Aggregate Risk, Saving and Malnutrition in Agricultural Households: Empirical Evidence from India

This paper explores the hypothesis that the large stocks of cereals maintained by agricultural households in developing economies is a precautionary response to price uncertainty and that this portfolio choice adversely affects household nutrition and child health, providing one explanation for poor nutrition even amongst relatively wealthy land-owning households. This may be surprising, only because prices of wheat and rice are far less volatile than other crops, because 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 is likely to reduce the nutritional content of households’ diets.