Profit’s good, not profiteering

Agriculture Minister Sharad Pawar admitted last week that the rise in prices of vegetables was “worrisome.” Coming from that master of understatement, that is a terrifying admission.

The man in the street, of course, already knows this – and has been terrified for months. There is also an upsurge in anger. Tomato prices are the latest to make people see red. “How can tomatoes cost Rs 70 per kg?” they ask.

How indeed. But those asking questions about the rising prices of tomatoes – and indeed, other vegetables – need to ask themselves, and the government and policymakers, another question: Why isn’t milk selling at Rs 70 per litre? Or this one: why isn’t rice selling at Rs 100 a kg, or mangoes at Rs 600?

Because, if the answers to the tomato question are correct, then the second set of questions begs an answer. Apart from philosophical mumblings about globalisation, the overall inflation in the price of everything, etc., the specific answer to the question on why tomato prices have risen so sharply in the capital and in other cities, is that heavy rains are causing disruption in supplies to cities like Delhi, which has led to a ‘temporary’ rise in vegetable prices.

If that is the case, then why aren’t the prices of other food items and perishables rising in tandem? After all, urban metros like Delhi or Mumbai are not agricultural centres. They do not grow their own food. For that matter, they do not generate their own power, refine their own fuel, or even get their own water.

THE VANISHING MIDDLE

Urban agglomerations like the National Capital Region (NCR), or the Greater Mumbai region, are gigantic consumption centres, which have to be kept alive by transporting virtually everything that is required to sustain life (apart from air!) from far away places.

Everything which is sold in city is dependent on a shorter or longer supply chain stretching back into the hinterland, or even across oceans to other lands.

If nature intervenes and disrupts this extended lifeline, there are bound to be outages. And since demand, especially for essentials like food or water or power, does not go away just because it is raining, there are bound to be these short term demand-supply mismatches. And market forces will inevitably balance a supply-side shortfall with a price-side increase.

So far, so good. But then, other than water and power, virtually everything else reaches the consumption centres the same way – by road or rail. If the supply line is disrupted for vegetables, it should logically also be disrupted for milk and eggs and other such items.

If tomatoes are not reaching the market, then neither should milk. Yet clearly, milk is reaching without disruption, which is why there is neither an exceptional shortage nor any sudden spurt in prices.

Clearly, it is not the supply lines which are broken, but supplies which have dried up.

Which means that the answer lies elsewhere, in the distribution and sales mechanism. While milk continues to be dominated either by government players or co-operatives, vegetables are a totally free market enterprise. And if you think your neighbourhood vegetable vendor is making a fast buck at your expense, think again.

A recent study in Mumbai found that while there was an 80-100 per cent mark-up between the Agricultural Produce market in distant Vashi in Navi Mumbai, and the Dadar vegetable market from where the city’s vendors pick up their daily stocks, the money made by the vendors themselves remained nearly static. They were paying more for stocks and selling at a higher price, but their margins remained virtually the same.

It is not as if the farmers have been getting the rest, either. Farm gate prices in Haryana (the vegetable supply area for NCR) for tomatoes were around Rs 1.20 per kilo at the beginning of the year. They have risen to Rs 24 per kilo by July. The journey from Rs 24 to Rs 70 has been carried out by the middlemen.

POWERFUL CLIQUE

If nothing else, this should have made a powerful argument for organised retail. The promise of shortened supply chains – from farmer to consumer, and steady prices are the advantages articulated for organised retail.

Yet, consumers found that prices in the organised retail outlets were not significantly less than what was being charged by buccaneering middlemen. So what efficiencies are we talking about here then?

Here too, we need to look at the wheels within wheels. Vegetables are a gambler’s crop. Regular, upper caste farmers, prefer to grow grain or other cash crops like sugarcane.

Vegetable farming is largely done by entrepreneurs who lease land for the purpose.

They also tightly control the agricultural produce market committees (genuinely free markets are not allowed, in the name of protecting the farmer!), which are controlled by a nexus of traders and politicians. And even organised retail (in its Indian avatar) knows better than to break this powerful clique. So they let sleeping dogs lie.

The endless cycle of artificial shortages and extraordinary price rises – the only change is onions getting replaced by potatoes or tomatoes – is a stark indictment of the policy failure on the food front.

The government buys a third of the grain output, leading to overproduction of grain, underproduction of fruit and vegetables and misallocation of land and other resources.

One third of the population lives in cities, but there is no policy – or even a disaster contingency plan – to keep these engines of consumption running.

The government hopes that a food security law will be enough to put food on the tables of the poor. But even the poorest of the poor do not define ‘food’ as raw rice or wheat alone. Where is the rest going to come from?

Profit is a good word. Without profits, the wheels of commerce and industry will eventually stop turning. And if they stop, the wheels of life – at least as we know it –stop turning too. After all, virtually every product or service required people today is provided by somebody as a business. But when the profit is replaced by profiteering, everybody loses – except the middle man.

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