The most recent estimate of food price inflation from the Wholesale Price Index is 20% for the last week of November. This is the highest food price inflation seen in the last 13 years. However, even this 20% rate of inflation on a point-to-point basis hides the real numbers that are much higher: the rate of inflation for pulses is 42% (it is 72% for arhar, or pigeon pea), that for vegetables, 31% (for potatoes, it is in excess of 100%). Even for cereals, the rate of inflation is 13%; it’s 12% for rice and 13% for wheat.
This inflation is not a phenomenon of recent months and definitely predates the much maligned drought seen in some parts of the country this year. This is the 20th consecutive month since March 2008 that consumer price inflation has been around 10%; it reached almost 14% in October, the last month for which data is available.
Strangely, despite this inflationary spiral, there is hardly any acknowledgement of it, leave alone any steps to correct it. On the contrary, pronouncements by the ministers of agriculture and finance seem to suggest that these gentlemen are shooting in the dark.
As I have argued earlier in this column, the current high rate of inflation is largely due to the government’s actions or inactions. I have argued that there is little evidence to blame the drought for this inflation. Nor has it anything to do with excess liquidity in the market (which makes it an exercise in futility to even think that monetary measures can contain this inflation), or international price volatility.
Still, it is true that the drought has contributed to speculative hoarding. The biggest contributor to hoarding, however, is the government, which has created an artificial scarcity by buying and storing more than it needs. Last year, rice and wheat production was above normal and this also led to the highest-ever procurement of rice and wheat since independence.
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In 2008-09, rice procurement was 32.84 million tonnes (mt) and wheat procurement was 22.69 mt, the highest ever. This was almost 6 mt higher than the previous year in case of rice and almost 11 mt higher in the case of wheat.
Why did the government procure almost two times the buffer requirements? Clearly, to appease rural voters before the general election held earlier this year. Not only was this much more than the required buffer, it was done after procurement prices were increased by at least 60%, adding to the increase in prices of rice and wheat. Again, this was done more with an eye on appeasing rural voters than benefiting farmers. Not only was the largesse bestowed on farmers withdrawn almost immediately after the government came to power, it was even reversed in some cases such as sugar cane.
Irrespective of the reasons, the net result was inflationary pressure on cereal prices. That could have been forgiven had the government used its higher procurement to quell hunger and starvation that came in the wake of a decline in production after the drought. But this was not the case and the disbursal of rice and wheat was lower than that in the first two years (2004-05 and 2005-06) of the previous incarnations of this government. As a result, the government was accumulating stocks even when food price inflation was continuing its run.
By the beginning of this government’s tenure, the country’s food stocks were almost as high as 50 mt, a reminder of the situation in 2000-01 when food stocks were at an all-time high of at least 60 mt. Despite the knowledge that food price inflation is continuing unabated, there was no effort to offload food stocks to ease supply constraints.
As on 1 October, the buffer norms are 5.2 mt of rice and 11 mt of wheat. But the actual stocks with the Union government on that date were 15 mt of rice and 28.2 mt of wheat. The excess stock could have been easily offloaded to ease supply constraints and inflationary pressure. The government hasn’t done this and has chosen, instead, to continue procuring grains and, as of date, the current procurement is slightly higher than even that in the last year, a move that will only increase the stock of grains with the government.
It is a travesty of governance and food security management that even as food becomes very expensive for the common man, the government continues to hold excess stocks of at least 27 mt. Still worse, the government has admitted in Parliament to having lost almost half a million tonne of grain due to rotting and wastage arising from improper storage. That number could be anywhere close to one million tonne by now. Despite this, the government prefers food grains being stocked in open sheds and in the godowns rather than being available through the public distribution system or the open market.
Clearly, the government has turned up as the biggest hoarder.
The artificial scarcity created by the government, which is refusing to fulfil its role of providing food security to the common man, has also increased speculative activity in food grains.
If this is how the government responds to the food price inflation, need we say more on its intention of enacting a National Food Security Act?
Himanshu is an assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi. Farm Truths looks at issues in agriculture and runs on alternate Wednesdays. Respond to this column at email@example.com