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Whole sale prices of food articles rose by 14.5% during the year ended June 10 (y-o-y) compared to price rise of 10.9% during the previous comparable period. Food inflation has remained above 16 per cent for most of the year. Hue and cry is raised on this phenomenal raise in the prices of food articles. What are causes for the raise in the prices of the food articles?
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i. Causes behind the increase in food prices:
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*NREG (which continues), increase in rural incomes,
* Increase in urban incomes,
*Changes in consumption patterns,
*Increasing demand imposed on an inelastic supply. (Increases in production and productivity have been marginal.)
*Messing up food distribution through the FCI and PDS, both to be compounded through a food security Bill,
*Wastage, attributed to lack of cold storage and processing facilities, and bad infrastructure (power, transport).
*Dysfunctional government controls over production, storage and distribution through the APMC Acts and orders under the ECA.
There are studies to show that if there were to be a national integrated market through the elimination of these controls, there would be efficiency gains. But that’s on the national integrated market. |
*Dis-intermediation of agricultural distribution chains, even without national integration, can lead to gains of around 25% for fruits and vegetables and around 15% for foodgrains.
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Direct contact between firms and farmers translate into higher prices for farmers and lower prices for consumers. Bibek Debroy
FE 2010-07-30
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“In agriculture a scissors effect seems to be at work. On the one hand, productivity growth, especially in pulses, is anaemic and possibly weakening further. On the other hand, purchasing power and hence demand are accelerating, courtesy the NREGS (which is increasingly looking like a pure cash-transfer programme).” Arvind Subramanian, B S 280710. |
Pitfalls of populism: Offers of free lunches are good politics, and produced an abundant harvest of votes for the UPA in 2004 and again in 2009. Unfortunately, good politics can be bad economics. Free lunches, including ‘dig and fill' employment programmes, can be very inflationary. These programmes might have won over the aam aadmi, but they have destroyed the traditional Indian ethos of hard work and frugality. ‘Paying the price for populism’ Sharad Joshi, BL 310710
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| What the policy of inclusive growth does is to push up the demand curve, raise the demand for all kinds of produce at every price point. |
It is simple economics that if incomes increase fuelling increase in demand without production of goods and services in demand, prices of goods in demand naturally go up. This is exactly what has happened in the case of the prices of food articles.
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| When the government steps up investment in the rural areas on a massive scale, through explicit rural development and employment schemes, investment in rural roads and building national highways across the length and breadth of India’s hinterland, it is inevitable that rural India’s purchasing power should shoot up. |
The inflation has been much greater at the retail level than at the wholesale level. The retail prices collated by the Ministry of Consumer Affairs, Food and Public Distribution indicate that the average across centres all over the country at the beginning of July had increased over the previous two years' by 19 per cent for rice and wheat, 58 per cent for toor dal, 71 per cent for urad dal, 113.5 per cent for moong dal, 73 per cent for sugar and 32 per cent each for potatoes and onion.
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| As a result, farmers have benefited less from periods of high prices even as consumers suffered, because the benefits are garnered by middlemen. |
Long-term neglect of agriculture has affected the level and pattern of agricultural production to such an extent that supply-side constraints are leading to inflation every time growth picks up. |
ii.Making every grain count
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A recent observation by the Supreme Court on the foodgrain storage facilities in the country points to a corrupted system of foodgrains management that demands immediate attention. Compiled by Soyesh.H.Rawther. The Hindu-29 July 2010.
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| If food is rotting, don't waste it. In a country where admittedly people are starving, it is a crime to waste even a single grain. The official statement made by the government indicates that there is wastage of foodgrains at many places," observed the Supreme Court. |
10.68 lakh tonnes of foodgrains were found damaged in different FCI godowns as on January 1, 2010, a reply to an RTI query has revealed. There are allegations that private lobbies try to block the distribution of foodgrains through PDS to increase the food prices.
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India today produces over 220 million tonnes of foodgrains as against a mere 50 million tonnes in 1950. In the last two decades, foodgrain procurement by Government agencies has witnessed a quantum jump from 4 million tones and the FCI had 58 million tonnes of food grains stored. |
iii.Curative Measures needed
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The only way to keep prices down in such a scenario is to vastly enhance the supply, with special focus on productivity. There has to be active policy to increase supply, of both food and industrial commodities. |
Producing extra quantities of high value foods calls for an increase in grain production over and above what is required to meet the direct demand for additional grain. |
In the case of farm produce, raising minimum support prices of particular crops only serves to jack up production of those crops at the expense of something else, while what India needs now is a generalised increase in the production of everything, besides elimination of inefficiency and wastage in the supply chain that links the rural producer to the final consumer.
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| It is necessary to introduce a price index system for agricultural produce on the basis of inputs required by farmers. The government has a system of paying dearness allowance to government employees and others on the basis of the index of prices. Similarly, prices of industrial products are fixed on the basis of the cost of inputs. Such a system is all the more essential for the farming community, which comprises nearly 65 per cent of the population. (Dr. Mohan Dharia) |
| There is precious little done to raise output levels across the board. We need massive investment in large dams, supportive policy to collect irrigation and power charges from farmers, a big boost to organised retail that has the potential to step in where the official extension machinery of state agricultural research has failed, and resolute political will to change the nature of the massive resource flow into agriculture from subsidy to investment. |
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About 20 per cent of foodgrains and 30 per cent of perishable crops are lost during transit from production centres to marketing points. This calls for proper arrangements to store produce in godowns or cold storages in the respective centres. |
| Adequate infrastructure and transport facilities are vital for the effective supply of foodgrains throughout the country. Wheat and rice are produced mainly in Punjab, Haryana and Uttar Pradesh. |
| If the above mentioned curative measures are not taken Indian growth story would come to a grinding halt. |
| Less than a quarter of cultivator-households covered by banking system |
| One of the conclusions of the 59th round of the National Sample Survey that was the starting point for the Rangarajan Committee was the abysmally low proportion of cultivator-households that used the banking system: just 22 per cent, it darkly noted, while 27 per cent used the informal credit chain. As far as the banks were concerned, less than a fourth of the farming community accessed their services which in itself might be considered pretty damning evidence of the trend and progress of banking in India since banks were nationalised in 1969. BL 300710 |
| PM's panel to draft action plan to boost farm growth |
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| The Prime Minister-appointed Committee on agriculture, which has corporate honchos such as Mukesh Ambani and Jamshyd Godrej as its members, today decided to come up with an operational plan to achieve higher growth in the farm sector through private sector involvement. The country's average farm growth in the first three years of the 11th Five Year Plan period (2007-12) is only 2.2 per cent, while the target is 4 per cent for the entire period. PTI 300710 |
| However, as per buffer norms, it should have had 32 million tonnes . Over 11,700 tonnes of foodgrains worth Rs 6.86 crore were found "damaged" in government godowns. 270710 |
India's milk production at 112 mn tonnes FY 2010: India's milk production grew by 3.3 per cent to 112 million tonnes in the last fiscal. The National Dairy Development Board had allowed the import of 30,000 tonnes of milk powder and 15,000 tonnes of butter with zero import duty to augment the availability of liquid milk and stabilise the price of milk in the domestic market. 270710 |
| Widespread use of Bt technology by cotton farmers: This year, out of the total projected cotton area of 260-265 lakh acres, about 225 lakh acres would be sown under Bt hybrids/varieties. Considering that the latter figure stood at a mere 72,000 acres in 2002, it represents perhaps the most rapid rate of diffusion for any technology after the mobile phone. Indian farmers currently obtain an average 6.5 quintals of kapas (seed-cotton) on every acre. At Rs 3,000 a quintal, this translates into revenues of Rs 19,500. Bl 260710 |
| Krsr/and/310710(Rev) |
