Price pressures in vegetable soup
Posted on January 21, 2011 | Author: Saumitra Chaudhuri | View 208
The vegetable price sprial is largely artificial,and if the government does not take steps to reform marketing and modernise logistics for perishable farm produce,the problem wont go away
The past several months have seen much tumult.From the Commonwealth Games (CWG) to 2G,with garnishing from the Adarsh housing cooperative and the loan fraud,all have provided high octane fodder to Indian politics and the media.However,since the last week of December 2010,another element has intruded into the political/media space,and that is the rising prices of vegetables.
Vegetable prices show a seasonal variation,with prices dropping as the high output winter season sets in towards end-November /early-December.The signs were that the flare-up in inflation that had troubled us for over a year was quietening down a bit and was expected to moderate after October.That it did when the November monthly inflation rate came in lower at 7.5%.However,at this stage things began to go wrong.Instead of the normal seasonal decline,vegetables prices shot up.Whereas between the first week of November and the middle of December last year,the price index for vegetables had fallen by 9%,this year there was an increase of 24%.Not only that,but over the second half of December 2010,vegetable prices experienced a further increase of 21%,instead of the 8% decline in 2009.Thus,between November and December,whereas in 2009 (which,remember,had been a drought year) the prices of vegetables had fallen by 17%,in 2010 it shot up by as much as 50%.The media (and political) focus has been on onions in part because there was a proximate cause for this in the form of heavy unseasonal rains that had damaged a part of the early kharif crop.
Indeed,wholesale prices of onion rose by 65% through November and December 2010.But it should be underscored that the contribution of onion in pushing up vegetable prices was not as much as some might believe.It was actually overshadowed by the 110% and 125% respective increases in the prices of brinjal and tomatoes during Nov-Dec 2010,almost all of it in the month of December,that pushed the price index of vegetables by even more than did onions.Moreover,there was no weather-related event or other proximate cause that could be associated with the sudden and massive increase in the prices of brinjal and tomatoes and a few other items such as cauliflower except for the contagion effect emanating from onions.But for such contagion effects to become a sufficient force to lift the prices of brinjal and tomatoes by over 100% in the space of weeks,something strange must characterise their markets.That is,they cannot quite be markets that are free in the commonly understood sense,but must be amenable to cartelisation and that too in a very powerful manner.
The Agricultural Produce and Market Committee (APMC) Acts of the state governments have conferred a monopoly on the APMC mandi to execute trades in farm produce,including perishable horticultural products such as fruit and vegetables.The intention,no doubt,was to provide the farmer with the certainty of a marketplace and assurance of payment.However,the suspicion that the system has been hijacked by traditional middlemen has if anything been amply borne out by this recent experience with brinjal,tomatoes and cauliflower.In theory,it is supposed to be the farmer alone who can offer his/her produce at these mandis.In practice,this function is discharged by primary aggregators whose conflation with the farmer only holds true in the sartorial type-associations in the mind of the urbanite Indian.The mark-up between the mandi price and the retail price in the same city is scandalously high,testifying to the further layers of transactions and transaction costs that are involved.Between the price that the retail consumer pays and what the farmer actually receives is a big chasm.Of what utility is a regulation that ends up fleecing the customer and short-changing the farmer
THE Indian consumer is going to consume increasingly large quantities of fruit,vegetables,dairy produce,eggs,meat and fish.The government is in the business of buying,stocking and distributing grains for which the APMC/mandi system may perhaps be a convenience.However,the trade in perishable farm produce is in the private sector and will remain so.To become efficient it needs to be freed from the burden of monopolies that have been conferred by government for reasons that are evidently ill-founded and are patently counter-productive.Not only are there unjustifiable marking up of prices,there is a lot of waste,too.It has been variously estimated that up to half of our vegetable and fruit produce are wasted in the long transit between the field and the kitchen table.Such waste can only be addressed by greater investment in cold chains and processing facilities,by improved handling and packaging.Our horticultural production has risen sharply as the Indian farmer has responded very well to the rising consumer demand.The logistics,however,have remained wasteful and primitive.The improvement can take place only with large investments and corporate retail is the only engine that can drive the process.Someone in a mandi town will invest in a cold chain the more readily if he/she knows that a contractual tie-up for half or more of the space can be made with an established retail company for the capacity to finally sell the service is with the retail establishment.This can in conjunction with contract farming provide the assurance of sale and price which are always a big uncertainty with the farmer.
There is a tendency to conflate the issue of corporate retail chains entering the horticultural space with that of foreign investment in these chains.This has contributed to muddying the water.There is a clear imperative to take the necessary steps to have perishable farm produce deleted from the list of items covered by the APMC Act (easier than trying to amend the Act) and create a regulatory framework for the entry of retail chains into perishable farm produce with a direct interface with the farmer.Whether to permit FDI into this business is a second and separate decision,as also is in what form to this.To my mind,this is quite subsidiary to the principal issue that is at hand.If we do not take the necessary steps to modernise logistics for perishable farm produce,we will remain for ever hostage to the problems we have faced this winter.