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Food Inflation Needs Structural Treatment

Monday, June 23, 2014
By Rakesh Singh

Rakesh Singh is Distinguished Visiting Professor, Great Lakes Institute of Management, Chennai, India

Food inflation has reared its ugly head again, making the days ahead difficult for the Modi government. In a country like India where a significantly higher number of people live in poverty, a rise in food inflation would make them poorer inflicting great  misery on them.

Are farmers in this country paid more procurement prices disproportionate to their cost? Is agriculture facing supply side bottlenecks due to low productivity? Are there institutional and legal shortcomings that are hindering the growth of agriculture on one hand and influencing food inflation on other?

These questions require  answers and action; if the new government wants to put up the development agenda on top of the table.

Ajay Vir Jakhar, Chairman of Bhartiya Krishak Samaj in an article in the Economic times reveals that perishables like vegetables cost 550% more at the consumers end, while the poor farmer has to sell these vegetables at throw away rates. Prices of gram, barley and mustard have not changed since 2006-2007. Yes the procurement prices where farmers have benefitted is for  food grains crop like wheat and rice. But production of wheat and rice has created a distortion in cropping patterns leading to a decline in  produce of pulses and non-food crops, thus helping prices of these commodities to spiral.
It is evidently clear that government support prices do  not benefit farmers and farmers do not even realise their cost of production leading to a very stressful situations in Indian villages. Look at farming today; it has become a way of life rather than an occupation. No child wants to take up agriculture as a profession,despite the fact that a lack of employment opportunities forces them to stay back home and engage in farming.

Most of the current woes of agriculture and food inflation in India are due to low yield on the one hand and lack of investments, infrastructure and proactive legal institutions on the other. Our productivity is one of the lowest as compared to the world’s average. What’s important to note here is that Indian agriculture operates amidst huge uncertainty tdue to uncertain rains on one hand and rising cost of inputs on another. Infact the percentage change in input costs have been disproportionately higher than the increase in food grains prices at farm gate levels.

Private investments in agriculture is also declining on a year to year basis  as is public investment. Aggregate private investments had shown a selective uptrend in some prosperous zones, but are now showing sign of slowing down. Thats because agriculture has been kept outside the preview of reforms.

Naturally, this drought of capital afflicts the entire value chain, from infrastructure, to irrigation, to support services such as transport, storage and processing. Agriculture in India which has a huge potential today amidsta  looming world food crisis faces serious misallocation of funds. All these require investments if India has to develop and food inflation has to be tamed.

Finally why should we let the APMC help intermediaries with malafied intentions to operate the Mandis? Shouldn’t we allow farmers to sell directly to corporates. Why should farmers get rupees five and the trader get rupees thirty. Such a parasitical supply chain needs to go. Jaitely is righ,t but he needs to act. Repealing the APMC act, dismantling the  Mandis, while initiating investments into roads and cold chain storages is the need of the hour. The introduction of warehouse receipts which with a backing of financial institution can work like a debit card  for farmers will help them sell when prices are remunerative.

Food Inflation cannot be solved with a nut bolt and washers approach. It requires a strategy of helping agriculture develop, with the requisite operational supply chain efficiency to help prices come down. Will the Modi Government be any different? We need to keep our fingers crossed.

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