Aug 20, 2009

Why are the food prices going up?

I have been asked this question umpteen number of times. For the past three months I have repeatedly asserted that the price rise in food commodities has nothing to do with supply constaints. Then why are the prices of pulses for instance sky rocketing? I have been often asked by the media.

My answer has been simple and straight. It is because of massive hoarding, black market and speculation by the trade. I had always been pleading for a crackdown against the trade which is holding the country to ransom. I don't know why the government took refuge behind the economic parlance of markets driven by sentiments and in this case the delayed monsoon was the sentiment that the markets exploited. This is completely a flawed assumption, an euphemism that economists use to justify speculation and hoarding.

Take the case of pulses. Prices of arhar dal have hit the roof. Prices of other pulses too have sky rocketed. And the impression we carry is that there was a shortfall in production, and of course many would link the fall in production with the delayed monsoons. Let us try to understand what went wrong with pulses. Compared to 2008, the market prices of pulses have increased by 52 per cent in Chennai to 89 per cent in Delhi. I am sure you would agree that such a stupendous rise in prices of pulses should be a reflection of the slump in production.

No, it is not true. There was hardly any difference in the production of pulses. In 2008, pulses production was 14.76 million tonnes. In 2009, it fell to 14.66 million tonnes, a drop of 0.1 million tonnes. In other words, production of pulses had remained almost static. The other arguement is that demand has outstripped its production. Some economists have projected the demand (I don't know what is the basis) to be around 17 million tonnes. Interestingly, it gives me an impression that suddenly in 2009 people had started consuming more of pulses. After all, if the demand was growing, 2008 should have also been a bad year as far as the prices are concerned.

Even if you buy this arguement, we are told that India has imported 2.5 million tonnes of pulses this year. Add this to the production figures, and you arrive at a figure of 17.16 million tonnes of pulses available in the market. Which means we have made up for that gap between demand and supply. Then please tell me why are the prices going up? Some will say that the imports were at a higher price. But still the import quantity is only a fraction of the total (and still much of it is held up at the ports) not significant to make an impact on retail prices.

Before we talk of the main cause behind the price rise, let me share with you one of reasons for the rise in price of arhar dal which has somehow gone unnoticed. At the time of processing arhar dal, the processor takes out to outer coating (chilka) of lentil to be used as cattle feed. This year, the demand for cattle feed was depressed because of the easy availability of foodgrains. The processing industry therefore passed on their loss (around Rs 20 a kg) to the retail. The retail added their own profit margin to exploit the gullible consumer.

Well, to the question why are the prices shooting up, the anwer is simple. The trade has been holding up the supplies, wanting to exploit the sentiment. And the government has been simply turning a blind eye. It is only after three months of hammering and driving home this point that I find the government has finally woken up the real threat. It has been talking in tough terms against hoarders now. Some State governments have swung into action. And look at the results. In just a few days of a crackdown against hoarders throughout the state, Madhya Pradesh has been able to recover sugar worth Rs 10,000 crores. Just in Malanpur and Bhind godowns, 14,364 quintals of sugar beyond the permissible limit was seized. Raids have been widespread, and are still continuing. In three days time, the State has found 34,000 quintal of sugar kept illegally. Market price of sugar has come down by Rs 3 a kg just in two days time.

In Punjab, the State has raided the premises of 559 traders in the past two days and yet have not found any excess stocking. But if the newspaper reports are to be believed, the raids are merely a public relation exercise. The government agencies are deliberately trying not to look at the places where the excess stocks are lying. In Haryana, the government evoked the Haryana Prevention of Hoarding and Maintainance of Quality Order 1977 on Aug 12. The next three days were holidays, good enough for the traders to move the stocks out of the state limits. Most of these illegal stocks are kept at places around the state borders. The idea being that if one State government becomes hyperactive, the stocks can be conveniently moved across the border.

Many State governments have now swung into action. As a result, the price of sugar in the wholesale market has come down by Rs 140 per quintal. In Maharashtra and Rajasthan, the prices of pulses has come down by Rs 250 to Rs 400 per quintal. And let me assure you, if the government becomes really tough against the trade there is no reason why your monthly budget should go beyond your limits.


Manjunath H said...

Dear devandarji

Increase in the price due to speculation and balck market. In karnataka, production of pulses is not a such low when compare with last year.

One more thing, our inflation rate in negative side but the same time food commodity rate rate is higher side, why is it so?

One answer for increase in the food price because, india is importing foods at higher rate, even though inflation should be in higher side!

Once again india is going to face same of bengale famine again?

with regards

Anonymous said...

आदरणीय देवेंद्र जी आपने खा़द्य पदार्थों की आसमान छूती कीमतों का सटीक विश्‍लेषण किया । देश में दालों की कमी सचमुच चिंता का विषय है लेकिन यह समस्‍या सिर्फ हमारी अदूरदर्शी नीतियों के कारण उत्‍पन्‍न हुई है । पिछडले डेढ़ देशक में भारत ने दालों की उत्‍पादकता बढ़ाने पर 5,000 करोड़ रूपया खर्च किया लेकिन देश में दालों की स्‍थिति जस की तस बनी हुई है । दूसरी ओर हमारा पड़ोसी म्‍यांमार मात्र कुछेक लाख रूप्‍ये खर्च करके दाल उत्‍पादकता व उत्‍पादन में उल्‍लेखनीय प्रगति किया । आज वह विश्‍व का अग्रणी दाल निर्यातक बन चुका है । और तो और कनाडा जैसे दूरस्‍थ देश ने भी भारत में दालों की कमी को समय रहते पहचान लिया और भारतीय मांग को ध्‍यान में रखकर दाल उत्‍पादन को बढ़ावा देना शुरू किया । उसने ससकेचवान विश्‍वविश्‍वविद्यालय में दाल अनुसंधान केंद्र स्‍थापित । आज कनाडा के दाल निर्यात में सबसे बड़ी भागीदारी भारत की है । यह भारत के किसानों, नीति-निर्माताओं, अनुसंधानकर्ताओं के लिए चुल्‍लू भर पानी में डूब मरने वाली स्‍थिति है कि म्‍यांमार और कनाडा जैसे मांसाहारी देश हमारी दालज जरूरतों को भांपकर घरेलू उत्‍पादन को बढ़ावा दिया और शाकाहारी देश होते हुए भी हम आयात के सहारे प्रोटीन सुलभ कराने लगे ।
रमेश दुबे

kandhan said...

Hi Mr. Devinder Sharma, I stumbled upon you blog by accident and am I glad. Am guessing that you reside in Delhi. Any comments/future article on the recent inflated electricity bills? My confusion is, the power plants have been built long back. So are the distribution networks. Then why was the tariff increased in the first place and then subsidy given?

Jai said...

Thats fair enough... Govt should take responsibility to control the trade... also a severe action must be taken on hoarders in all states... It is a gud way to control the prices of commodities...