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The shifting sands of food prices

Prakash Gujjar, a farmer from Ujjain, Madhya Pradesh, planted soybeans in 25 acres. The crop weathered a dry spell in August and is rotting root up following intense rains in September.   (Mint)
Prakash Gujjar, a farmer from Ujjain, Madhya Pradesh, planted soybeans in 25 acres. The crop weathered a dry spell in August and is rotting root up following intense rains in September. (Mint)

Summary

Inflation pain points have moved fast, from wheat to rice to pulses. What will surprise next?

Mandsaur/Ujjain: From a distance, the field appeared like a post-impressionist landscape. Shades of yellowish green on a patchy canvas of charred brown. 19-year-old Kamlesh, a skinny college student, uprooted a soybean plant and crushed a few pods with his fingers. The beans inside were discoloured—pale and pockmarked instead of the smooth yellow, much smaller than their usual size and fewer in numbers per pod—the consequence of a prolonged dry spell which began in August and lasted for over a month. The beans were ready for harvest but would yield less than a fifth of a normal crop. They will sell at a discount in the wholesale market and not even pay for the labour costs of harvest.

A while ago, he sat next to his elder sister, Pooja, on a rough cement floor inside a bare room lined with naked bricks. Their unfinished house, which is yet to get the final coat of plaster and paint, is in Barod village in Mandsaur, Madhya Pradesh.

Pooja, 23, struggled to hold back her tears as she clasped a framed photograph of her father. Her voice quivered as she spoke. Kamlesh was quiet.

After graduating from college, Pooja was preparing for a position in the state police department. Her father, 45-year-old Jagdish Dhangar, was worried the family did not have enough money to get Pooja married. Five acres of soybean were lost to a drought. There were debts to repay.

On the evening of 4 September, Dhangar had tea and stepped out of home. The family kept looking for him through the night and found him at the farm, next morning. He had hung himself from a mango tree.

Part of the fertile and prosperous Malwa belt, farm suicides are rare in Mandsaur. The district is known for the wide variety of crops grown—soybean, pulses, wheat, groundnut, mustard, spices, fruits like oranges and pomegranates, and vegetables.

Mandsaur also supplies legal opium, which is used to make morphine, a potent pain reliever. When crops fail, some who grow opium (with a license) sell poppy straw to traffickers, breaking the law and risking arrest under the stringent Narcotic Drugs and Psychotropic Substances Act.

The south-west monsoon, which lasts from June to September and waters crops planted during the Kharif season, has been wayward, the farmers of Malwa complained. It arrived late in June, rained a bit in July, and disappeared in August. Then, in September, heavy rains in parts of Malwa drowned crops. The same beans were damaged, first by a drought and then due to excess rains.

“I planted 25 acres of soybeans with a new long duration variety which could partly deal with the rain deficit. But it went under the water this month," said Prakash Gujjar, a farmer from Silodiya village in Ujjain district, standing next to his slushy field. A mild stench of rotting plants hung in the evening air. Gujjar’s loss due to the downpour was a staggering 10 lakh.

“Not a single bean can be harvested from this plot. And I will not be able to pay the interest on the crop loan which will be due soon," he said. Yet, Gujjar will have to arrange for workers to uproot the plants and clear the field, spending about 3,000 per acre. Else, the unharvested beans will germinate when the winter crop of wheat and chickpeas are planted a month later.

Farmers can only expect divine blessings (for not giving up) but not any profit this season, quipped another farmer who stood next to Gujjar. A little distance away, a thresher—which separates beans from the stalk—groaned. The machine repeatedly got stuck due to the moisture laden stalks it was fed with. The beans popped out of the machine, shrivelled, loaded as it were with mud particles. And the stalk used as cattle fodder had to be thrown away as they were heavily soiled.

Soybeans, the largest Kharif oilseed, has seen heavy damage in top growing states of Madhya Pradesh and Maharashtra. But consumer edible oil prices are unlikely to firm up immediately due to the steady influx of cheap imported oils. However, the poultry industry may face a shortfall and higher prices for soymeal—the high protein leftover of the oil extraction process, which is used as an animal feed. This, in turn, may lead to an increase in consumer prices of poultry meat and eggs.

All this is irrelevant for Kamlesh. “From next season, we will lease out the land," Kamlesh said. He had no interest in following in his father’s footsteps.

A demand shock?

Erratic rains and government measures to keep food inflation in check—which include export curbs on rice, wheat and onions— could end up dampening farm incomes and consumer demand in rural India in the festive months of October and November. Yet, consumer food prices are likely to stay firm ahead of crucial state elections—in Telangana, Madhya Pradesh, Chhattisgarh, and Rajasthan—and general elections scheduled next year.

Last year, the spike in prices began with edible oils (following the Ukraine war) and wheat (which was damaged due to a heat wave). Then it spread to rice due to a smaller crop in 2022 and a lower anticipated harvest this year. Now, prices of pulses are soaring due to lower planting and losses following erratic rains. Oilseeds could be next—if a significant drop in production and higher demand from India firms up international prices. India imports about 60% of its domestic consumption and oil processors are estimating record imports in the oil year 2022-23 (which lasts from November of one year to October of next).

India’s key soybean producing states saw similar, below-average levels of rainfall in 2017 and production fell by 24% that year, US-based Gro Intelligence warned in a note earlier this month. It added that adverse climate can lead to lower palm oil yields in South East Asia, the largest supplier of edible oils for India.

A persistent firmness in food prices, besides chipping away household earnings, can impact the bottom line of businesses which include staples and packaged food makers as well as quick service restaurants. Repeated climate shocks to rural incomes will also hurt demand for fast-moving consumer goods companies as well as consumer durables makers. A surge in food prices reduced footfall and pushed fashion outlets to offer steep discounts across malls in several cities, Reuters reported in August.

No winners

For most parts, high domestic food prices have been driven by repeated climate shocks—drought, dry spells, heat waves, and erratic rains. The crisis has no real winners: while the farmer is hammered by a lower harvest, the consumer pays a steep price. The government scrambles to find a solution by slashing import duties, and imposing export curbs and stock limits (to check hoarding by traders).

In July, food inflation soared to a three- year high of 11.5% led by higher prices of vegetables, cereals, pulses and milk; it eased to 9.9% in August. But data published by the consumer affairs ministry show prices continue to be sticky. As on 25 September, prices of tur (pigeon peas), a popular kharif pulse, were 35% higher year on year. Rice, wheat flour and onions were costlier by 11%, 6% and 42%, respectively, compared to last year. A major relief for consumers were edible oil prices, which were lower by 16-24% year-on-year.

Cereal inflation is likely to persist due to the 7% hike in minimum support price of paddy and some yield losses due to uneven rains, said Pushan Sharma, director at Crisil Research. Then there is an added risk of freak rains at harvest time crimping output.

With tomato prices climbing down from the July highs and the export curb on onions in place, vegetable prices are unlikely to spring a surprise. But inflation in pulses will likely be a sore point.

“Overall, farm incomes may improve by 3-5% but how that translates into consumption is not certain. The K-shaped recovery in consumption (post-covid) is continuing. For instance, (aggregate) two-wheeler sales were 6% higher year-on-year between April and July, but sales of premium bikes were 44% higher," Sharma added.

Crop damage is not the only reason which is denting farm incomes. A recent report by Delhi-based think tank Icrier calculated that wheat farmers lost about 40,000 crore following government steps to cool consumer prices (via open market sales ahead of harvest in April this year). Rice growers can face a similar situation when they harvest the crop in October, the authors warned.

The next front

For now, deficit rains in parts of Karnataka, Maharashtra and Madhya Pradesh have opened a new front in India’s battle to contain food inflation: rising prices of pulses like tur (pigeon pea), moong (green gram) and urad (black gram). The expected crop loss due to uneven rains is on top of a 5% drop in area planted by farmers, compared to last year.

Over the past two years, farmers lost interest in planting pulses due to a crash in prices, said Laxman Wange, a farmer from Beed district in Marathwada region of Maharashtra. That was largely because of a liberal trade policy of allowing duty free imports of tur and black gram—from Malawi, Mozambique, and Myanmar. However, as India is the largest producer and consumer of pulses in the world, cooling domestic prices by allowing imports has limited legroom.

An added challenge is that one pulse variety cannot be easily replaced by another due to dietary preferences. One cannot replace the tur dal (grown during Kharif) used to make sambar, a staple dish consumed across southern states, with the winter harvest of chickpeas.

“We can still hope to harvest some tur in November (which is a six-month long crop). But soybeans are in bad shape," Wange said. He added that repeated crop losses have pushed small farmers into a debt trap. Between January and August this year, close to 1,800 farmers from Maharashtra committed suicide, official data shows. Much of this death toll (685) is concentrated in the drought hit Marathwada region.

After a parched August, the driest in over a century, the overall monsoon deficit (1 June to 26 September) has narrowed to 6% when compared to the 50-year-average. But the lopsided distribution of rains is starkly visible this year: floods in Himachal which claimed more than 240 lives, parts of Punjab and Haryana going under the water, and deficit rains in rice growing Bihar, Jharkhand, parts of West Bengal and Uttar Pradesh.

Overall rice production could take a hit of 10 million tonnes or close to a tenth of Kharif output, said S. Chandrasekaran, a farm trade policy analyst. “How prices move post-harvest will provide a clearer picture on the extent of damage," he added.

So far, Karnataka is the only state to declare a drought and seek central relief. The state has estimated farm sector losses due to deficit rains at 28,000 crore.

‘No mood to spend’

Dilip Patidar, who farms 16 acres in Budha village, Mandsaur, said he planted a mix of crops this Kharif season—soybeans, black gram and ground nut—in a bid to manage price risks. If bean prices crashed, he could recover the losses from black gram. But scanty rains impacted all three crops, with yield losses hovering between 75-80%.

“I have lost around 4 lakh this season. Some of us went to meet district officials asking them to do a crop loss survey. But no one showed up. Many farmers have already harvested soybeans and black gram. On what basis will we get our crop insurance claims?" Patidar asked.

Patidar, who also runs a store selling farm and irrigation equipment—part of his income diversification strategy—added that small growers dependent solely on agriculture can barely stay afloat. The markets are wild and so is the weather. “I had stored onions (harvested in April) hoping for a better price. But the government imposed an export tax (of 40%, as retail prices firmed up) and I had to sell the produce at a loss," he said.

At Patidar’s modest shop selling pumps and sprinklers, located next to the Pipliya mandi, a wholesale market in Mandsaur, sales are down by 40% compared to the year before. When there is no water in the wells, sprinklers are of no use.

For the past few months, Patidar’s son, studying at a dental college in the state capital Bhopal, has been pestering his father for a bike. “But I cannot afford to splurge. Kharif is sunk, and Rabi (winter crop of wheat and chickpeas) is under a cloud. The irrigation wells are dry. I am in no mood to spend money," added Patidar. He rides a rickety bike purchased way back in 2002.

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