Food Inflation: Groping In The Dark
By Devinder Sharma
14 November, 2011
Although Prime Minister Manmohan Singh considers rising food inflation to be a sign of growing prosperity, the reality is very harsh and painful. Rising food inflation, which continues for the 4th successive year now, has hit the aam aadmi like never before. Adding fuel to fire is the frequent raise in petrol prices.
Every time food inflation crosses the double-digit barrier, the Prime Minister Manmohan Singh, the Finance Minister Pranab Mukherjee and the deputy chairman of the Planning Commission, Dr Montek Singh Ahluwalia, have been quick to set a deadline some three to six months ahead during which period they promise to bring down the prices. While the failure to stem the price rise is written large, what is more worrying is the complete inability of the government to comprehend the reasons behind it. Economists and policy makers appear clueless and therefore continue to grope in the dark.
For over 4 years now, in every media discussion that I am invited to, I am appalled at the economic ignorance that prevails. They go on harping again and again on what the economic textbooks would prescribe as the plausible reasons behind any runaway inflation. Whether it is any member of Prime Minister’s Economic Advisory Council or the Planning Commission or one of the senior officials of the Reserve Bank of India, the answers you get are all the same: food inflation is because of low production; with rising incomes there is a shift in demand towards nutritious foods thereby increasing the prices of fruits, vegetables and milk products; and because the farmers are being paid a higher procurement price, the consumers have to pay more.
Now let us look at the each of the argument separately. The common refrain that one hears is that food prices are on an upswing because production is unable to match the growing demand. For several months now, you have watched with concern news reports of foodgrains rotting in godowns. While lakhs of tonnes of wheat and paddy are allowed to rot, we are being told that there is a need to increase crop production. Ever since the TV channels began highlighting the grain wastage, except for lip-sympathy, the government has not made any significant allocation for creating additional storage space. In such a depressing scenario, how will more production help? Where will the government store the additional produce? Will it too not go waste?
Every year, as per official figures more than 16 lakh tonnes of foodgrains rot in godowns. The quantity of wheat and rice that becomes sub-standard and unfit for human consumption and which has to be sold for manufacturing alcohol and goes as cattle feed is several times more.
When Prime Minister Manmohan Singh equated inflation with prosperity, he was trying to say that with more income in hand people have shifted to nutritious diets. The demand for fruits, vegetables and milk products has shot up as a result. This too is untrue, and has no scientific basis. Since this is a frequently asked question, I did some computation of the production estimates. The per capita daily availability of fruits and vegetables is 480 grams. The per capita requirement for a balanced diet is roughly 80 grams, against which the actual consumption is much low. Therefore it becomes apparent that there is at least six times more availability of fruits and vegetables in this country than what is required. So where is the shortfall? Why are the prices of fruits and vegetables sky-rocketing when the availability is in abundance?
In any case, the argument that with rising incomes the intake of nutritious food products in the food basket expands is also not based on any empirical evidence. The 2007 National Sample Survey Organisation (NSSO) tells us that cereal consumption has been on a steady decline, with no corresponding increase in the intake of more nutritious eggs, vegetables, fruits and milk. It means hunger has been on a rise and is now more widespread and well-entrenched. The feeling was that with the changing food habits, people have shifted from cereals to nutritious foods like fruits, vegetables and milk. This assumption too does not hold true anymore.
The decline in cereal consumption has more or less followed a steady pattern in the rural and urban areas, of course much faster in the rural areas. Per capita cereal consumption per month in the rural areas across the country has fallen from 13.4 kg in 1993-94 to 11.7 kg in 2006-07. The decline has been sharper between the period 2004 and 2007 when just in three years, cereals consumption fell from 12.1 kg to 11.7 kg. In the urban centres the decline was from 10.6 kg in 1993-94 to 9.6 kg in 2006-07. In a largely vegetarian society, cereals constitute the single important source of nutrition and therefore its importance in the Indian context is well established.
Moreover, if it was true, India’s ranking in the 2010 Global Hunger Index prepared by the International Food Policy Research Institute should have improved. India continues to rank 67th among 81 countries, faring much lower then Pakistan, Sudan and Rwanda. If people had started eating more, I see no reason why India should be ranked so low in the hunger index.
And finally how true is the argument that food prices are going up because farmers have been paid a higher procurement price. Wheat, rice and sugarcane are essentially the three major crops where farmers have received a higher procurement price. Interestingly, wheat and rice are not the crops where food inflation is hurting the poor. In case of sugarcane, after a hike in prices in 2009, sugar prices have stabilised even though the growers are getting a higher price. It is in case of fruits and vegetables, which do not receive any benefit of procurement prices, where the market prices have made a hole in the pocket of average consumers.
Economists need to understand that it is not the farmer who gains from food inflation. He never gets a high price for his produce even when market prices touch the roof. For sake of illustration, let us look at a banana grower. All he earns is between Rs 8-9 per dozen where as the prevailing market price hovers between Rs 50-60. The real problem therefore lies in the mandis. It is the wholesale and retail trade, which in the absence of any tough regulation, is exploiting the consumers by raising the prices by anything between 100 to 300 per cent. In the absence of any crackdown, the trade is having a free run.
The government doesn’t want to check the traders because as the Prime Minister said the other day he wants more and more commodity prices to be deregulated. He wants market to decide the final price of the farm produce. In other words, we are paying through our nose to keep alive market reforms
Devinder Sharma is a food and agriculture policy analyst. His writings focus on the links between biotechnology, intellectual property rights, food trade and poverty. His blog is Ground Reality
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