Open Forum

New Delhi, 9 February 2011

Food Inflation

CHECK PRICE RISE

By Dhurjati Mukherjee

The spiraling food prices, especially of essential commodities like rice, onion, vegetables, fruits, meat and milk are causing untold misery to the aam aadmi. According to reports, food inflation is hovering around 16-17% with no signs of abating. Worse, if this continues there is every possibility of food inflation threatening to spill over to the wider economy unless proper measures are taken at the earliest.

However, it is not only in India that food prices are rising. According to the Food & Agriculture Organization (FAO), global tariffs hit a record high last year, moving beyond the 2008 levels when riots broke out in Egypt, Cameroon and Haiti. In China, Vietnam, Brazil and Algeria, food inflation has hit double digits.

More. The FAO Food Price Index rose by 25% between 2009-2010 December. In many Asian countries, including China and India, food inflation hit double digit figures, raising fears that price pressures could spread broadly to other sectors. Thereby, posing a threat to economic and social stability as millions of Asians live in poverty and squalor.  

Importantly, FAO’s biggest worry is wheat. As its global production is projected to decline by 5% to 648 million tonnes due to unfavourable weather conditions in a number of wheat producing countries. The closing stock could decline by about 10% due to higher consumption.

In India, the hike in vegetable prices is puzzling. There is usually a high supply of vegetables in winter which pushes down prices. But this year, the trend is opposite. Perhaps this has to do with farmers grappling with rising production costs whereby input prices from seeds to labourers wages have seen a recent upswing. Experts believe that if vegetable prices had not increased, the trend would have been near normal.

This has led to the common man being caught in the quagmire of food prices and rising commodity prices. Globally, commodity costs are up and that has impacted domestic prices. Oil companies have raised petrol prices by 6 to 8% since June as global prices rile around $ 90 a barrel. But the Government is holding firm on diesel as a hike is bound to have an all- round cascading affect. 

Economists are of the opinion that food prices would persist for some time unless supplies improve. Even the International Monetary Fund (IMF) has predicted that the present levels of inflation of over 8% would moderate to around 6.5% by March end. This, despite growth likely to touch 8.8% during the current fiscal compared to 7.4% a year ago, mainly from robust growth in the farm sector and consumption picking up.

Undoubtedly, the Government is perturbed by the state of food inflation. While the Union Finance Minister asked State Governments to ease the supply bottlenecks, a signal from the Centre wanting to check profiteering. This has become necessary as it is widely believed that hoarding played a big role in price rise.

Sadly, these measures haven’t yielded success while income tax raids in Nasik and Delhi have backfired. With State elections in Bengal, Kerala and Tamil Nadu round the corner, the increase in prices are indeed a big problem and the Government has to tackle hoarders and price manipulators with an iron hand.   

Although food inflation is not the same as general inflation, it is the former which affects the poorer sections of society in a big way and causes great hardship, notwithstanding, a marginal increase in real wages. Besides, people in the unorganized sector and the daily wage earner too are finding it extremely difficult to make both ends meet. As also lower middle income sections who struggle with daily increasing prices of necessities like onions, vegetables, fruits, eggs etc. 

In such a scenario, a high growth rate has no meaning if essentials of life cannot be provided to the masses at reasonable prices. Pertinently, the Suresh Tendulkar Committee report estimated the overall poor to be 37.2% of which 42% were in the rural areas. Earlier, the World Bank projected that India had 456 million people (42% of the population) living below the new international poverty line of $ 1.25 a day. 

Lately the Saxena Committee, constituted by the Rural Development Ministry, came out with an alarming figure of over 49% of the population existing below the poverty line. Thereby an increase from the Ministry estimates of 36% in the mid 90s and 27.5% during the mid-2000s.

Thus, it is safe to surmise that food inflation must have affected not less than 65-70% of the population which includes the economically weaker sections (EWS) and the lower income group (LIG). Furthermore, the Prime Minister’s assertion that economic reforms not only boost growth and prosperity but also have the power to reach the poorest segments of the population has been proved wrong. Even the 11^th Plan emphasis on inclusive growth has not become a reality.

Needless to say, the Government appears interested to discharge its responsibility by increasing employees’ salary, allocating more money to so-called developmental projects like NREGS and raising the loan-able funds of banks to overcome recession. Though these measures are necessary, they may not directly benefit the real poor at such a critical juncture.

More scandalous are reports that a large section of the people, even those in the EWS category, cannot afford two square meals a day even after this increase.  Undoubtedly, the situation needs to be tackled immediately.

According to agricultural scientists one reason for the increase in food prices is the Government’s neglect of agriculture, meagre investment in irrigation and infrastructure and lack of marketing reforms that has lead to inefficiency in storing and transportation of agricultural goods. Land availability for growing fruits and vegetables, normally on the outskirts of cities, has added to the problem due to rapid urbanization.    

In sum, with rising incomes the consumption and demand for food are bound to rise. In such a situation, production and supply shocks are sure to bite if not properly streamlined. The only way out is to evolve a proper strategy so that availability of basic food items are kept under check.

Plainly, the Indian Council for Agricultural Research (ICAR) has a big role to play in planning the production and productivity of food items along-with identifying districts and sub-divisions with potential for increase in output. In addition, storage capacity and cold chains might have to be set up in a big way all over the country. ---- INFA  

(Copyright, India News and Feature Alliance)