Food prices to rise further as demand outstripping supply

Food prices to rise further as demand outstripping supply
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First Published: Thu, Apr 17 2008. 08 58 AM IST
Updated: Fri, Apr 18 2008. 02 15 PM IST
New Delhi: Food prices, which rose 6% at the end of 2007-08, will climb higher because there is simply not enough foodgrain in India to meet a demand that’s growing by 1.5-2% every year, say experts.
Supply of foodgrains is growing at 0.7% every year, less than half the pace of the rise in demand, says Ramesh Chand, professor at the National Centre for Agricultural Economics and Policy Resarch (NCAEP).
“Even if the government gets everything right about agricultural policy, it will take about a year for it to have an impact on prices,” Chand points out. “From all indications, high food prices are here to stay for the next three to four years.”
Of an average 165 million tonnes, or mt, of rice and wheat produced every year, some 30-40% is retained by farmers and another 24% goes into animal feed, wastage, and industrial use, resulting in a marketable surplus of about 60mt. After setting aside 35mt for subsidized distribution to the poor and for other welfare schemes, only 25mt reaches the open market.
This, says Chand, is woefully inadequate. “As far as food supply and inflation is concerned, we are now back in the seventies.”
The end of double-digit inflation and rise in agricultural production after the green revolution gave rise to a complacency about cereal production, says Mathew Joseph, senior consultant at the Indian Council for Research on International Economic Relations.
Adding fuel to this complacency were successive reports from the National Sample Survey Organisation, or NSSO, that pointed out consumption of cereals and pulses were declining as prosperity prompted people to switch to high-value food such as eggs and meat.
“The NSSO claim can be contested on two grounds,” says Chand. First, if people are eating more meat, more grains would be needed for animal feed. Second, the NSSO has no way to capture the value of meals taken outside home, and most urban and suburban daily wage workers eat on the roads as they find it difficult to cook meals at home.
Joseph’s own studies indicate that inflation and food supply are always closely linked in India. “The trend shows that prices always go down around the kharif (summer) crop time, unless there is a drought, and start rising before the arrival of the rabi (winter) crop. It’s simply shortage plus the burden of expectations. This year, too, food prices started rising as the second advance estimates were released, making it clear that all rabi crops would be smaller than last year.”
Amol Agarwal, economist at IDBI Gilts Ltd, a subsidiary of private lender IDBI Ltd, agrees. “Although the volatility of inflation has declined, there are sharp phases of inflation that are related to agricultural production. Food output in 2006-07, touted as a bumper year, was almost the same as in 2003-04, and demand has increased since.”
In a perfect world, such huge rise in prices would be incentives for farmers to grow more.
“Price alone don’t work anywhere in the developing world. You need incentives, technology, seeds, fertilizers, especially in long-neglected areas like eastern and central India,” says Chand.
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First Published: Thu, Apr 17 2008. 08 58 AM IST
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