Saturday, Sep 20, 2014

Making a hash of it

Potatoes and onions have one common peculiarity. They can be stored easily, but not for prolonged periods of time — five to six months at most. Potatoes and onions have one common peculiarity. They can be stored easily, but not for prolonged periods of time — five to six months at most. (Source: PTI)
Written by Ajay Jakhar | Posted: July 5, 2014 12:02 am | Updated: July 5, 2014 8:18 am

Onions and potatoes take centre-stage again. Having secured a mandate based on people’s unhappiness with continuously high and painful food inflation, the government’s inability to control prices is, understandably, sending shivers down the BJP’s spine. Fulfilling the aspirations of urban voters and winning over a thoroughly exacting Delhi electorate, where re-elections are due, are essential to the BJP’s game plan to succeed. By and large, the prices of most vegetables, like tomatoes, bitter gourd, sponge gourd, green peppers etc, are lower than last year, but in an earnest bid to preempt higher food inflation, the establishment has misread the signals and generated a crisis.

Potatoes and onions have one common peculiarity. They can be stored easily, but not for prolonged periods of time — five to six months at most. Beyond that, they start to rot. This implies that the leftover stock from the last crop would have to be offloaded in the market within three months in any case. If policymakers knew this simple fact, they would have realised that there was no need to impose the Essential Commodities Act (ECA), 1955, on potatoes and onions. In any case, the existing laws provide state administrations with sufficient powers to check hoarding, should they need to or have the will to.

As a farmer, it is beyond my comprehension why the government would see fit to put export restrictions on potatoes when only one per cent of the crop is exported. Such small quantities do not distort the market. The UPA’s arbitrary import-export policy was its bane. But it seems this style of decision-making continues in the new set-up. The UPA 2 government tweaked the cotton export policy several times from 2010 onwards. As a result of this fluctuating policy, Indian cotton now sells at a discount because of the unreliability of delivery. I fear Indian potatoes are headed in the same direction.

The futures market sends signals about the expected gap between demand and supply — this indicates the need for intervention. But futures trading in potatoes is banned. If hoarding was rampant, the price of potatoes in the futures market would have been more than its spot price in anticipation of the prices to rise. But the day that the ban on fresh trades was imposed, June 18, the spot price of potatoes, at Rs 15 per kg, was higher than the futures price for July at Rs 12.50 per kg. So, cheaper potatoes could have been contracted in the futures market.

It is common knowledge that the ECA is nearly impossible to enforce due to corruption and governance issues at the lower levels of administration across states. But continued…

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