Food Inflation and Agricultural Swaraj

January 9, 2011

By Rahul Goswami

The price of a basket of staple foods has become crippling in rural and urban India. The government’s response is to favour agri-commodity markets, greater retail investment and more technology inputs. For food grower and consumer alike, the need for genuine farm swaraj has never been greater.

The retail prices of staple foods rose steadily through 2010, far exceeding in real terms what the Government of India and the banking system calls “headline inflation” and exceeding the rate of the rise in food inflation as calculated for the country. These calculations ignore the effective inflation and its increase as experienced by the rural and urban household, and they also ignore the considerable regional variations in India of a typical monthly food basket.

Moreover, from a household perspective an increase in the prices of food staples is not seen as an annual phenomenon, to be compared with some point 12 months in the past. It is intimately linked to job security, net income, the pressure on the food budget given competing demands of medical treatment, education and expense on energy. When real net income remains unchanged for over a year or longer, the household suffers a contraction in the budget available for the food basket, and this contraction – often experienced by rural cultivator families and agricultural labour – is only very inadequately reflected by the national rate of increase in food inflation.

An indicator of the impact on households is provided by the price monitoring cell of the Department Of Consumer Affairs, Ministry Of Consumer Affairs, Food and Public Distribution. This cell records the retail and wholesale prices of essential commodities in 37 cities and towns in India. Data over a 36-month period (2008 January to 2010 December) for the prices of cereals, pulses, sugar, tea, milk and onions reveals the impact of the steady rise in the Indian household’s food basket.

In 33 cities and towns for which there are regular price entries, the price per kilo of the “fair average” quality of rice has risen by an average of 42% over the calendar period 2008 January to 2010 December. In 12 of these urban centres the increase has been over 50% (Vijayawada, Thiruvananthapuram, Hyderabad, Bengaluru, Patna, Cuttack, Bhubaneshwar, Indore, Bhopal, Shimla, Karnal and Hisar). The average price rise over the same period for a kilo of tur dal, for 32 cities for which there is regular price data, is 46%. In 11 of these urban centres the increase in the price of tur dal has been over 50% (Puducherry, Bengaluru, Patna, Agartala, Nagpur, Mumbai, Indore, Ahmedabad, Shimla, Jammu and New Delhi). Where wheat is concerned, from among the 27 cities and towns for which there are regular price entries over three years, in 10 the per kilo price rise is 30% and more.

If in search of a comforting cup of tea over which to rue the effect of the steady price rise, this too will cost a great deal more than it did three years ago. For 25 urban centres with regular price data, the average increase over the same period of 100 grams of loose tea leaf is 38% and in 11 of these cities and towns the increase is between 40% and 100%.

The sugar with which to sweeten that cup of tea has become prohibitively expensive over the January 2008 to December 2010 period. For the 32 cities and towns for which there is regular price data, the average price increase for a kilo of sugar is 102%, the range of increase being between 76% and 125%. This increase for sugar – relatively homogenous for the price reporting centres – exhibits the countrywide nature of the price rise of the commodity. Nor is there a household economy case for substituting sugar for gur, or jaggery. For the 17 towns and cities reporting data for gur prices over the same 36-month period, the increase in price over the period has been an average 118% with 11 of these centres recording an increase of over 100%.

Adding a third element of higher cost to the humble cup of tea is the price of milk. For the 25 towns and cities which recorded increases in the per litre price of milk over the 36-month period (one city recorded a drop) the average rise is 37%. In seven cities a litre of milk costs at least 50% more in December 2010 than what it did in January 2008 – Ahmedabad, Bhopal, Indore, Jaipur, Jodhpur, Patna and Hyderabad. In conspicuous contrast are the rates of increase in price of cooking media – groundnut oil, mustard oil and vanaspati. Over the January 2008 to December 2010 period the 37 urban centres recorded average price increases of 10%, 9% and 10% respectively for groundnut oil, mustard oil and vanaspati.

Finally, the volatile allium cepa, or common red onion. In 29 cities and towns reporting regularly the per kilo prices of onion, the increase in price of the vegetable has been astonishingly steep. The average increase for 29 cities is 197.5% and in 14 the increase has been 200% and above – New Delhi, Shimla, Ahmedabad, Indore, Mumbai, Rajkot, Agartala, Aizawl, Bhubaneshwar, Cuttack, Kolkata, Chennai, Hyderabad and Vijaywada. In pale comparison is the otherwise worrying average increase of 39.5% for a kilo of potatoes – this is the 36-month average increase recorded by 27 urban centres.

When examined at a point in the calendar, the rise in prices of staple foods has for the last four years tended to be worrying if not alarming. What has been the response from the central Ministry of Agriculture, and from the Ministry Of Consumer Affairs, Food and Public Distribution?

The Agriculture Ministry has busied itself with, as Union Agriculture Minister Sharad Pawar told the Economic Editors’ Conference in October 2010, “channelising our efforts through effective policy instruments and programmes to ensure higher investments – both public and private”. Pawar had at the time told the Conference: “We have concentrated on enhancing production and productivity both by bringing in high yielding varieties, hybrids and efficient farm equipments. Our efforts towards increasing soil nutrients have seen to the new fertiliser subsidy regime. We have also worked on easing the availability of credit to the farmer and offering better risk mitigation instruments.”

The ministry has drawn up new programmes and strategies, among them the setting up of soil testing laboratories, what it calls “water harvesting and micro irrigation structures”, the provisioning (or contracting of) storage and processing facilities, what it calls “sophisticated pest surveillance and monitoring systems” and finally “IT-enabled knowledge dissemination systems for the farmers”. Pawar has rarely missed an opportunity to say that investment plays an important role in achieving higher growth rate – this falls in line with the central government’s overall planning guideline of “faster and more inclusive growth”, an intellectual trap which prohibits questioning of how ‘growth’ can be both ‘faster’ and ‘more inclusive’ when in fact 20 years of economic liberalisation have proven exactly the opposite.

The continuing recourse to finance and technology has meant that progress in agriculture for India is measured now in terms of increase in gross capital formation in agriculture as a proportion of agricultural GDP which, Pawar pointed out, “has gone up from 14.1% in 2004-05 to 21.3% in 2008-09”. Who has been responsible for such capital formation, has it in fact taken place on the one and two hectare farm plots which up to 50% of farming households actually cultivate on, how much of this capital formation is corporate and includes logistics and food processing infrastructure – these are questions sidestepped by both concerned ministries and India’s national agricultural research system, run by the Indian Council of Agricultural Research (ICAR).

They ought not to be so ignored, especially when there has been for each of the last five years greater evidence of not only the rise in the prices of food staples but also of the stagnation of incomes for cultivator households. What impact does a steady rise in the prices of a typical food basket have on the rural consumer? The 61st round of the National Sample Survey (2004 July to 2005 June) provided state per capita averages for consumption of basic food items over a 30-day period. Using this data as a baseline, the impact on quantities consumed becomes clearer, and also helps explain some of the coping strategies resorted to by rural households with 10%-20% of the rural poverty line.

* In 2004-05 in Andhra Pradesh, the rural per capita cereals consumption for a 30-day period was 12.03 kilos. At the time this cost the consumer Rs 113.60. The NSS reported in 2006-07 that per capita rural expenditure on cereals had risen to Rs 118 in the state. By mid-2010 the price for 12.03 kg of rice in Andhra Pradesh was Rs 240 – 212% up. Similarly, increases in the per capita 30-day price for cereals in some other states are: in Bihar (13.16 kg at Rs 112.98) up by 210%; in Maharashtra (10.49 kg at Rs 82.36) up by 255%; in Rajasthan (12.68 kg at Rs 85.58) up by 274%.

* In 2004-05 in Rajasthan, the rural per capita pulses consumption for a 30-day period was 0.5 kilo. This had then cost the rural Rs 11.54. By mid-2010 the retail price for this amount of pulses in Rajasthan was Rs 22.25 – 193% up. Similarly, increases in the per capita 30-day price for pulses in some other states are: in Andhra Pradesh (0.7 kg at Rs 19.36) up by 150%; in Bihar (0.7 kg at Rs 16.43) up by 202%; in Maharashtra (0.87 kg at Rs 22.44) up by 211%.

* In 2004-05 in Bihar, the rural per capita consumption of milk for a 30-day period was 2.97 litres. This had then cost the rural Rs 36.31. The NSS reported in 2006-07 that per capita rural expenditure on milk had risen to Rs 39 in the state. By mid-2010 the retail price for this quantity of milk in Bihar was 71.28 – 196% up. Similarly, increases in the per capita 30-day price for milk in some other states are: in Maharashtra (2.72 litres at Rs 33.25) up by 221%; in Rajasthan (9.48 litres at Rs 102.89) up by 221%; in Andhra Pradesh (3.05 litres at Rs 32.83) up by 251%.

Establishing the links between unorganised employment, the availability of safe drinking water and sanitation, housing conditions and food absorption, the Report on the State of Food Insecurity in Urban India, by the M S Swaminathan Research Foundation in 2010 said: “There is a substantial body of literature on average consumption levels in India that indicates not only low levels of per capita calorie consumption, but also a trend that reflects either stagnant or declining consumption levels over time across the various states of India.”

Whether urban poor or rural non-farm labour or agricultural labour in peri-urban regions, how is the recommended dietary allowance of the Indian Council of Medical Research met, if at all? For the youth and young adults, the food deficit is sought to be met by the regular consumption of low-volume low-value packaged processed foods, usually priced at Rs 5 to Rs 10 per unit. While a generation earlier processed food in rural areas was most commonly a packet of biscuits, today it may be a small packet of savouries or ‘farsan’, one of the many varieties of cheap confectionery, or small portions of dry baked products. These are usually in the 50 gram range, loaded with either sugar or salt, and the volume of their consumption contributes to the Indian processed food industry’s conviction that its sector is assured of annual growth of 14%-15%, overlooking entirely the underlying reasons for some of this consumption.

The Consumer Expenditure Survey of the 63rd round of the NSS, carried out in 2006-07, estimated that in 2006-07, just over half (50.3%) of the Indian rural population belonged to households with monthly per capita consumption expenditure (MPCE) less than Rs 580 at 2006-07 prices. It is an indication as much of the precariousness of household food security as it is of the growing income inequalities in India – both rural and urban – that the average MPCE in 2006-07 was Rs 695 in rural India and Rs 1,312 in urban India at 2006-07 prices. The corresponding average MPCE in 2005-06 (NSS 62nd round) was Rs 625 in rural India and Rs 1,171 in urban India at 2005-06 prices.

“The wholesale/retail prices are largely determined by the market forces,” Prof K V Thomas, Minister of State for Agriculture, Consumer Affairs, Food and Public Distribution, said in answer to a question in Lok Sabha on price rise. “Different layers in the distribution channel leads to the entry of intermediaries and contributes to the high prices paid by the consumer. Lack of market integration is one of the factors that give rise to emergence of the intermediaries.” This reply, on 16 November 2010, is part of a series of statements by the minister seeking to disconnect trading in food commodities from the rise in prices of food staples.

On 19 November 2010, in his reply to a question in the Rajya Sabha, Prof Thomas said that the volume of trade in agri-commodities in the commodity futures markets from 1 April 2009 to January 2010 had increased by 102.59%. He said the “growth in volume and value of futures trade is not necessarily because of continuous rise in prices” and further emphasised, “it would not be correct to say that the growth in the trade volume in agricultural commodities during 2009-10 was due to excessive speculation or by causing inflation or indulging in profiteering”.

Three weeks later on 12 December 2010, Prof Thomas replied to a question in Lok Sabha: “Futures trading does not impact the price or availability of any commodity in the short-term. But in the medium or long-term price discovery process facilitates strategic action by various stakeholders including policy planners in government to augment production and imports in shortage situation and export and MSP [minimum support price] operations during surplus situation, thereby helping the consumers and producers respectively as well as stabilise the prices.” The four-year-old complaints of households all across India over rising food prices, and the lamentations of thousands of farming households over inadequate minimum support prices describes a quite different reality.

Launching commodities exchanges, encouraging market innovations, the building of infrastructure to help the movement of food (logistics) towards planned ‘mega’ food parks and sprawling modern terminal markets en route retail distribution channels, the reliance on biotechnology and mechanisation, and the diversion of India’s public national agricultural research system to serve industrial agendas – these are the focus areas in the agriculture sector for the UPA 2 government. Deputy Chairman of the Planning Commission, Dr Montek Singh Ahluwalia, said so bluntly on 4 October 2010 when he asked the vice-chancellors of state agricultural universities to carry out research-based projects with the help of industry. More investment in knowledge management and in diversification is needed, said Ahluwalia, falling back on the familiar and imaginary bogey of the unsatisfactory ‘growth rate’ of Indian agriculture as being the driver for such action.

Still missing entirely in the strategies of the two ministries directly concerned with food production and consumption, and missing also in the sprawling national agricultural research system of India is the recognition that decisions about the production of food lie with the producer and consumer. This is missing because control over production and distribution is sought – by government for political ends, by corporates for profit. Campaigns such as the just-concluded Kisan Swaraj Yatra have done much to reveal the true nature of the struggle over control of food production and distribution in India. Until there is a far stronger and thereby genuinely more inclusive agricultural swaraj, the burdens of rising food prices and shrinking food sovereignty must be borne by our homes and cultivators.

The author holds the position of Research Associate, Centre for Communication and Development Studies, Pune. Social sector researcher, National Agricultural Innovation Project, Ministry of Agriculture, 2009-10.

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