Commodity Analysis

Kisan Diwas: How the Centre’s curbs on food prices are harming farmers

Rajalakshmi Nirmal | Updated on December 23, 2019 Published on December 22, 2019

Food prices see an uptick. Agri GDP is recovering, too. But if the government continues to push prices down with an iron hand, like in the case of onions, the recovery process will be derailed

In November, the consumer food price inflation touched 10.01 per cent year-on-year, the highest since December 2013.

While this is good news for farmers, consumers are unhappy and so is the Centre. With sleeves rolled up, the government machinery is working to control the price rise.

Take the case of onions. An average family comprising five members consumes 2 kg of onions in a month. Even when the price rises to ₹100/kg, it results in an additional expenditure of only ₹200 a month.

By checking the price increase through various measures, the Centre, however, has killed the joy for farmers who saw a good season after four long years.

Some relief, finally

 

Across farm commodities, there has been an uptick in prices in the past six months. But this recovery in farm gate prices is at the risk of being derailed by government measures.

The CPI inflation for November is 5.54 per cent. This is sharply higher than the 2.33 per cent in the same month last year, thanks to an increase in food prices. The consumer food price inflation was 10.01 per cent in November. This is up from barely 0.3 per cent in March.

Higher food inflation is contributed by vegetables — onion, tomatoes — besides pulses, oil seeds and milk. Inflation in onions has spiked from 6.4 per cent in August to 144.6 per cent in November.

Similarly, inflation in tomatoes has been on the rise for the past six months — from 2.13 per cent in May to 13.94 per cent in November. Prices of potatoes, carrots, drumsticks and other vegetables have also gone higher, show ground reports from mandis.

In pulses, from a deflationary situation six months ago, now prices are way high. In May, the reported inflation in pulses was 2.13 per cent, but in November, it stood at 13.94 per cent. This is primarily attributable to higher prices of arhar (red gram), masur, and chana. Similarly, prices of cereal crops, sugar, spices and oils have also gone up in the past six months.

Unfavourable weather

The late onset of South-West monsoon that reduced the area sown and heavy rains at the close of the season, damaging standing crops in onions, other vegetables, tur, urad (black gram) and soyabean, disturbed the market.

Maharashtra, Madhya Pradesh and Karnataka that supply vegetables and pulses to other States at the end of the kharif season couldn’t supply the regular quantities. As a result, prices skyrocketed.

In milk, the increase in prices is explained by cooperatives’ having to pay higher prices for the milk procured from farmers as supplies dropped. The heavy rains in September-October hit fodder supply and resulted in lower milk output.

It is interesting that in the past term of the NDA when the South-West monsoon played spoilsport — with deficient rain in two years and below-normal rain in another two years — farmers managed to grow their output (thanks to irrigation support through subsidies).

But in the current year, despite having the best monsoon in 25 years, the output has fallen.

That said, there is some relief to farmers now, with prices having gone up. The agri GDP in nominal terms, which takes into account the price inflation in commodities, shows that farm income has increased in the past two quarters. In the first half of 2019-20, the reported growth in agri GDP was 7.7 per cent — higher than 5.6 per cent recorded in the same period in 2018-19. In the 2018-19 full year, the growth in agri GDP over the previous year was 4 per cent.

Centre checks price rise

The Centre is always uncomfortable when food prices increase, as it unnerves consumers. This time, too, after onion prices started scaling high in September, it swiftly moved to impose stock limits on traders and stopped exports completely. It also ordered import of onions from neighbouring countries. This saw traders who buy in bulk from farmers, refusing to take it and farmers coming on streets to protest.

Now, there is news that the Consumer Affairs Ministry has recommended lifting the quantitative restrictions on import of pulses including tur, urad and moong to check the increase in prices in the domestic market.

So, pulse prices, too, may start to correct.

Farmer are always at the receiving end. Their livelihood is in question when prices crash; when food prices go up, the Centre is quick to step in and rob farmers of the gain in prices.

What’s the way out?

As the country celebrates Kisan Diwas, the government would do well to take stock of market anomalies and correct them. Farm gate prices can be managed to the benefit of both the farmer and the consumer if the number of middlemen in the value chain can be checked.

A recent study done by an expert group in the the Department of Economic and Policy Research, RBI, revealed that in perishables — particularly, onions, potatoes and green chillies — farmers get a share of only 30 per cent of what the consumer pays. The price charged by retailers to consumers includes mandi charges, assaying, weighing and loading/unloading charges, transport costs, shop rentals, storage costs and membership fees, besides the profit margins of traders and retailers.

Only when farmers can take their commodities direct to consumers, they can get a higher share of what the consumer pays.

Only then it will be a win-win for both consumers and kisans.

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Published on December 22, 2019
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