Spiraling Food Prices in India – Is There A Way Out?


Super Mod
Mar 24, 2009
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An article by Ritesh on Indian Defence and Strategic Analysis

It is commonly said, each time Congress forms the government, the prices of essential items zooms past and makes life of the common man a lot more expensive than it was, but what is said, is that the truth? Is it not for a fact that when the NDA was around the prices of onions and potatoes inflated to such soaring highs that it became the very reason of undoing of the BJP's Delhi government in then state elections, a party which is also labeled as the traders party, and since then for the next consecutive 3 elections not once have they been able to make a come back to the national capital even when they have shouted wolf in the form of price rise on part of congress, so what is it that makes the prices of food articles reach such soaring highs where they are at present with the food inflation at a near 20% year on year?

Congress can not be completely absolved off as one of the factors behind such a price rise. Congress from the day they came to form the central government (ie UPA-I) started to make the right noises to its vote bank, the farmers and the labour involved in farming who today form between 50%-60% of india's total work force, that it was them who would be making the profits and have a larger share of price escalation, PM Mr Manmohan Singh went on record to state in his first independence speech from the red fort that now was the time to live with slight price rise on food items as it was time for our farmers to make more money, which had come as a response to the criticism of then price escalation, which was then noticed after quite a long time post the reign of various political parties that formed the central government prior to UPA-I.

But did the farmer and the labour make that extra rupee? The farmer struggled to make that extra rupee but the labour force under the guidelines of Ministry of Labour had a substantial raise in their daily wages, which only added to the ever increasing burden of the farmers who was already burdened by increasing debt he had incurred by taking loans to plough his fields, and with this the government in centre was able to address its larger vote bank the labour force all across the sectors including the agriculture sector, so if the farmer was not making that extra rupee, then who was?

It is not the farmer who takes his produce to the retail market next door, or to far off places but in comes a chain of numerous middle men how reap the harvest in real terms along with the retailer who is the last part of this chain and all these hold the capacity to artificially inflate the prices and are the main culprits behind hoarding, but is this for what the Government of India is working for? Partly yes and partly no. partly yes because it can certainly not be denied the traders right across have very strong lobbies who at the time of elections give huge donations to political parties during their election campaigns and till date the sourcing of this money has never been made public which without a doubt raises a lot of unanswered questions, so yes such lobbies and the government in power and other political parties across the board are hand in glove, but what has happened in the present case is such lobbies have had too much of a control and have forced the government and the minister in charge for agriculture to over look all such escalation.

Since the farmer is exploited at various points and they do not end up making the money, and to counter this their arm needs to be strengthened, and some important lessons need to be learnt from the model of cooperatives introduced in the milk industry. There needs to be introduction of such cooperatives in the farm sector which creates farmer associations which makes sure they are not exploited as collective bargaining power has a lot more dominant say in extracting a better deal, and if they can be strengthened enough then they can also workout their logistics to directly move their produce to the retail market than depending on some third party/person to do the same and these measures will help in reduction of retail prices to quite a large extent. Cooperatives also help in getting a better bargain from the recent entry of organized retail market in this segment.

Let us look a little deeper; our politicians are quick to point at the drought like situation that the country was initially confronted with just when the monsoon season was to start last year. India as per records received around 85-90% of the rains as compared to average rains the country gets during that season so with out a doubt there was a dip which had effect on the harvesting, and on the yield, but still as per Mr Montek Singh Aluwalia, chairman planning commission, the growth in the sector will be around 0.2-0.3%, so does that justify the price rise? To an extent yes, because each year we add millions more to our population base which means that many more mouths to feed but then this price rise in not new, even when the sector was growing at over 3%, a figure quoted to be more than adequate to balance out the inflationary pressure created out of increased demand from growing population, there was same level of price escalation, and well then the blame was on global food shortage, it seems they have a reason for every inefficiency of their's.

Another reason given is the rising earnings along with rising consumption patterns of our ever increasing middle class both in the urban centers and rural areas along with easy availability of credit in the market, is this good or bad? Because if the demand is more then that should encourage the farmer to produce more, but that is not happening so certain things are dramatically wrong some where for sure.

Let us start by looking at the irrigation picture of India. As per stats available well over 60% of the cultivated land in India has no access to irrigated water, so that makes a huge chunk of india's agriculture produce dependent on the rain gods. What is the solution the government has for this? They have built numerous dams which have a dual purpose of electricity generation and water storage which comes handy when there is drop in the rains which also helps in increasing the water levels of adjoining areas. Canals have been built which are fed from these dams and these are the main source of irrigation in the country. A huge amount of water still goes to the high seas with out getting tapped properly. One solution a much talked about is joining of these rivers so that there is huge pool of this water and something similar to the national electricity grid gets formed and water from here can be diverted where ever need be, but this solution remains more on paper. The other thing that can be implemented is to divert this water at various points to such far off places where the rains happen after long intervals, and create more storage points. In here a very important lesson of water harvesting also needs to be taken at the national level, which reduces the demand of water to quite a large extent for farming purpose and also helps in increasing the water level of that area.

The direct impact of our lethargic attitude on irrigation policy has a direct bearing on the per hectare yield which hovers at less than half to what happens in the PRC. Another point to ponder upon is the use of inferior quality of seed used which has direct impact on the yield, which needs to be replaced with better quality seeds a space dominated by MNCs, and this is where the BT seeds come into picture, but in here a lot of questions remain but studies have shown there are not much adverse effects in short term on the human health, but what remains to be seen yet is the impact in the long run, but one clear advantage that comes across is very less use of pesticides which other wise have very harmful effect on human health. It seems this part will be implemented soon since some big corporations are behind the scene pushing the agenda around.
The solutions discussed so far have been the long term in nature, but for the present price escalation one needs to reflect at the present export import policy. Each time there is a shortfall the government stops the exports of such items, and shoots up the imports which has a direct bearing on domestic prices of such items, and this discourages the farmer from cultivating the same produce again since the profit margin reduces and in the next season goes for some other crop. Government does need to strike a balance to what extent it can bar the exports and to what extent it needs to increase the imports since the extreme of both have a direct bearing on the future of such crops and if dealt badly as has happened in a lot of cases this becomes a ripe recipe of recurring price escalation in the same food produce year on year since the domestic production keeps falling or does not see sustained growth.

India has one of the most audacious storage capacities. Each year close to 40% of the agriculture produce of India goes a rot since we do not have proper storage capacity like warehouses and cold storage units and most of the storage happens out in the open which is far from adequate. If we can just make sure of creating proper storage facilities all across the country at a large scale all the problems of such price escalation can be taken care of, but it seem building this very basic infrastructure has no takers in our government which should be placed as a priority infrastructure project just the way the road network and the electricity generation has been given. One can imagine the apathy in here by just looking at Bharti (of the AirTel fame) who entered this sector with the aim of exports, but they could not achieve their numbers and fell woefully short just because there are not enough storage facilities and transportation takes too much time due to poor road network for such produce to last as farm fresh, now if that is what a top corporate faces one can only imagine what a nightmare it would be for others.

Government has to realize it needs to do a lot more than mere sugar coated posturing that it keeps doing, and be honest in guarding the interests of the common man than those of the trader lobbies. The projects talked about need to be implemented and certain basics need to be implemented right away or else this drama will never cease to exist. Solutions are very simple but does the government have the will to take initiatives is yet to be scene.


Oct 8, 2009
An interesting view on the increase in food prices. However, increasing food prices is a global phenomenon too. All over the world people for the first time can now afford to have full meals. And that means that the food prices are going to go up because of shortage.

But certainly, in India we can do a lot more to reduce this increase and make it more manageable. And as Ritesh noted, increasing storage facilities and removing the need of middle men - govt. or otherwise - would play a major role in moderating the price increase.

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