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Food Prices - Problems Ahead

A few weeks ago Rahul Gandhi, General Secretary of the Congress Party, raised the issue of rising food prices with the Prime Minister. Mr Gandhi was justifiably anxious as to the political repercussions of rocketing inflation, its impact on poorer sections of society and effectively on his party’s political constituency. Apparently, the Prime Minister assured him that his government would examine this matter with the utmost urgency, but little in the form of a fitting response to a potential political nightmare, seems as yet evident. Ministries continue to haggle and blame each other, in a now familiar buck-passing phenomenon.

Prices of food articles rose 20% in December 2009, with sugar taking the lead through a 54% hike, pulses 42% and potatoes 125%. The WPI, a key indicator of inflation, rose 7.4% in December. Alarmingly, Pronab Sen, the Government’s Chief Statistician believes this will touch double digits in a matter of months, unless the issue is tackled with paranoiac concern. Indian demand for sugar is about 23 million tonnes a year with domestic production accounting for just 16 million tonnes. Logically, it would seem that India needs to import sugar but this simple process too gets embroiled in political wrangling. The Uttar Pradesh government for instance, declared a ban on imports by sugar mills in the state, leading to a million tonnes of raw sugar rotting at Indian ports. India’s demand for pulses is 18 million tonnes and its annual production is 15 million tonnes. Wheat prices too have risen by 25% as have those for fruits and vegetables. The impact of rising prices is not limited to the rural poor; it includes middle-class urban homes too.

Such price rises are on account of a production shortfall, but not entirely. The Government’s role in bungling matters is obvious. State administrations are sluggish in releasing their quotas of food grains provided by the Centre through the public distribution system. Hoarding by traders continues unchecked and politicians oddly discount the enormity of the problem. In a debate in Parliament on the food price issue in November 2009, less than 100 MPs bothered to attend. The Agriculture Ministry puts the blame on the States and strangely even on global warming.

The fact is food productivity in India has consistently been falling. To make matters worse, international prices have also risen, making imports expensive. In 2007, when India imported wheat, it paid Rs 16 a kilo while compensating local farmers Rs 8.50. Cooking oil prices surged that year to Rs 70 a kilo from Rs 36 a year earlier. This year threatens to be exceptionally appalling as the country witnessed possibly the worst monsoon in decades – the impact of which will become blatant in the coming months. The National Rural Employment Guarantee Scheme which provides incomes to millions of households will augment demand within a segment of society previously malnourished but now capable of generating new markets for food products. Government spending on such programmes is stated to increase to Rs 40,000 crores from the Rs 27,000 crores disbursed in the previous year, with a consequential impact on prices. Coupled with this is the fact that land available for cultivation has been shrinking, as has productivity largely on account of an absence of crop rotation in important agricultural states. Land under cultivation needs to be treated urgently to improve its nutrient content.

The Government needs to address this challenge with a two-pronged approach. First, address short term issues with improvements in the supply chain, specifically the public distribution system. Second, revisit the agriculture policy with the intent of removing inter-state barriers to trade and in parallel, enhancing productivity through better land use, genetically modified crops etc. With a bit of luck, Mr Gandhi’s concerns will provide a wake-up call, now somewhat overdue.

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