Is food inflation rising because of hoarding?

The sharp rise in the CPI in July, led by food inflation, is likely to pose a fresh set of problems for policy-makers. Provisional numbers for July from MOSPI indicate that the Consumer Food Price inflation was 9.62 per cent in July, up from 8.72 per cent in June. This was fuelled by pulses (up 15.92 per cent), cereals (up 6.96 per cent), vegetables (up 11.29 per cent) and spices (up 13.3 per cent), among others. Observers say that inflation in food prices is due to supply-side disruptions.

While higher transportation costs, limited availability of labour and logistics hurdles could have fuelled prices in March and April, there is no reason for prices to stay elevated as mobility has improved across State borders in the last two months. The year-on-year change in national electronic toll collections (FASTag), which was negative 50 per cent in March, recorded a 200 per cent jump in July. The daily freight traffic carried by the Railways, which was down about 35 per cent in April, has also improved.

Further, media reports keep highlighting the innovations at the farm gate, with farmer collectives across the country delivering food direct to households and food processors procuring wheat, paddy and pulses direct from the farm gate and continuing to run through the lockdown (at lower than full capacity, though).

So, there is no obvious explanation for the rising food inflation. This gives room for doubts about hoarding by intermediaries in the food supply chain. In the rabi season, it was noticed that mandi arrivals across the country were down 30-40 per cent despite the season seeing a record harvest. In a few commodities, including chana and mustard seed, mandi arrivals were lower by 60-70 per cent over the output less government procurement. Are the arrivals that vanished, lying in some private warehouses? Given that there is no data on private stocks, policy-makers assume that it is only supply-side disruptions that are fuelling prices and are on a wait-and-watch mode as consumers keep paying through their nose.

Lack of data on private sector stocks makes planning of food production and export/import difficult. While till a few years ago there was no way for the government to track stocks in private warehouses, now there is a digital platform built by WDRA (Warehousing Development and Regulation Authority).

Make use of WDRA

If the Centre can mandate all warehouses to register under WDRA and mandatorily issue only eNWRs — electronic negotiable warehouse receipts — tracking private stocks will be possible on a real-time basis. This is because commodity repositories issue eNWRs only to farmers/stockists who keep their stock in warehouses registered under the WDRA.

WDRA uses a digital Web-based platform to maintain record of stocks that come and go out of warehouses. It also oversees creation, transfer, pledge and e-auction of eNWRs.

Currently, private sector warehouse owners do not show interest in registering under the WDRA. If the RBI can encourage banks to lend against eNWRs and avoid lending against physical warehouse receipts, private warehouses may show interest in registering under WDRA.

Lending against eNWRs makes it easier for financiers to keep track of quality changes in the stock over the period of pledge and take immediate action. For those farmers/FPOs who put their stock in WDRA-registered warehouse and take eNWRs, it becomes easy to trade stock without moving it physically — both on eNAM platform and on NCDEX.

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