Paradox of plenty

The consumer would end up paying much higher prices through modern retail, as evident from retailing practised by Food Bazaar, Reliance Fresh

At the end of the day, when we are done pondering weighty issues of governance, freedom of expression and what have you in the august company of talking heads, we must perforce return to the mundane question of bread: Will it cost the same tomorrow as it did today? And can we afford any butter at all?

Chances are that both the answers will be in the negative. Bread will get more expensive and butter prohibitively so, in keeping with the trends of last five years. The good Dr D. Subbarao of the Reserve Bank of India has just assured us that inflation is now “range-bound”, and likely to be under seven per cent this year. The number that affects the aam aadmi more, the consumer price index, is still above 10 per cent, but the folks who sell you your daily necessities are not taken in by these statistics and they merrily post new, improved prices.
And then we read in the morning papers that we will reap yet another record wheat crop this year, which will add to our already humongous food stockpile, some 70 million tonnes at the last count. We produce the most milk of any country in the world, the second most of fruit and vegetables and rice and so on. Why then do we keep paying ever-higher prices and why do we have the largest number of hungry people in the world? The answer to this requires a little back-story.
Indian agriculture is one of the great success sagas of the last half-century. But it was not always so. We suffered horrendous droughts in 1965 and 1966 and led a ship-to-mouth existence on PL-480 wheat gifted by the United States. American agricultural scientist Dr Norman Borlaug came to India in 1966 at the invitation of the government. He brought with him a bagful of high-yielding “miracle” dwarf variety Mexican wheat seeds which he had painstakingly evolved in that country. He was able to replicate the Mexican success in the next five years. We would have been a basket case otherwise, as Paul Ehrlich of Stanford University had predicted in his book The Population Bomb in 1968. He said that feeding the burgeoning population of the world was a lost cause and millions, if not hundreds of millions, would die of starvation in Asia and Africa in the coming decades. Dr Borlaug and our own M.S. Swaminathan and millions of farmers proved Ehrlich wrong.
Wheat has been cultivated in India since the Harappan period onward. In the 4,000 years since then, its production grew to six million tonnes in 1947. It increased by a similar amount in just four years between 1967 and 1971 — that is why it was termed the Green Revolution. In the 40 years since then, it has grown to 93 million tonnes. Rice production has grown less spectacularly, from 30 million tonnes in the mid-1960s to 95 million tonnes now.
But these increases have come at a price. The government has had to offer subsidies on fertilisers and power for farming and guaranteed high purchase prices for the crops to make agriculture economically viable. The same grain is then sold back to large sections of population at lower prices through the public distribution system (PDS). That puts a double burden on government resources, of subsidies for the inputs used and output sold. The sad irony is that even the subsidised PDS price is too high for many poor families. Their low purchasing power, rather than availability of food, is why hunger co-exists with mounting stocks.
Can’t the government release some of its stocks to bring down consumer prices? In theory, yes, but in practice, no. If market prices fall below the procurement price as a result of government selling its grain, private traders will not offer the higher procurement price when farmers bring in their harvest. Consequently, the government will have to pick up these additional offerings as well, which will increase its expenditure immediately and add to the deficit, in turn fuelling inflation.
What about exports? The answer is a qualified yes here. Wheat will fetch $300/tonne now, which will leave a small profit for the government, but it must act fast and show greater commercial acumen than it has so far. Exporting rice is risky. If India, already the largest exporter, offers substantially higher stocks, global prices will crash, with India suffering the most.
Both edible oils and pulses have been weaknesses of our agriculture. We now import more than half the oil we consume. The failure of soyabean crop due to a drought in the United States and the Malaysia cartel of palm-oil traders hiking up bulk prices to about $1,000/tonne mean that our own retail oil prices will hover close to the `100/litre mark. The few countries that export pulses to us also similarly exploit our dependence on them by extracting higher prices.
Our recent prosperity has also contributed to the price rise. As incomes rise, our food preferences shift towards fruit and vegetables, animal products, sugar, oils and fats. Their supply does not keep up with the rising demand even in the medium term. Hence their prices soar.
Supporters of modern retail have tried to tell us that middlemen and wastage result in high fruit and vegetable prices. They say these new retailers with foreign parents would put in a cold chain from farm to fork, which would help farmers get higher prices, even as consumers pay lower prices. Alas! Life is not a fairy tale. Horticulture supplies suffer from seasonality: winter vegetables are cheaper, but neither love nor money will get you mangoes in January. The fresh produce market is far more efficient than that for many another commodities. A cold chain to extend the shelf-life of products and reach of markets is unaffordable in India, as the cost of distribution through such a chain would rise manifold, given their energy intensiveness. Quick calculations show that even if the Indian farmer were to get the same prices as he does now, the consumer would end up paying much higher prices through modern retail, often twice as high as the mandi prices. This is already evident even with the in-name-only modern retailing practised by Food Bazaar, Reliance Fresh, Spencer, et al.
So the bottomline? Not much solace to the harried buyer, who will continue to fork out higher sums for not just dal-chawal but increasingly for aloo-pyaaz and ghee-shakkar as well.

The writer taught at IIM Ahmedabad and helped set up the Institute of Rural Management, Anand. He writes on economic and policy issues.

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