Monday, Dec 22, 2014

Food inflation at record high but farmers not getting any richer

The two crops where inflation continues to be a worry are fine cereals and the fruits and vegetables (F&V) complex. The two crops where inflation continues to be a worry are fine cereals and the fruits and vegetables (F&V) complex.
Written by Anil Sasi | New Delhi | Posted: January 12, 2014 10:13 pm

The sharp surge in food inflation to a 41-month high of close to 20 per cent in November overshadows an even more perturbing fact — that despite the consistent spike in the year-on-year agri price levels at the wholesale level, farmers are simply not among those benefiting from the higher prices of their produce.

With the exception of fine cereals such as rice and wheat, where repeated MSP (minimum support price) boosters have served to push up returns, prices of key food crops have seen a unprecedented crash at the mandi-level till mid-December. Sugar, oilseeds, pulses, chick-pea and coarse cereals have moderated sharply, selling below last year’s wholesale price levels, while prices of maize, groundnut and bajra have actually dipped below their respective MSPs.
While the upcoming inflation data sets — WPI and CPI data due early next week — is likely to reflect a somewhat sharp tempering in the annual inflation levels, something that reportedly prompted RBI Governor Raghuram Rajan in his last policy review on December 18 to hold rates despite the rise in inflation reflected in the November data, how much actually feeds down to the retail level is uncertain.

The two crops where inflation continues to be a worry are fine cereals and the fruits and vegetables (F&V) complex. According to Chairman of the Commission for Agricultural Costs and Prices (CACP) Ashok Gulati, the price increases in rice and wheat can be attributed to the “mismanagement of public stocks”, considering that the government is holding surplus stocks to the tune of around 20 mt of rice and wheat. Conversely, there is the problem of comparatively lesser vegetable cultivation, which have got priced out by the MSP-guaranteed fine cereals, apart from the problem of lesser storage options for them as well.

Plus, in case of vegetables, as government policies do not permit produce to be bought directly from farmers, the high market levies in most states feed in at the retail levels. For instance, in Gujarat, where the arhatiya (commission agent) fee is just 50 paise for every Rs 100 or 0.5 per cent in groundnut and cotton, the total levies in the state do not add up to more than 3 per cent. In Punjab, the arhatiya commission is 2.5 per cent and the total levies add up to 14.5 per cent in case of wheat and paddy. In case of fruits and vegetables, just the official arhatiya commission is as high as 6 per cent (of price) at Delhi’s Azadpur Mandi and 8 per cent in Mumbai’s Vashi Market, and much higher at 10 to 14 per cent at the unofficial levels.

A December report by the Indian Council for Research on International Economic Relations noted that if the inflation in food products was to be brought under control, a robust food processing sector, for just promoting FDI in multi-brand retail might not suffice and this will have to be backed up by a favourable tax regime. At the issue of the report, Union Agriculture Minister Sharad Pawar corroborated the view, saying that GST implementation would be an essential boost to the food processing sector, which is struggling with myriad tax structures.

So even for cereals the wholesale inflation in November 2013 was a high of 11.32 per cent on an annual basis despite coming on top of a high base in the corresponding month of previous year, when it rose 17.84 per cent.

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