Food Inflations-the Real Problem of Common Man in India

In simple terms inflation, or price rise is caused by too much money chasing too few goods, or, demand being more than supply. The free play of the twin market forces of demand and supply determine the price of any commodity or service. In a mixed economy like India, Government is also an important player in the market. Hence to search for the causes of inflation, becomes somewhat complex. The last couple of months witnessed a sudden and almost a run-away type of food inflation. The way the price of vegetables and other food items soared, it created doubts in the minds of the common people and the economists alike. Winter is generally the time when fruits & vegetables are at the lowest prices. This was not so this year. The prices were way above the expected normal. This happened in spite of the normal monsoon and average inflation in other sectors. It was the other way round this time. Inflation in the food sector spilled to other sectors causing the rise in overall inflation. The government and RBI are working on the lines of monetary regulations like change in the interest rates, CRR etc. But looking at the way the food prices are stuck at the higher side, don’t these monetary measures appear just temporary remedies? There are certain deeper, grass root causes which have to be actually tackled. India has come a long way in case of food grain productivity. There was a time when our Balance of payments, account was always weighed down by food grain imports and the debts incurred for these essential imports. It is not so anymore. We are self reliant now. In case of sugar, global prices are determined by the amount of India’s sugar production! States like Punjab, Haryana and Gujarat are doing well in the field of agriculture. Production may be slightly short of demand considering the huge population. Such inflation can be checked by importing. But our problem is actually the middlemen. There is a huge difference between the cost of production and the price the final consumer pays. The farmer gets a very small amount of this profit/difference of cost and final price. For example – If we are buying a vegetable for Rs. 40 per kg. , the dealer at the wholesale market gets Rs. 10 per Kg. , and the poor farmer gets a meager Rs. 3. Again this Rs. 40 too will differ depending on the locality it is being sold. Then there is always the problem of black marketing & illegal stocking of goods to get a higher price. So we actually need checks on the middlemen and the retailers. Secondly, the system of direct farm to shops has to be developed, so that the farmers are the real beneficiaries. This will also motivate the farmers to increase production. Wastage is another important avoidable problem, leading to shortage. Production we have raised. But so much is wasted because we still are a laggard when it comes to state of the art storage facilities. Even the government’s huge food buffer stock lies unused till it gets finally rotten. Why doesn’t the government release its buffer stock on time to check shortage and food inflation? Is the buffer stock merely for psychological security? The government has raised the support prices of some food items. This along with the rural employment schemes and high urban salaries has also infused excess money in the market causing the inflation. Lastly, does the government know or sincerely follow, what is happening to the prices which are subsidized or fixed by the government? There are cases where the inflation will not show in the Government statistics, but will certainly affect our household budget. As usual when the Union Budget is presented, all eyes will be on the Finance Minister and his speech will be thoroughly scanned for all the implications on the economy. But this time, there is one particular reason why ordinary citizens will be specially focused on the Budget: the hope that the Government is finally going to act decisively to contain food price inflation. It is not surprising that questions of food security and the right to food have become such urgent political and social issues in India today. Rapid aggregate income growth over the past two decades has not addressed the basic issue of ensuring the food security of the population. Instead, nutrition indicators have stagnated and per capita calorie consumption has actually declined, suggesting that the problem of hunger may have got worse rather than better. So, despite apparent material progress in the last decade, India is one of the worst countries in the world in terms of hunger among the population, and the number of hungry people in India is reported by the UN to have increased between the early 1990s and the mid-2000s. These very depressing indicators were calculated even before the recent rise in food prices in India, which is likely to have made matters much worse. Indeed, 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. What is especially remarkable is that food prices have been rising even when the general price index (for wholesale prices) has been almost flat; thus, when the overall inflation rate was only 1-2 per cent in the past year, food prices increased by nearly 20 per cent. Sharp rise in prices It is evident that the price increase has been so rapid as to be alarming especially over the past two years, with rice prices increasing 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 to 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 groundwater, 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. Poor distribution 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 food grains 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. In addition, allowing corporates (both domestic and foreign companies) to enter the market for grains and other food items has led to some increase in concentration of distribution. This has not been adequately studied, but it has many adverse implications, including the fact that farmers will benefit less from period of high prices even as consumers suffer, because the benefit will be garnered by middlemen. Sugar is slightly more complicated, as marketing margins appear to show different trends in different regions and also tend to be significantly lower than the other major crops. The dramatic increase in sugar prices is more a reflection of massive policy errors over the past two years, in terms of supply and domestic price management and exports and imports. Marketing margins 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 studied in much more detail. 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. Here too, the recent trends make it evident that an efficiently functioning and widespread public system for distributing essential food items is important to prevent retail margins from rising. Food security A universal system of public food distribution provides economies of scale; it reduces the transaction costs and administrative hassles involved in ascertaining the target group and making sure it reaches them; it allows for better public provision because even the better-off groups with more political voice have a stake in making sure it works well; it generates greater stability in government plans for ensuring food production and procurement. It is clear that emergency measures are required to strengthen public food distribution, in addition to medium-term policies to improve domestic food supply. A properly funded, efficiently functioning and accountable system of public delivery of food items through a network of fair price shops and co-operatives is the best and most cost-effective way of limiting increases in food prices and ensuring that every citizen has access to enough food. In a context in which the inflation is concentrated on food prices, measures such as 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 effect to public food distribution system. Inflation Statistics. Snapping the five week rising trend, food inflation softened to 16. 91 per cent for the week ended January 1, 2011, although vegetables, onions and protein-based items continued to remained costly. Food inflation fell by 1. 41 percentage points from 18. 32 per cent recorded in the previous reporting week. Even as the index of food inflation showed a meagre decline, vegetable prices soared by 70. 3 per cent on an annual basis in the wholesale market, official data showed. Also onions continued to pinch the pocket of the common man as the prices went up by 70. 70 per cent on a year on year basis. Among the individual items in the food inflation index, egg, meat and fish became costly by 16. 70 per cent, milk by 13. 20 per cent and fruits by 17. 71 per cent annually. However, prices of pulses declined by 14. 84 per cent, wheat by 4. 87 per cent, potatoes by 1. 67 per cent and cereals by 0. 12 per cent on an annual basis. Meanwhile, in the non-food category, the prices of fibers and minerals have climbed up by 36. 1 per cent and 16. 70 per cent, respectively. India’s food inflation rose marginally to 15. 57 percent for the week ended January 15 from previous week’s 15. 52 percent. According to official figures from country’s Commerce ministry, the primary articles price index was up 17. 26 per cent in the latest week, compared with an annual rise of 17. 03 per cent a week earlier. India has the highest food inflation of any major Asian economy, but other emerging markets such as China and Brazil are also battling double-digit food price rises.