Mandi middlemen, street vendors, shopkeepers and profiteers, if unchecked, will shatter the dream of millions who elected a new government to tame persistent inflation.
Even as the general public is worried about the double-digit food inflation, the farmer is worried about the deflation in the farmgate prices. Several ministries are talking to each other on ways to tame food prices; a tall order given that, at the farm, most food prices are already very low. Matters are made worse for the farmer by the threat of a weak monsoon that looms large this year.
The farmer is worried that gram or chana is selling today at the same price as it was in 2006. Mustard and barley prices are the same as in 2008. These are non-perishables, under the government-administered minimum support price umbrella. Consider perishables like vegetables: last year bitter gourd or karela, was sold by farmers at ₹15 per kg. Today, farmers sell it at ₹4 per kg. The same karela is being sold in Nizamuddin, a locality in New Delhi, for ₹20 per kg. Sponge gourd or tori, sold on the farm for ₹20 per kg last year, sells at ₹6 per kg at the farm gate while consumers pay ₹30 for it. So, just for selling the same thing from a city pavement after an overnight tempo ride, the seller gets a 500 per cent margin.
It gets worse. Last year, farmers sold green pepper at ₹12 per kg and are compelled to do a distress sale at ₹2 today, when just the cost of picking the peppers is ₹2. Add to that the cost of transport and other commissions. The irony is that even though the green pepper price has fallen by 600 per cent in one year on the farm, the street price remains the same: ₹60 per kg. Tomato processing is the much-trumpeted success story of the food processing sector. Last year, farmers sold tomatoes for ₹10 per kg, but now, for only ₹2 per kg. Punjab farmers are offering to give their tomato crop for free, if prospective buyers pay for harvesting, loading and transportation. The same free tomatoes are being bought by consumers at ₹15 per kg in the market, a 750 per cent margin.
Who is making the money? Who could better hide these windfall margins than the middlemen of mandis like Azadpur, in Delhi and Navi Mumbai, street vendors and shopkeepers? If left unchecked by the BJP, these very profiteers will shatter the dream of millions, who elected a new government to tame persistent inflation. Some harsh decisions need to be taken, including a law to limit the maximum commission chargeable for a sale of agriculture produce at two per cent, instead of the exorbitant seven per cent at present. One does not oppose middlemen per se; all one asks for is the enforcement of regulations and disbanding trade monopolies. Supply-side constraints can be resolved and price volatility of fruits and vegetables can be stemmed with political will and some decisive action.
The rate of growth of the food processing sector, which demanded attention, has slowed over the last 30 years. A few years ago the finance minister did not even find it worthwhile to mention the sector in his budget speech. Permanent food imports cannot solve food inflation. There are other more credible policy options at hand. Agriculture is a state subject and most changes have to take place at the state level but certain things in Delhi can help. The government will invest in urban infrastructure through the JNNURM or whatever it chooses to rename the project as. When it invests in cities, it must ensure space for 25,000 farmer markets in the 4,000 census towns across India. There is also a need to increase the yield per acre of each crop. Diversification is not enough: it increases production by transferring area under crops like wheat and rice to other crops. Something else is needed.
India has one of the lowest yields in farming among other nations. Yields have to go up dramatically. Farm profitability will follow. Farming has to be a remunerative profession. Otherwise, farmers will use their land for other purposes and India’s overall farm output will decline. That would be a disaster. To avoid that, the government has to ensure reasonably priced perishables for consumers as well as a decent price at the farm gate. Yields have to increase from the existing area to offset the increasing cost of inputs. Input costs have increased rapidly, far ahead of productivity gains for many years now.
There are no shortcuts: the finance minister can push India on to that path by boosting investment in farm research and development (R&D) to around two per cent of the GDP, the developed world average. India should also triple the spend on activities like horticulture, fisheries, poultry and livestock rearing, not by extra allotment of funds but by smarter reallocation of existing financial resources. The one complaint against the UPA II was the lack of job creation: well, horticulture generates five times more jobs than any other sector with the same investment. The government consults some farm experts for advice. Instead, it should talk to organisations that directly represent farmers.