Of food inflation, farmer interest and policy failure

Of food inflation, farmer interest and policy failure

It seems the government and the media have suddenly woken up to the issue of food price inflation. And it appears concern for the poor and hungry is back in fashion. At least that is what we are led to believe.

Not only was there a passionate demand by the Punjab government to offload foodgrains from overflowing silos, the Union government’s empowered group of ministers (eGoMs) moved swiftly to clear the draft National Food Security Bill, which seeks to give poor households the right to 25kg of foodgrain a month at Rs3 a kg. At the same time, the Supreme Court-appointed justice Wadhwa commission came out with its report on revamping the public distribution system (PDS).

Facts on the ground, however, cast doubt over the genuineness of government concern over food price inflation and its impact on the poor.

As against the buffer requirement of 12.2 million tonnes (mt) of rice and 4 mt of wheat on 1 April, the actual stocks were 26.65 mt of rice and 18.1 mt of wheat on 1 March. That is, the government is holding more than double the required buffer stock of rice and four-and-a-half times that of wheat. This is not something new and has persisted throughout this year, as I had pointed out in Farm Truths on 15 December (Overflowing granaries and empty stomachs).

Also Read Himanshu’s earlier columns

The wheat was procured last year in an overzealous drive to appease voters ahead of the general election. The government procured 25.30 mt of the total production of 80 mt; of this the government, after accounting for some offtake, is still holding 18.1 mt. By not releasing the excess stocks through PDS, the government is effectively creating an artificial scarcity of 18.1 mt, which is little less than one-fourth of the total wheat production.

It is now clear that the drought last year had no role to play in keeping wheat prices high. Going by advance estimates, wheat production this year may be even higher than last year. Nor was there any transmission of international prices; if there was, it would have driven prices down because international wheat prices are lower.

Clearly, the only reason for high prices was the artificial scarcity, fuelling speculation as well as creating supply-demand imbalances. Any other explanation is a lame excuse.

As expected, the wheat stocks maintained in the open are rotting. The estimate by the Punjab government of around 2 mt being wasted may be an exaggeration, but that is not the point. Even if it is 1.5 mt, it is sufficient to feed 10 million people for one full year given the recommended dietary allowance of 12kg per month. Yet there has been no attempt to offload the stocks.

That begs the question: Why did the government hold on to stocks and not offload them?

Simply because that would have brought prices down, something not desired by the government. In other words, the government allowed food price inflation to continue. Contrary to what the government claims.

Not any more: The deputy chairperson of the Planning Commission, Montek Singh Ahluwalia, finally admitted that inflation is not bad and is in fact good for the farmers.

But which category of farmers benefit from high prices? It is the medium and large farmers of Punjab, Haryana and western Uttar Pradesh who contribute a disproportionate share of the total wheat procurement. It is these farmers who are net sellers of foodgrains. But even in these states, these farmers do not constitute more than one-fifth of total farmer population.

Almost three-fourths of the rural population are net buyers of foodgrains and they are largely the small and marginal farmers, agricultural labourers and other casual labourers. Other than these, the urban middle class is also a net buyer. Unfortunately, the story is not restricted to foodgrains such as rice and wheat but also extends to sugar.

It is clear that the policy framework favours the minority of rich and wealthy farmers in the richest areas. Does one need a better example of exclusive growth?

The wheat crop this year has been good and the harvest season begins from 1 April. Farmers are expecting the government to procure at least as much as it did last year. But that would require storage space and with granaries overflowing, they want last year’s procurements to be offloaded in the market. Clearly, the necessity of clearing the stocks is not out of any concern for the poor, as they would like us to believe, but more to create storage space.

Yet it is a fact that if the government does manage to offload wheat stocks, it will have a dampening effect on prices. So the poor will have something to cheer about, even if it is done to keep the large farmers happy. On the contrary, if the government procures wheat without offloading from the existing buffer, stocks would burgeon to 70 mt—higher than the record 60 mt held in 2001. If that be the case, need we say more about the government’s intention in enacting a food security Act?

Himanshu is 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 farmtruths@livemint.com