Friday, December 16, 2011


The fall in vegetalbe prices is now showing food inflation number, which fell nearly four year low of 4.35% in the week ended december 3 putting pressure on government who is suffering critisim over the way it has handled the prices of necessary commodities. The sharp fall from 10.63% in early November, was the result of prices of vegetables, potatoes, onions and wheat falling in the range of 4.43% to 46% due to better supplies. In some commodities such as potatoes which witnessed a 33% decline, farmers in several parts of the country are dumping the crop on the streets or letting it rot as there is a bumper harvest and cold storages are full with last year's stocks. In certain cases such as onions, where prices were down 46% due to the high base seen a year ago also came to the rescue. Milk seemed to be the only sour point with prices rising 11%. Food inflation stood at 6.6% in the previous week and 10.78% a year ago.

Reasons for Food Inflation :

There are four main reasons. The immediate reason for the spurt in the prices of specific food items, like onions today or earlier in the case of sugar and pulses, is hoarding. Trader cartels, encouraged by an inept Government, are mainly responsible for this. Assured of inaction, hoarders are creating artificial shortages and fleecing people from time to time.

Secondly, the growing penetration of big corporates in the food economy, international trade in food items and speculative futures trading in agricultural commodities has weakened the government’s capacity to control food prices. The share of corporate retail in food distribution has tripled over the past four years. The Government has manipulated trade policies to allow big traders to make huge profits through export and import of essential food items like wheat, sugar and onions. On the other hand, the PDS has been weakened considerably through targeting. In most states, the role of the ration shops, state agencies like the NAFED etc. and consumer cooperatives in food distribution, has been whittled down. Therefore, the profit margins of private traders have also increased, reflected in growing gaps between wholesale and retail prices as well as farmgate and wholesale prices.

There are medium and long-term reasons too. Our agriculture is in a crisis. We are not producing enough to meet the needs of a growing population. The peasantry continues to be in distress, with 2.5 lakh farmers committing suicide over the past 15 years. State intervention in raising agricultural productivity has been weakened. The Government is more interested in handing over this role to big agribusinesses and retail giants like Walmart and Monsanto in the name of a ‘second green revolution’. That will further marginalize the small peasants.

Finally, the cuts in subsidies and price hikes of inputs like diesel and fertiliser are also contributing to food inflation. The deregulation of petrol prices has led to very steep hikes in the recent weeks.