The sharp drop in annual consumer food inflation, from 9.6 per cent in May to below 8 per cent in June, may well be no more than a temporary respite. The reason for this is that the monsoon has been poor — as much as 41 per cent deficient so far, with 86 per cent of the country recording sub-normal rainfall. This deficit is unlikely to be made up even if we have a weak El Nino, as the Australian Bureau of Meteorology now predicts. True, the recent spell of showers in central and southern India may have allowed farmers to take up sowing before this window shuts in mid-July. But the chances of a bumper kharif harvest look increasingly slim.

Yet, there is a silver lining. The world is awash in grain, as the US, Europe, Brazil and Argentina — unlike India — are set to reap the results of favourable weather conditions. This is reflected in corn futures at the Chicago Board of Trade, which are ruling around 29 per cent lower than last year; wheat and soyabean are also down 15 to 20 per cent. A milk production rebound in New Zealand has similarly led to global powder prices tumbling by over a quarter since the start of this year. In turn, this has rendered exports from India unviable and made it less attractive for dairies to bid up milk prices, as they did during 2013-14. A relatively benign international price environment for agri-commodities means the effects of a drought will largely be felt in vegetables. But even here, it helps that the Government now at the Centre is seen as more proactive in dealing with price rise. While one cannot support its invocation of the Essential Commodities Act to crack down on ‘hoarding’ of potatoes and onions or imposing minimum export prices to discourage their shipments, the Government has, through these, sent out signals that it means business. And this has a bearing on overall sentiment.

This is also the time for the Government to act on an important suggestion in the latest Economic Survey — create a national market for farm produce through a Central legislation overriding State Agricultural Produce Market Committee (APMC) Acts. Such a legislation, which Parliament is indeed competent to enact, will allow farmers to take and sell their produce anywhere in the country. It is imperative that the system of forcing them to sell only in the local APMC mandi , where prices are set by a few traders/ arthiyas , is disbanded. If onions can be bought by anyone, including directly from farmers, it will make the APMC mandi another of many trading platforms in a nationwide and competitive market. The absence of trading monopolies and an environment where produce and price information flow freely will soften the impact of supply disruptions, which happen quite regularly nowadays.

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