Wholesale-retail price gap widens

Experts put the blame on transaction cost, triggered by the rise in transportation and labour costs.

For consumers reeling from runaway inflation, there is a sting in the trail — the widening gap between wholesale and retail prices of most everyday use food items. Blame it on high transaction cost, triggered by a rise in transportation, labour charges and commission, retail prices of most everyday use food items are rising sharply compared to their wholesale prices.

A comparison of wholesale and retail prices of 13 major food items between October 2010 and 2011 shows retail prices of nine moved more than wholesale.
 

DIFFERENCE IN RANGE
Commodity	Wholesale  price*	Retail price*
Wheat	-1.62	7.14
Wheat flour	-2.06	3.12
Rice	4.00	6.66
Sugar	11.66	8.06
Gram Dal	62.36	57.14
Tur Dal	13.3	7.29
Urad Dal	1.6	4.16
Groundnut Oil	15.41	-0.81
Mustard Oil	18.11	21.73
Gur	-1.61	5.26
Tea	5.73	10.81
Potato	4.22	6.25
Onion	-30.59	-12
*% change on Oct 21, 2011 over Oct 22,2010; All prices are for Delhi.  Source: Price Monitoring Cell, Department of Consumer Affairs, Government of India

For instance, wheat prices were down 1.62 per cent from a year earlier in the wholesale markets here, but the retail prices were ruling 7.14 per cent higher. In the case of onion, which has changed fortunes of governments in the past, the decline at the wholesale level was 30 per cent, while the fall at retail was only 12 per cent. Food inflation for the week ended October 22 surged to a nine-month high of 12.21 per cent.

“Retail prices are high because of higher transaction cost. Retailers, especially vegetable vendors, are now paying higher charges to transport goods. Labour costs have gone up, as well. The commission that retailers charge is ad valorem. So, their commission goes up with any rise in prices. The demand-supply equation has improved with good harvests, but profiteering is leading to higher prices for consumers,” says Madan Sabnavis, commodity expert and chief economist, CARE Ratings.

Sabnavis rules out a sharp decline in retail prices, though the WPI food inflation is expected to soften a bit in December due to base rate effect. Rising prices, especially in grains, are also attributed to the annual handsome increase in the minimum support price.

A vegetable vendor in Model Town, who sources vegetables from the Azadpur market, says he has to pay Rs 150 to transport 250kg of vegetable, compared to Rs 120 in the same period last year. Also, the labour who used to charge Rs 60 to bring vegetables from the market to the vehicle, now charges Rs 100.

Most retailers are unorganised and operate at small scales. Therefore, they are tempted to indulge in a kind of profiteering. Ashok Gulati, a food policy expert and chairman of the Commission for Agricultural Costs and Prices, says the problem with retailers is that their volume is often small. “Therefore, they charge margins of 20-25 per cent. The only solution is to bring organised retailers and farmers on a common platform, so that intermediaries are reduced, leading to lower prices,” he says.

Gulati gives the example of Mother Dairy, which procures milk directly from farmers. “We need to bypass agents, reduce wastages and improve logistics. Small retailers need to be organised, so that their volumes go up and their margins come down,” he says.