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The Breaking Point

Omkar Goswami


I can’t recall writing on the same topic over two consecutive columns. This is a first. Since the last column, I have been going through the supply and demand data on articles of food in India, and I am now convinced that food inflation has reached a new structural level. Despite some cyclical movements, we will now be seeing many more episodes of high food inflation. The prices of food — especially vegetables, fruit, milk, eggs, fish and meat — will plague us like never before. And the solutions will need greater political and administrative bandwidth and imagination than what the present dispensation possesses.

As earlier, let me start with the data. The chart plots Wholesale Price Index (WPI) inflation for three broad classes of products: (i) fruit and vegetables, (ii) milk, and (iii) eggs, fish and meat. These account for a sizeable chunk of a family’s food consumption basket, in urban as well as rural India. More significantly, across a large cross section of the population, these are items on which expenditure rises at rates faster than disposable income. As families get better off, they spend proportionately more on fruit, veggies, milk and the like. This is important because the demand for these items are rising phenomenally, while the supply isn’t.

As of December 2010, fruit and vegetable inflation was running at 22.8 per cent compared to a year earlier; milk was at 18.2 per cent; and inflation on account of eggs, fish and meat stood at 19.2 per cent. To be sure, vegetables spiked in December thanks to the onion effect. Not so fruit. From December 2009, fruit inflation has been reigning at double-digits, peaking at 32.4 per cent in July 2010. Milk inflation has been continuously in double-digits since March 2009, or 22 months on a trot; and for 12 successive months it ruled above 20 per cent.

To my mind, there is no doubt that India is, and will be, facing higher food inflation than earlier, and will do so over long periods of time. That is the obvious outcome when a rapidly burgeoning middle class across urban and rural India faces the worst supply chain in the country. We have more rent-seeking intermediaries in the food chain than warranted by any notion of sanity. More fruit and vegetables rot between the fields and the consumer than any country that postures as a 9 per cent GDP growth economic superpower. Every field-to-mouth supply chain in India is riddled with laws, regulations and procedures and that are antiquated and ridiculous. The food supply chain is not about efficiently transporting food to consumers at affordable prices, but about lining the pockets of various useless intermediaries. Moreover, since the green revolution of four and a half decades ago, there has been no significant long term improvement in agricultural productivity — be it in cereals, oilseeds, vegetable or fruit cultivation. If anything, untrammelled use of subsidised fertiliser and pesticides, coupled with excess water drawn at zero power tariffs, have reduced our ground water and leached the soil.

Consider a simple fact. We are a nation where services grow at over 10 per cent per year; where industry has started growing at double-digits; but where agriculture averages a growth of 2 per cent. Add to this a ‘protect the farmer’ policy framework where food imports are frowned upon — to be sporadically undertaken only during crises. Why should we not expect long periods of double-digit food inflation?

There is a solution. It involves eliminating the hundreds of restrictions on the food supply chain, and letting corporations get into managing the process; seriously investing in science and agricultural extension; and opening up agricultural imports. Can the present governments execute these, both at the state and the centre? You know the answer. Thus the gloom.



Published: Business World, January 2011


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