Montek was right in saying that food prices will fall. In fact the last Wholesale Price Index,now released only monthly,says that food prices are lower than the same month last year while overall prices are rising. But why does the housewife complain. Leaving aside the fact that they like to complain,in fact consumer prices are rising fast and she of course is a consumer. Now this is strange. Once upon a time consumer and wholesale prices always moved together. Now this is not so and we don’t know why. If wholesale prices are not rising the farmer is not getting some because he doesn’t retail. He actually gets farm gate prices and is lucky if they are around wholesale market prices.
We don’t know so I tried to find out and I still don’t know. So much for being an American trained and highly experienced economist. I can only like you guess. I went to the Chiman Bhai Patel Wholesale Mandi in Ahmedabad. I met Parag Bhai,an old friend who comes for a walk in my institute lawns every day. I didn’t even know that he was a wholesale trader. I asked him why retail prices were rising. He said that’s because imported fruits and vegetables are expensive and retail chains buy out all the good local food every morning at high prices. I told him he was being funny. No worse still he was passing on the blame for his profits on others. We have the excellent authority of our government and IFFPRI and World Bank economists telling us that imports are a way of fighting food inflation and retail food malls improve the efficiency of trading channels,reducing margins and eliminating wastage which also reduces inflation. Parag Bhai first said that the lari walla was much too poor to waste anything and at the end of the day if something remained he ate it. He said he knew because he hired fifty of them to retail every day. Farmers never wasted anything because their wives knew how to store. Bajra he informed me is only stored by farm women,rubbing it with devail ,whatever that is,because it becomes ‘kala’ with the bania or the Food Corporation in three months.
I told him he was being funny and so he started rattling prices to prove his point when I stopped him. Sensing that I was not biting he told me that some people had come from the Management Institute at Vastrapur and had collected the prices information. This time I went to the IIMA and got a study by Sukhpal Singh and Naresh Singla. They showed that the retail mall paid a price of nine rupees per kg of cauliflower while the A grade price in the mandi was eight rupees a kilo. I was happy at my farmers getting some,but the price was twelve and a half percent higher and would show up in the price index. In cabbage the January price was around seventeen percent higher,but taking into account off season prices the average was only four percent higher.As I said I am happy at my farmer getting some but the price would rise.
These are only stories and I still don’t know why retail and wholesale prices are behaving differently but they should find out. Quality may be an answer,improving incentives another. On a general plane I do know that The Central Bank and the Chief Economic Adviser are right. There is too much of purchasing power in the system and a liquidity overhang and it makes it difficult to fight inflation. There are many things I don’t know,neither do many others but they wont say so. But still I have to earn my pension as an economist.
