Many of the supply-side measures taken to contain prices of essential commodities by the Cabinet Committee on Prices (CCP) last week are based on flawed assumptions. It is naïve to assume that hoarding alone is behind the spurt in the price of agricultural items. Commodities like vegetables, fruit, milk, eggs, meat and fish, all of which have contributed significantly to food inflation, are highly perishable in nature. Hoarding cannot explain the rise in their prices. In the case of wheat and rice, the government has curtailed the role of private trade by raising stock limits and imposing other controls. The government has become the sole purchaser in the peak, post-harvest, marketing season in the grain-surplus states. It is astonishing that at a time when prices are soaring, the government is building up its stocks far beyond buffer stocking norms. Though the CCP has decided to release 2-3 million tonnes of wheat and rice in the open market in the next couple of months, it would still be holding on to nearly 50 million tonnes of foodgrains, twice the quantity required to be stocked as buffer.
The sugar price spike, on the other hand, is a different story altogether. It is a highly regulated and closely monitored item, right from production to sale. Reckless exports of sugar in 2006-07 and 2007-08, coupled with the government’s failure to correctly read the emerging trends in sugar production, cane area and cane price arrears have all been responsible for the downturn in cane availability and sugar production, and the consequent price rise. Pulses can, of course, be hoarded but not for long, as stocks are easily spoilt by insects and pests and spoilage can reduce market value. In any case, with the prices of most pulses at their peak, hoarders may now be expected to offload their stocks. Edible oil prices, on the other hand, have not risen abnormally despite a drop in domestic production with liberal imports helping.
It is not surprising that raids conducted under the Essential Commodities Act in some states did not result in the unearthing of any significant quantities of essential items. This discounts the notion that unchecked hoarding is largely responsible for price rise. The real problem is a shortage of supply. Given that the problem of food inflation has to be addressed more on the supply side, it is just as well that the government has instructed public sector trading companies to import more pulses, wherever available, and use the marketing outlets of the state governments and apex cooperative societies, like Nafed, to sell them directly to consumers at subsidised prices. However, while increasing supply to dampen prices is good from the consumer’s viewpoint, it should be ensured that farmers’ interests are not sacrificed at the altar of inflation management. The effort should be to reduce the trading margins between farm gate prices and retail prices, rather than bring farm prices down. The farming community also deserves a good deal, especially when farmers are able to derive the benefits of excess demand.
