An anti-market step

Curbs on stockholding a move in wrong direction

The government’s strategy to tame prices of kitchen staples, such as onions and potatoes, is essentially tantamount to treating the symptoms and aggravating the disease. Most steps announced so far aim largely at lowering consumer prices without taking adequate steps to stimulate production or ease the supply crunch, the root cause for this recurring menace. The moves – such as increasing minimum export prices, bringing onions and potatoes under the repressive Essential Commodities Act, capping stockholdings and launching drives to prevent hoarding – normally tend to send the wrong signals to farmers and reduce incentives for expanding acreage under these crops.

Raising minimum export prices of onions, for instance, at this stage is meaningless, as there is hardly any incentive for exports when the domestic prices rule so high. Similar is the case with anti-hoarding measures as vegetables and fruit cannot be kept for long without incurring losses due to spoilage and moisture loss. High prices, in fact, spur stockholders to offload the goods for booking profits. Actually, short-term storage of seasonal farm produce, such as onions and potatoes, is deemed imperative to maintain off-season supplies. Any bid to discourage this practice will actually exacerbate price instability — by depressing the rates soon after harvest, to the disadvantage of growers, and escalating them in the off season, to the detriment of consumers.  

The Act is basically an anti-market, anti-trade and anti-farmer law that has outlived its relevance. Unsurprisingly, it was diluted substantially about 10 years ago by deleting most of the superfluous items from its purview. Reviving it again to bring onions and potatoes under it and putting stock limits on them is unlikely to serve any gainful purpose. Similar stocking restraints were clamped on items such as foodgrain, oilseeds and pulses after the food inflation shock of 2008-09 in the wake of the global economic slowdown. This had failed to ease food inflation, which has remained stubbornly high.

Moreover, even delisting vegetables and fruit from the agricultural produce marketing committee (APMC) Acts may not help much — though this is needed for various other reasons. Some states, such as Bihar and Kerala, do not have APMC laws, and yet the prices there move in tandem with those in the rest of the country. The need, truly, is to slash unreasonably high mandi charges and local levies that swell state coffers, but add on to consumer prices. The number of intermediaries between producers and consumers, too, needs to be reduced to curtail marketing costs. Equally important is to create a legal and policy environment conducive to greater private investment in setting up agricultural markets.

Another measure that can soften the prices and spur higher production is removal of all restrictions on the movement of farm goods. Some states – notably the major potato-grower West Bengal – often stop the flow of vegetables to other states. This hurts the interests of local farmers, as well as consumers, in importing states. Thus, an enduring solution to frequent spurts in the prices of vegetables and fruit lies in boosting supplies and reducing marketing costs. Otherwise, their prices will remain volatile.