Unravelling food inflation

Unravelling food inflation

The government must learn lessons from its failures to chalk out a sound strategy for reining in volatility in food prices.

Food inflation rears its head again…
Despite a good monsoon in 2010, the Wholesale Price Index of agricultural produce is once again in double digits. At the time of going to press, it was over 14 per cent for the week ended December 18, compared to the corresponding period last year. On a yearly basis, the price rise is primarily led by items such as onions (jumping 40 per cent year-on-year), vegetables (29 per cent), fruits (22 per cent) and egg, meat and fish (20 per cent). The food inflation index had been obdurately high in 2010 but began to cool off in October following the arrival of kharif crop in the market and a favourable base effect. Limited supplies in the last few weeks suddenly pushed up food prices again.

… due to untimely rains and hoarding…
Untimely rain in many parts of the country damaged some standing crops resulting in shortage of food commodities, especially of perishable items. "The rainfall pattern has shifted forward this year which had an adverse impact on kharif crop in various regions. Besides, perishable crops are highly price-sensitive. A small scarcity in supply can mean prices shooting up in wholesale markets," says Pramod Kumar Joshi, Director of National Academy of Agricultural Research Management (NAARM). Another reason for the high prices was an artificial shortage due to hoarding by traders and speculation.

… but also exposed the lack of a game plan
The government reacted by putting a blanket ban on export of onions and abolished import duties to boost domestic supplies to control spiralling prices. But experts think these are stop-gap measures and the government has to be more proactive. "There is a need to constitute a market intelligence cell that should constantly monitor prices of food articles in both domestic and international markets, and alert the government if the price of a commodity moves beyond a specified band," says Joshi, adding that more investment is required in the agriculture sector. Then, there are not enough cold chains for the storage of fruits and vegetables. "Unlike the milk industry, where the markets are well connected and prices do not vary from one region to another, supply chain systems for perishable products are weak. As a result, traders - wholesalers and retailers - take advantage of the situation and jack up prices," says Joshi. The government also has to strengthen the inadequate public food distribution system to check the volatility in prices.