The Unstoppable Food Price Rise

India is the country, where governments both at the Centre and in at least one state have been voted out over soaring food prices. While the government reviews the pricing of cereals, pulses, fruits and vegetables in the light of food inflation crossing 20 per cent fuelling overall inflation the statistics on wholesale prices present a grim picture. But for hundreds of millions of Indians across the country, the steep climb in food expenditure has been a harsh daily experience for some months now. According to official data, the prices of rice and wheat have increased by 11.75 per cent and 12.6 per cent, respectively, on a year-on-on year basis.

Spurred by the soaring prices of essential food items like pulses, potato and other vegetables, the annual rate of increase in the prices of food items soared to 19.95 per cent the highest in more than a decade as supply shortages hit hard. Food inflation stood at 19.05 per cent at the end of November. There are food items where the government has no such intervening role; and their price trends tell a more compelling story. Thus the price of bajra has gone up by 27 per cent, and that of dals by 60-70 per cent. The story applies to vegetables as well. There is also the strange case of sugar, which is sold at regulated prices by the government in open markets as well as through the PDS. Over the past year, its price has gone up by 125 per cent in wholesale markets across the country. The same story applies to the diets of non-vegetarian Indians. Mutton price has risen by 33 per cent this year. In the poultry sector, the price of chicken has gone up by 29 per cent, while egg price has doubled. The price of fresh water fish is up by 76 per cent.

But Mr Sharad Pawar is in no mood to accept the neglect from Govt’s side and laments that the soaring price is a global phenomenon, the government is making determined efforts to contain the prices of food grains and essential commodities, unprecedented rise in prices of essential commodities have created a serious difficulty for people. He also added that one of the reasons for rising prices can be attributed to this year's climatic conditions, but added we are confident that the policies of the government will ensure that rise in certain essential food commodities will definitely be brought under control, which warrants more intervention by the state governments in the market.

Some in the government view the current price rise as seasonal, mostly affecting fruits and vegetables, and feel that when the new crop arrives in January and February, rates will ease up. Others are less sanguine. They argue that while drought was undoubtedly a factor, ineffective action against hoarders remains a major stumbling block. Food prices are not going to come down anytime soon as the government expects the supply-side constraints to continue in the short-term due to a drop in summer farm output on account of poor monsoon and floods in some parts of the country, the finance ministry said in its mid-term review but hoped to stem spiralling prices through imports.

A parliamentary committee has pulled up the finance ministry for its failure to intervene timely and squarely to address price rise with due seriousness. The committee recommended that a comprehensive food pricing management policy be formulated not only to provide the much needed relief to consumers but also an antidote for the growing economic imbalance in the country. In its analysis of the causes behind the price rise, the committee noted wide variation between wholesale and retail prices in commodities like rice, pulses, potato and onion suggesting artificial shortage and spiking of prices by intermediaries.

Economists feel that in the face of soaring food prices the immediate objective of the RBI will be to curb inflationary expectations by adopting tight monetary policy. RBI Governor D Subarao recently said “If food price inflation persists for long, they can fuel inflationary expectations and the monetary policy will have to take a view on this.” The government has already asked states to ensure that the nation-wide public distribution system delivers foodgrain at controlled rates to the poor. It may follow this up with open market sales at lower prices for the middle class.

Rise in prices of primary articles of consumption of the common man that has been occurring in the recent times is indeed a cause of concern, and this needs to be attended to on an urgent basis. The government can augment supply through imports, it expressed doubt that this option may not be available for certain commodities such as pulses, available only in limited quantities in the international market.

INDIA, DROUGHT & PRICE RISE

India is reeling through a crisis seen after a long time. Continuous good monsoon had brought a sense of well being among the Indian policymakers about our food security. However failing rains across the country has busted quite a few myths. The entire country barring the Saurashtra peninsula of Gujarat has received inadequate rainfall till the week ending 5^th August. Parts of western UP and Haryana have received up to 64%-61% less rainfall from average. Nearly 60 percent of India’s farm sector is dependent on monsoon rains between June and September. This year has witnessed one of the driest spells in eight decades, as according to IMD. While the debate rages whether Global Warming is the prima facie culprit for this situation, the effects are far ranging and for the 214 million Indians below the poverty line who are denied access to two square meals a day, the implications are disastrous.

The spectre of drought looms large over as many as 161 out of 626 districts in India due to deficient monsoon, Finance Minister Pranab Mukherjee said in New Delhi recently, but asked citizens not to panic. “One hundred and sixty one districts have been declared drought-prone. As far as sowing is concerned, 20 percent would be down,” Mukherjee told reporters on the margins of an annual conference. “Monsoon situation is still erratic,” he warned, but added: “But there is no point of pressing the panic button. You all will go and start chanting drought, drought, drought and it will have an adverse impact.” Mukherjee said Punjab and Haryana, two most important states for food output, were fortunate since they use groundwater extensively, even as Bihar and Uttar Pradesh were facing shortage of water.

Rice has been the worst hit, with the area declining by 6mha. Sugar follows closely. While Uttar Pradesh, the second-largest sugar producer, has declared drought in 47 districts, Maharashtra has cut its sugar output forecast to 4.6mt from 5mt predicted in June. Global sugar prices have jumped to their highest in more than 25 years as India, the world’s largest consumer, has had to tap the global market to offset the impact of the poor monsoon on the country’s sugarcane crop. Prices in India are, however, still lower than the cost of imported sugar.

Crisil Economist, Dharmakirti Joshi said any shortage on food can push up the consumer price index much faster this time as the index is very high in comparison to previous drought situations in 2002-03. “If the monsoon revives from now on, the damage to crops may be limited. But the damage done to crops such as paddy can’t be undone now,” he said. Tushar Poddar, vice-president and chief economist at investment bank Goldman Sachs India, said that the weak rainfall could reduce agricultural growth to -2 per cent year-on-year, down from an earlier estimate of 1.4 per cent. And UBS has warned that if rainfalls failed to improve, real growth in GDP could be 1 to 2 per cent lower this year than its forecast of 7 per cent. A Citigroup study said the damage on the price front had taken place. Despite the mitigating factors like the possibility of a better winter crop and higher food stocks, primary product prices have begun to spiral. Commodities hit include pulses, rice, fruit and vegetables and cereals with tur dal, a lentil native to India and part of the staple diet, costing over Rs.100 a kilogram in several states.

Prime Minister Manmohan Singh indicated that the government is ready to undertake open market intervention to prevent the rise in grain prices caused by deficient and delayed monsoon rains. “We should not hesitate to take strong measures and intervene in the market if the need were to arise,” Singh said at a meeting of state chief secretaries in New Delhi recently.

A contingency blueprint being drawn up by officials proposes higher sugar and pulses imports, a ban on edible oil exports and curbs on futures trading in commodities whose prices are rising fast. India may have to import 3-4mt sugar — international prices have begun rising in anticipation of higher demand from India. India needs 18mt of pulses a year but its production fell short by 3.4mt last year because of water shortage in central India. This year, fears of more water scarcity have shrunk the acreage by 10%.

So far, 58 districts in UP, 26 in Bihar, 24 in Jharkhand, 12 in Himachal Pradesh and 9 in Manipur have been declared drought affected while 27 in Assam, 11 in Nagaland and 10 in Maharashtra are facing drought like conditions. Asking the Union power ministry to provide additional electricity to states like Punjab, Haryana, UP, Jharkhand and Bihar, who have suffered crop loss, the agriculture minister said the government will bear the cost of the diesel subsidy (50% of the cost usually borne by the state government).

Ajay Loganadan, Head-Investment Advisory Group, HSBC Private Banking said a 2% output reduction in agriculture, actually impacts our GDP by only 1%. "Given the fiscal stimulus policies and the policy measures that have been announced, which are largely geared towards the rural sector, we believe that should really offset the negative impact of monsoons."

The rise in prices of food items in June and July this year has been up to 32% as compared to 18% in the corresponding period in 2008. The retail price of tur, ruling at Rs 62 a kg in June, rose to Rs 82 a kg by the end of July. At present, tur has skyrocketed to about Rs 90 a kg in many places across the country. Chana dal (split chick peas), which was going at Rs 47 a kg in June in Kerala, now cost Rs 56 a kg by July-end. A 19% year-on-year jump in the price of pulses, a 15.5% leap in the cost of rice and similar rises for fruits and vegetables has been noticed recently.

"The lower the income category, the more of their total income they spend on food and the more food prices rise, the more it hurts the 'common man, said Crisil's Dharmakirti Joshi”. The already high prices of food items may skyrocket further, and deficit agriculture production was likely to push up prices of essential commodities in the near future. Experts have been warning that the food situation in the country is going to be "dangerous" from September. Already, prices of oil and pulses have zoomed in the last couple of months, making them out of reach for the poor.

The harvest of pulses during kharif 2008 had suffered a serious setback, and the prospect is none-too-good in the current season, due to the erratic monsoon. Imports, which have been a regular feature to beef up supplies, have run into rough weather due to depleted inventories in our traditional markets and international prices too are bullish. To add to the woes, delays in port clearances are also reported as well as some hoarding in the hope that a further upswing in pulses may be in the offing.

But, now, not enough pulses are available abroad while the prices are also on the high side. Unlike cereals, where official stocks are sizeable and adequate to take in stride a harvest setback, the story is different in regard to pulses.

In a larger sense, pulses have been a victim of neglect. Relegated to marginal lands, and varietal breakthrough elusive, with minimal inputs and poor irrigation cover, production has languished in the face of rising demand.

To augment the pulses, shortages being faced in India, members of the Pulses Importers Association will be importing 4 lakh tonne over the next three months. India produced 14.66mt of pulses in the 2008-09 season against the annual requirement of over 18 million tonne. The gap is bridged through imports. Supply constraints pushed prices of pulses like arhar to Rs 90-100 a kg from Rs 60 two months ago. The sugar and pulses supply is causing main concern for the govt., as hoarding is widely prevalent even after the stringent open warnings of Mr. Sharad Pawar and Manmohan Singh. The edible oil scenario is also not much bright and it is decided to import 42% of total oil needs this year. But it is upto the state governments to ensure the deliveries of stocked foodgrains and other edible items at the prices affordable to the last common man. The hoarders have to be sternly dealt with by developing a fool proof mechanism. Its very tough time for the UPA govt., as they are facing challenges on all fronts of drought/ monsoon failure, food scarcity and swine flu. Mr. Manmohan Singh and his cabinet have to show their guts and come victorious, without letting down the common man.

- Abid Hussain-