The rise in agricultural commodities’ prices should ideally result in higher returns to farmers. The incentivised farmers will then use a portion of the extra income to grow more and profit more. Unfortunately, because of the lacuna in our supply chain management, farmers hardly, if at all, benefited from the very high retail prices of most food items. No wonder therefore, supply responses to some punishing price rises of agricultural commodities in recent periods have been disappointing.
Unacceptable inflation in food prices, particularly of vegetables, fruits and milk, having a big share of the WPI basket for primary food items brought into focus that the reforms in the supply chain management can only be postponed at the peril of national food security. Finance minister Pranab Mukherjee admits to “shortcomings in distribution and marketing systems. The huge difference between wholesale and retail prices and between markets in different parts of the country are just not acceptable.” His frustrations are because the market continues to be manipulated in a way as to deny “remunerative prices” to farmers and “competitive prices” to consumers.
The economy, which is to grow 8.6 per cent in 2010-11 on the back of 8 per cent growth the year before, has caused improvement in the purchasing power. At the same time, some inclusive measures like rural employment guarantee programmes are creating incremental demand for food in the hinterland. A part of the agro commodity inflation could be traced to demand side pressure. But neither this nor global commodity price behaviour would explain our average inflation in primary food articles’ prices at 18 per cent between April and December 2010.
The 2010-11 Economic Survey finds reasons to wonder as to what proportion of rises in agricultural products is “appropriated” by the middlemen and what is left for farmers. The Survey recommends the “creation of more direct farm-to-fork supply chains in food items across the country” as that would be critical in ensuring better producer prices for farmers without penalising final consumers. One example of the depth of malaise is the government regulated mandis not facilitating integration of retailers with farmers.
That is why Mukherjee wants state governments to urgently take stock of what has gone wrong with marketing system and enforce a reformed Agriculture Produce Marketing Act. The situation obtaining now is an example of deficit in governance as also the states’ failure to come down hard on hoarders and speculators. Even the Left government in West Bengal has done little to ensure that major part of selling prices of agro products at final consumption point go to growers.
At the same time, it will be in order to see if big retailers could do a decent job of establishing equity between farmers and consumers by eliminating layers of middlemen. The likes of WalMart and Tesco have been able to get food on their shelves cost effectively without letting a big part of that wasted on farms. Mukherjee says 40 per cent of the country’s vegetable and fruit production is wasted in the absence of adequate storage, cold chain and transport infrastructure. It does not show the government in good light that in spite of such enormous wastage, sanctions could be given only to half of the targeted 30 mega food parks in the first four years of the eleventh plan. It will be a miracle if sanctions for the remaining 15 parks come in the plan’s final year.
People’s anger over food inflation has been a rude awakening for the government. This comes clear in Mukherjee’s budget speech. He has, therefore, made “agriculture development central to our growth strategy” to ensure food security for a growing population from an inelastic supply of land and in line with inclusiveness philosophy. The FM has reasons to be happy that private investment is moving in agriculture, food processing sector in particular. The decision to extend the finance ministry’s viability gap funding facility to investment for building modern storage capacity and also recognise cold chains and post-harvest storage as infrastructure sub-sector are designed to attract significant private participation.
Reacting to the unacceptable inflation in world food prices, Oxfam’s food policy adviser Thierry Kesteloot said, “millions of people are sliding into poverty as they struggle to afford basic food supplies and more and more are at risk of going hungry.” The tragedy has also visited this country. The ranks of chronically hungry people are rising despite inclusive programmes like MNREGA. At the same time, the food habits of the Indian middle class families have changed with their buying more milk, meat and fish, poultry items and fruits than before. But the supply response to the change in the composition of the middle class food basket is not adequate.
Mercifully, the government is now seeking to address the growing demand for vegetables through “robust productivity improvement.” But what must also be attempted at the same time is wastage elimination to the maximum and rationalisation of supply chain. It will be watched with interest as to how the budgeted Rs 300 crore is used to create a “virtuous cycle” of higher production of vegetables and better income for growers.