Farmers selling cheap, so why do fruits and veggies cost you a bomb?

Foodgrain production in 2016-17 is estimated at 276 million tonnes and in 2017-18 it is targeted at 275 million tonnes

As Finance Minister Arun Jaitley gets down to finalise his Budget Speech, which many believe could be focused on the farm sector, the December data on consumer food price index (CFPI) and its wholesale price counterpart should offer some insight.

The CFPI-based inflation for the month of December rose to 4.96 per cent year-on-year from 4.35 per cent in November. In contrast, the wholesale price index-based food inflation declined from 6.06 per cent in November to 4.72 per cent in December. As such, retail price food inflation has crossed past wholesale price one for the first time in the recent months.

Though this divergence in the movement of inflation isn’t uniform across all commodities in the group but the index numbers are a pointer to the fact that while farmers continue to reel under the impact of low rise in prices aggravating the distress scenario in rural areas, consumers in cities aren’t getting farm goods that cheap.

Labour bureau data showed that wage growth of general agriculture labourers (watering and irrigation workers), which is a proxy for rural wages grew by 5.16 per cent in October 2017 – the last publicly available data – from the same period last year. It was lower than 7.2 per cent growth seen between October 2015 and October 2016.

The trend of fall in prices in wholesale markets not reflecting fully in the consumer prices is more pronounced in perishable commodities mainly potatoes and tomatoes and also in chana (gram dal) whose prices have seen a massive slump under the weight of bumper harvest.

Data sourced from the department of consumer affairs’— Price Monitoring Cell -- shows that in Delhi wholesale markets from December 1 to 29, price of chana dal fell by 9.2% while in the retail markets it dropped by just 2.6%.

In case of some perishables, it was more acute.

Tomato prices in the wholesale markets of Delhi dropped by almost 74 per cent in December, while in the retail markets the commodity became cheaper by mere 47 per cent during the same period.

Tomato production in 2017-18 is expected to be 22.3 million tonnes, which is 7.7 per cent higher than last year. 

Though, perfect transmission of rise or fall in wholesale prices into the retail markets shouldn’t be expected as there is an element of profit, but when the difference is large, then it is indeed a cause of concern.

Unofficial data sourced from private traders and others show that between November 2017 till January 12, 2018, the margin between wholesale and retail price of chana dal in Delhi markets has widened from around 34% to almost 77 per cent.

In case of tur dal, the difference has risen from 40 per cent to 50 per cent, from 72 per cent to 96 per cent in case of masoor dal and from 65 per cent to 97 per cent in case of urad dal.

“It seems retailers haven’t passed on the benefit of low farm prices particularly in case of some perishables to consumers which is why CFPI is showing a certain amount of rigidity,” Madan Sabnavis, chief economist at CARE Ratings said.

All this, comes at time when India’s overall horticulture production continues to grow at a healthy pace and is expected to outstrip foodgrains production in 2017-18 marketing year that started in July for the sixth consecutive year at 305.4 million tonnes, almost 1.6 per cent more than the final estimate of 2016-17 and a new record.

Foodgrains production in 2016-17 is estimated at 276 million tonnes and in 2017-18 it is targeted at 275 million tonnes.

However, there are exceptions to this as well. Consumer Affairs Ministry data showed that in December while retail price of wheat dropped by 9.5 per cent, the wholesale rates fell by just 3.5 per cent.

CPI-food inflation surpasses WPI food inflation
Index	November 2017	December 2017
WPI- Food Inflation	6.06 %	4.72%
CPI -food inflation	4.35%	4.96%
Source: MOSPI and ministry of commerce

Fall/Rise Movement in retail and wholesale price of major commodities in Delhi From December 1 to December 29
Market		Gram Dal	Potato		Tomatoes
Retail		-2.6%	-24%		-46.8%
Wholesale		-9.2%	-27%		-74%
NOTE: Negative is percentage fall while positive is percentage rise
Source: Ministry of Consumer Affairs – Price Monitoring Cell

This could be partly attributed to the government being a big player in the domestic wheat markets and buys big quantities of the same at fixed rate.

In case of onion, another commodity whose prices have fallen by a big amount, data showed that in December wholesale price of onions in Delhi rose by 10.3 per cent while in retail it dropped by 14.5%.

India’s onion production in 2017-18 is expected to be 21.4 million tonnes, around 4.5 per cent less than last year, while that of potatoes is expected to be 49.3 million tonnes, around 1 per cent more than last year, the first advanced estimate of horticulture crops released few weeks back showed.