High Food Inflation BUT EXPORT WINDOW IS STILL OPEN
Believe it or not! India, the world’s fourth largest economy and a home to a quarter of the world’s hungry wastes INR 58,000 crore worth of food items every year. And this is when; the rising food price has become a major political issue. The wholesale price index of food articles has increased from 236.6 in July, 2008 to 297.9 in July, 2010. Despite the repeated promises made by the policy makers at the Yojana Bhavan, the inflation rate has continued to scale new highs.
Though the prices of necessary food articles have started to rise from early 2008, it took an ugly shape at the end of last year with a major shortfall in Khariff production, pegged at 21 million tonnes. It was admitted by the ministry that the inflation in food prices was worrying and there was a clear demand-supply gap in the commodities like rice which has been worst hit by drought. Asia’s third largest economy witnessed the weakest monsoon since 1972 hurt farm output.
The 15 per cent annual food price rise in the country cannot be attributed to a single cause. From food production to management and supply—it is a damning chronicle of corruption, inefficiency and indifference.
Food grains production declines 7 per cent in 2009-10
There may be disparate opinions as to how the present crisis of the spiralling food prices can be tackled, but there are no two opinions about its origin: the crisis has begun as the domestic production of foodgrains declined. According to the third advance estimates of the Ministry of Agriculture, the aggregate foodgrains production would be 218.2 million tonnes in 2009-10 down by a huge 16.3 million tonnes or by about 7 per cent over the previous year. This was mainly due to a fall in rice output caused by severe drought in 2009 that hit more than half the country. Though the wheat output was marginally down from the earlier estimate at 80.71 million tonnes, it was still higher than the record output of 80.68 million tonnes in the previous year.
Foodgrains production declines in 2009-10
*According to 3rd advance estimates
Source: Ministry of Agriculture, GoI
Lack of irrigation facility
Though we have around 50 per cent of total arable land—a benefit that is not available to China and many other developed countries, only 46 per cent of the land is covered by irrigation facility. Without systematic and planned water management half of the water gets wasted. There is no recycling of water and hardly any scheme for trapping rain water. Often the wrong technology is used when sprinkle and drip irrigation would have been adequate in most cases. Ground storage of water, river lift irrigation and network irrigation that connects farms have been proposed but not implemented.
According to one paddy farmer of West Bengal, water requirement for paddy cultivation is huge and they do not get enough of it. As a result, they mainly depend on rain water. “This time plantation is delayed as monsoon is erratic. Last year, we faced the same crisis and had to bear a huge cost for water,” he stated. The owners of mini-pump change more than INR 1000 per bigha and profitability declines for farmers.
Poor Monsoon hits production
The Prime Minister and Finance Minister are hopeful about the fact that the arrival of new crop will ease food prices and cool the overall inflation from the current 10.5 per cent. How can they be so sure when the whole country is witnessing a shortfall of rain, which will affect half of the country’s farm output that comes from crops sown during the June-September rainy season? Studies show that Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh, Bihar and West Bengal have been hit the most by poor rainfall. These states account for 47 per cent of total kharif foodgrain production and 46 per cent of total kharif rice output. Since the July and August rainfall is the most critical determinant of agricultural production, it will be difficult for the Indian economy in the upcoming months to control inflation.
Export window is still open
It is commonly assumed that price rise for a commodity is due to two factors either rise in demand or fall in supply. Despite lots of big talk about the second green revolution or white revolution, the researchers and analysts argue supply shortfall is the main culprit of India’s current major problem high inflation of food articles.
India’s exports of agricultural and floricultural products, fruits and vegetables, animal products and processed food products were worth USD 8.1 billion in 2008-09, an increase of 13.88 per cent from USD 7.11 billion in 2007-08. It cannot be denied that there is a high correlation in India’s rise in agricultural price and exports from last year. How can the soaring food price be controlled with flooded supply when the exports during April-December 2009-10 were worth USD 54.16 million?
Export when prices are low and import when prices are high—this is India’s sugar story of the last four years. The anticipated shortage in world wheat production and high prices has opened up a possibility for India to explore wheat export. India, the world’s second-biggest wheat producer, is sitting on huge stockpiles of the grain after four consecutive bumper harvests. Wheat stocks in government warehouses rose to 33.58 million tonnes on July 1, nearly double the target of 17.1 million.
Clearly, neither ‘cost push’ nor drought solely accounts for the food price inflation. The larger cause is our import-export policy for agriculture. When the domestic price is so high, how can we still open the window for export? So, at this moment, the preferred policy is to correct the markets through a ban or a high tariff on exports in the world market and to free stocks in the domestic market to bring down the inflation and to avoid wastages. Mahesh Shah, past president of ICSI and ICWAI said, “Being festive season nearing, government should free the stocks in the domestic market. There should be a ban on export and import at this situation for better understanding the price.” It will now be clear why the government is helpless. While cracking down on hoarding could bring some relief temporarily, it is a difficult option for the governments at the centre and in the states, to ban export as it is a major source of funds and has close connections with the political parties and politicians.
By Samarpita Roy