating households on the value of a balanced diet may also affect household’s willingness to save in the form of stocks of wheat.

As part of our latest series of knowledge management sessions in our office, we had the pleasure of hosting Dr. Anjini who presented on this research. Here is the PPT from her session and below is the video of her talk.

[1] A child is considered stunted or underweight if his or her height for age or weight for age, respectively, is less than 2 standard deviations below that of children of the same gender and age in the reference population. The NFHS surveys calculate a household asset index that is the basis for comparisons across the wealth distribution.

[2] In neighboring states, this percentage varies from 27% amongst agricultural households to 30% amongst casual wage households.

[3] In contrast, in the southern states of Maharashtra, Tamil Nadu, Andhra Pradesh and Karnataka, characterized by lower levels of child malnutrition, while the share of expenditure on cereals (23%) is also high, only 6% of wheat consumption and 11% of rice consumption is from home stocks. Amongst agricultural households in these states, these percentages are 16% and 29%, respectively.


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