Feb.23 : This time when the Union Budget is presented, there is one particular reason why ordinary citizens will be listening: to see whether the government is finally going to act decisively to contain food price inflation. The rise in food prices in the past two years has been higher than any period since the mid-1970s, when such inflation sparked widespread social unrest and political instability. Food prices have been rising by around 20 per cent even when the general price index (for wholesale prices) has been very low, and sometimes almost flat.
The table indicates the price increase in cities averaged across the major regions, for rice, atta and sugar, which are among the most essential food items in any household. Rice prices increased by nearly half in northern cities and more than half in southern cities. Atta prices have on average increased by around one-fifth from their level of two years ago. The most shocking increase has been in sugar prices, which have more than doubled across the country. Other food items, ranging from pulses and dal to milk and vegetables, have also shown dramatic increase, especially in the past year. There are many reasons why food prices have risen at such a rapid rate, and all of them point of major failures of state policy. Domestic food production has been adversely affected by neoliberal economic policies that have opened up trade and exposed farmers to volatile international prices even as internal support systems have been dismantled and input prices have been rising continuously. Inadequate agricultural research, poor extension services, overuse of ground water, and incentives for unsuitable cropping patterns have caused degeneration of soil quality and reduced the productivity of land and other inputs. Women farmers, who constitute a large (and growing) proportion of those tilling the land, have been deprived of many of the rights of cultivators, ranging from land titles to access to institutional credit, knowledge and inputs, and this too has affected the productivity and viability of cultivation. But in addition to production, poor distribution, growing concentration in the market and inadequate public involvement, have all been crucial in allowing food prices to rise in this appalling manner. Successive governments at the Centre have been reducing the scope of the public food distribution system, and even now, in the face of the massive increase in prices, the Central government is delaying the allocation of foodgrain for the above poverty line population to the states. This has prevented the public system from becoming a viable alternative for consumers and preventing private speculation and hoarding and allowed more corporate entities to enter the market. Thus it has been found that the gap between farm gate and wholesale prices is widening. A similar story is evident from the gap between wholesale and retail prices. In rice, the gap between average wholesale and retail prices widened considerably — even doubled — across the four major zones of the country. Overall the margin increased from around nine per cent to more than 15 per cent. In wheat, the pattern is more uneven but the retail margins are very large indeed, as expressed by the difference between the wholesale price of wheat and the retail price of atta (which is the most basic first stage of processing). In the northern and eastern zones, the margin is more than 30 per cent, while it is around 20 per cent elsewhere. So what exactly is happening? It appears that there are forces that are allowing marketing margins — at both wholesale and retail levels — to increase. This means that the direct producers, the farmers, do not get the benefit of the rising prices which consumers in both rural and urban areas are forced to pay. The factors behind these increasing retail margins need to be studies in much more detail. The role of expectations, especially in the context of a poor monsoon that was bound to (and did) affect the kharif harvest adversely, should not be underplayed. But that refers only to the most recent period of rising prices, whereas this process has been marked for at least two years now. In addition to this, there is also initial evidence that there has been a process of concentration of crop distribution, as more and more corporate entities get involved in this activity. Such companies are both national and multinational. On the basis of international experience, their involvement in food distribution initially tends to bring down marketing margins and then leads to their increase as concentration grows. This may have been the case in certain Indian markets, but this is an area that clearly merits further examination. Many people have argued, convincingly, that increased and more stable food production is the key to food security in the country. This is certainly true, and it calls for concerted public action for agriculture, on the basis of many recommendations that have already been made by the Farmers’ Commission and others. But another very important element cannot be ignored: food distribution. A properly funded, efficiently functioning and accountable system of public delivery of food items through a network of fair price shops and cooperatives is the best and most cost-effective way of limiting increases in food prices and ensuring that every citizen has access to enough food. Even before any promised food security law is passed, it is clear that emergency measures are required to strengthen public food distribution, in addition to medium-term policies to improve domestic food supply. In a context in which inflation is concentrated on food prices, measures liking raising the interest rate are counterproductive because they affect all producers without striking at the heart of the problem. Instead, if he is serious about curtailing food inflation, the finance minister must provide substantially more funds to enable a proper and effective public food distribution system.
Jayati Ghosh
Links:
[1] http://archive.asianage.com/content/jayati-ghosh
