The Hindu Business Line : A high price to pay for food

These prices — which were arrived at on the basis of the National Sample Survey data on values and quantities consumed by different classes of the rural and urban population — are high for the rural and urban poor as well.

Costly for some

The fact that the poorest of the poor in rural and urban India cannot seem to buy grain at less than Rs 7.69 a kg and Rs 8.80 a kg, respectively, raises questions about the efficacy of the public distribution system. However, the difference between the lowest price and all-India price (Rs 12.35) is more in urban India.

According to the 63rd NSS Round on household expenditure, half the rural population lives on a monthly per capita consumption expenditure (MPCE) of Rs 580 or less. For this category, cereals account for a higher share of total MPCE than the rural population as a whole.

While cereals account for 16.5 per cent of an average rural individual’s MPCE (Rs 115 out of Rs 695), they account for 34 per cent of the MPCE of the poorest of the poor – those whose MPCE is Rs 235 or less. Those with an MPCE of about Rs 580 spend 21 per cent of their total budget on cereals. Therefore, half of rural India allocates anywhere between a fifth and a third of their budget to cereals.

Break-up of expenses

As a proportion of the food budget, cereal varies from 57 per cent in the case of the lowest rural MPCE group to 36 per cent in the case of those spending about Rs 580 a month. For the rural population as a whole, the proportion of cereals in the food budget is 32 per cent.

Those with an MPCE of less than Rs 235 paid as much as Rs 7.69 for a kilogram of grain. Those with an MPCE of Rs 580 pay Rs 9.66 a kg, lending strength to the view that targeted PDS has failed to deliver, particularly in poorer States.

Costs in States

For instance, the average price in Bihar for a kilogram of grain was Rs 10.59 in 2006-07. It was Rs 9.62 a kg in Chhattisgarh, Rs 8.72 in Orissa, Rs 11.02 in Jharkhand and Rs 9.36 in Uttar Pradesh. However, cereal prices per kg in more prosperous States were as follows: Rs 8.44 in Haryana, Rs 9.56 in Gujarat, Rs 9.54 in Punjab and Rs 7.85 in Tamil Nadu. Cereal prices were below Rs 10 a kg in Karnataka, Maharashtra and Madhya Pradesh, where the population consumes grains other than wheat and rice.

The situation is no better in urban India. The average prices for a kilogram of cereal in Bihar, Uttar Pradesh, Madhya Pradesh, Chhattisgarh and Jharkhand are Rs 12.21, Rs 11.61, Rs 11.24, Rs 14.32 and Rs 13.25. These are no better than urban prices in better-off States such as Kerala, Punjab and Maharashtra – Rs 12.79, Rs 11.04 and Rs 13.91

Food Budget

While the urban population as a whole allocates a smaller proportion of its budget towards cereals compared to its rural counterparts, the lower classes are vulnerable. As a proportion of the food budget, cereals varyfrom 42 per cent in the lowest urban MPCE group (less than Rs 335) to 25 per cent in the case of those whose MPCE is about Rs 990. The proportion of cereals in the food bill for the urban population as a whole is 23 per cent, 10 percentage points lower than in rural India.

For the entire urban population, the proportion of cereals in total MPCE is 9 per cent (Rs 119 out of Rs 1,313). For half the urban population, whose MPCE is Rs 990 or less, the proportion of cereals in total MPCE ranges from 13 per cent at the upper end to 25 per cent in the case of the poorest group. Yet the price per kg could be anywhere between Rs 8.80 at the lower end and Rs 11.91 at the higher end for 50 per cent of urban India.

Substitutes

As the capacity to spend improves, people in rural India first substitute cereals for other foods and thereafter, spend a higher proportion of their budget on non-food items. The proportion of food (cereals, pulses, milk, meat, etc) in total expenditure rises from 59 per cent in the lowest consumption category in rural India to 60.64 per cent in the case of those in Rs 410-455 category before falling.

However, the proportion of cereals in food expenditure declines much earlier when rural individuals move from Rs 235 to the next category. In rural India, there is an initial rise in non-cereal items as a proportion of total spending, before the share of food as a composite category starts falling.

However, in urban India, non-food items assume a bigger role in an individual’s consumption patterns at relatively lower levels of income.

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