Keep in mind the overall dampening of food CPI
With onion prices rising to over Rs 80 in the capital, the government has been rattled enough to hike the minimum export price for the second time, even though no exports are taking place. Opposition leaders have been quick to capitalise on it, many are blaming trader cartels. A 50-100% markup of retail prices over wholesale ones, usual for most food items in India, is unfortunate and needs to be fixed—by freeing up mandis, by allowing big buyers to buy directly from farmers—but it is not the reason for the current spurt. This is mostly a function of the 10-15% fall in production due to unseasonal rains in the main March-June season. Indeed, while stocks from the earlier season is starting to finish—July-August are traditionally higher-price months anyway—it is possible the October-December crop may also be affected as the traditional growth areas of Maharashtra and Karnataka have had poor rainfall so far. Supplies in the Delhi market, for instance, fell from 26,577 tonnes in May to a mere 14,802 tonnes in August while, in Lasalgaon—the major mandi—they fell from 28,450 tonnes to a mere 5,100 tonnes. What the single-minded focus on onion prices is doing, ironically, is to obscure the sharp fall in prices of other crops. In the case of potatoes, retail prices in August averaged R21.9 per kg versus R32.6 in August last year; in tomatoes, prices have fallen from just under R60 at this time in 2014 to R28 per kg today. As a result, retail vegetable prices that were rising, across the country, by 19.6% in January last year moderated to 8.8% in January this year, and further to 5.4% in June. Indeed, the biggest collapse has been in cereal prices—cereals inflation fell from 10.3% in January 2014 to a mere 2% in June 2015.
If India is to avoid the stress that such fluctuations cause—to farmer incomes as well as to household budgets—it needs to have a coherent farm policy which allows free exports and imports. In the case of potatoes, West Bengal stopping movement to buyers outside the state further complicated matters since it resulted in a sharp spurt in prices which, in turn, led to a glut in all-India production—and a collapse in prices this year. Bans on exports, as is often done for wheat and rice, distort market signals and prevent farmers from getting a good return. And, in the case of sugar, almost single-handedly, Uttar Pradesh’s high SAP has destroyed both the millers as well as brought farmers to ruin. Low levels of food processing, in the case of onions, ensure a large portion of the crop loses moisture as it undertakes its journey from Lasalgaon to major metros. All of this has to change.