Feeding food prices

Reform and management of supply side need of the hour

There is no magic bullet to kill the stubbornly high food price inflation, which jumped to an year’s peak of 18.32 per cent in the last week of December 2010. This much was clear at the end of a high-level review of food price inflation chaired by Prime Minister Manmohan Singh on Tuesday. It has now been clear for some time that unlike in the past, when high-value, protein-rich foods like pulses and livestock products drove up food prices, this time round non-protein items and perishables like vegetables are driving up the prices, which have gone up by a whopping 58.8 per cent in recent weeks. Some livestock products have also seen prices rising sharply. Prices of cereals have remained more or less stable and that of pulses, the most-consumed protein source, have dropped by 10 per cent compared to last year’s peak. Though analysts tend to blame the recent unseasonal and, at places, heavy rains for the sudden price spurt, this can only be partly true. Hoarding, too, cannot be the main reason, especially for perishables like fruits and vegetables. Commodities like cereals, edible oils and pulses, which can be stored for some time, have not joined the price race, reaffirming that hoarding is not the main culprit. Of course, some structural factors, such as demographic and income changes which have pushed demand for high-value foods, seem to have contributed to food price inflation more recently. But this factor alone cannot sustain high inflation for long because production usually tends to respond to demand and prices.

So, who or what is the villain of the piece? Clearly, persisting market imperfections that enable traders to manipulate prices seem to have played a vital role this winter season. Imperfections in agricultural marketing and lack of post-harvest food management infrastructure, such as efficient transport, cold chains, agro-processing units — in short, the farm-to-fork chain — have largely contributed to the problem. This deficiency is apparent also from the huge difference between farm-gate prices and consumer prices. Besides, poor post-harvest handling of farm produce leads to substantial, albeit avoidable, losses, estimated at over 30 per cent in the case of perishables like fruits and vegetables. Moreover, needless and often mistimed government intervention in the commodities markets, by way of curbs on stockholding, movement, domestic trading, import and export of goods, usually sends wrong signals to the producers. At the time of sowing, farmers are seldom sure of what will be the fate of the season’s output. Such flawed and knee-jerk policy reactions seem to stem partly from a lack of a reliable mechanism for foreseeing production and hence likely prices of crops. Both the Union agriculture ministry and several state governments have failed to act. Better market intelligence along with reform and liberalisation of agricultural produce and marketing committees would be one step forward. Here the responsibility devolves upon the Centre and state governments. Improved supply management appears to be the key to the current spurt in prices, though in the medium term, both fiscal and monetary policy must work in tandem to arrest price rise.