Thursday, January 07, 2010

Agri Debri

The new system of presenting inflation data of primary articles and fuels separately on a weekly basis introduced by the Government with effect from November 5, 2009, has brought the relentless price fever in food articles to the fore. The wholesale price index (WPI) of food items that had shot up to 13.39 per cent for the week ended October 24 has been scaling new highs week after week. It surged to 19.95 per cent for the week ended December 5, 2009.

Though the food price inflation had eased a bit to 18.65 per cent for the week ended December 12, it again climbed to 19.83 per cent for the week ended December 19.

Thus, the new system of presenting the WPI for food articles and fuels separately on a weekly basis is proving to be a huge embarrassment for the Government. What is even more worrisome is the fact that even these indices relate only to the wholesale prices; the retail prices are much higher.

Indications are that if the raging food price inflation is not controlled, it may spill over to manufactured products and derail the ongoing economic recovery.

In fact, the prices of processed food products and some of the other products have already been marked up increasing the hardship of the poor and middle-class further.


What is all the more disappointing is the utter failure of the Government on the supply management front. While the production of food items did suffer a setback following the drought in many parts of the country and subsequent floods in some parts, the prevailing shortages in the marketplace are far in excess of the production shortfalls.

Both the Central as well as the State governments failed to strengthen their distribution networks even after knowing the impending production shortfalls following the deficient rainfall. The stocks of foodgrains totalling 233.88 million tonnes were sufficient to ensure supplies at affordable prices to consumers. But the authorities unduly delayed unloading the stocks in the open market and rein in the surging prices.

In the case of sugar, despite reports of an impending shortfall in domestic production, the Government had initially allowed exports of the commodity in 2008-09. Then it had to go in for imports of raw and refined sugar following a production shortfall to the tune of 700,000 tonnes when international prices had soared. Not surprisingly, the price of the commodity zoomed from Rs 16 a kg two year ago to Rs 40 now in retail markets.

Meanwhile, there have been reports of large-scale hoarding of foodgrains, pulses, sugar and other essential commodities by the middlemen and wholesale traders in anticipation of further escalation of prices. With regard to fruits and vegetables also, malpractices of the middlemen are rampant.

There are wide variations between wholesale and retail prices of commodities such as rice, pulses, potatoes and onions, and also vegetables. The unfortunate part is that the high price paid by the consumer is not reaching the farmer and the vegetable grower; they get only a fraction of this for their produce. The huge difference between the wholesale and retail prices is pocketed by the middlemen.

While on an average, the variation between the wholesale and retail prices is 100-150 per cent, in the case of certain commodities, it is as high as 300-400 per cent. What is even more shocking, the politicians, local bureaucrats and police are said to be in league with the middlemen and black-marketers.


In the short-term, some of the measures suggested by the Parliamentary Standing Committee on Finance could be implemented forthwith. These include: a comprehensive food pricing and management policy; stern enforcement measures to curb hoarding and speculation; ban on diversion of cultivable/agricultural land for industrial purposes, including SEZs; and creation of adequate buffer stocks of essential commodities.

Among other measures, serious efforts would be needed to ensure: (a) eased contract farming rules and retail reform aimed at giving farmers a direct access to markets by eliminating the middlemen wherever possible; (b) greater official encouragement for setting up of cold storage facilities and agro-processing units; (c) promoting local markets and integrated food value chains connecting farmers to processing units and big retailers; and (d) amending the Essential Commodities Act to effectively check hoarding and speculation.


Over the longer term, serious efforts are needed to address the food security concerns on a war footing. The earlier concerns relating to food security have only increased now with the sharp jump in the food price inflation which has pushed millions more below the poverty line. In fact, the deficient rainfall in 2009 is only a proximate cause of the soaring food prices.

The real worry is the more serious problems of persistence of low productivity in Indian agriculture in recent years even as the demand for foodgrains and other essential commodities has been growing with the increase in population as well as the rising purchasing power of the people. As it is, already there is widespread malnutrition in the country and any failure in stepping up agricultural growth in the coming years will have serious consequences.

Unfortunately, importing foodgrains and other agro products will not be a feasible option even if the other sectors of the economy do exceedingly well and the country's GDP keeps growing at 8-9 per cent per annum. For the available supplies of food items in the world markets have been dwindling and the entire world is facing food shortages.

The number of hungry people in the world topped one billion in 1999, according United Nation's Food and Agriculture Organisation (FAO).

Against this backdrop, boosting domestic farm output should receive top priority. The Prime Minister, Dr Manmohan Singh, has already said that the country needs to sharply increase public spending on agriculture, particularly on irrigation and technology in order to raise farm output. India's Eleventh Plan, which began in 2007, aims to double annual agricultural growth to 4 per cent. Achieving this target should now receive much greater attention.

Special efforts and focused attention are needed to complete all the ongoing irrigation projects at the earliest. Adoption of better water management practices, including drip irrigation and a change in the cropping pattern where necessary, could go a long way in providing a much-needed boost to agricultural production.

The Hindu Business line - 1/8/09


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