Food inflation
in August accelerated to 9.78% year on year, the fastest it has been in
13 months. This is over and above the high inflation of last year. As
it has been doing all along, an alarmed RBI has tried yet again to
combat this by hiking interest rates by 25 basis points - its 12th hike
in the last 18 months. But obviously, this is not going to reduce demand
for food nor food inflation.
What is the cause of food inflation? Some say that increased urban demand is the culprit. But production of food products has been increasing in step with the rise in urban population. And export of food products is too insignificant to have any impact on prices. What, then, is the real reason for the runaway rise in food prices?
In 1951-52, 89% of what the consumer spent on food reached the farmer. Now, only 34% reaches him while 66% goes to middlemen. This amounts to a whopping Rs 20 lakh crore. And why is it so? Because as per the Agricultural Produce Market Committee Act (APMC Act), a farmer must take his produce to a `market yard` and sell it through middlemen. The chain of middlemen consists of eight to 10 links, each adding his profit margin of 30% or so. No wonder, then, that a farmer gets only Rs 5 per kg for onions while the consumer pays over Rs 30 per kg!
The APMC Act, passed in 1954, needs to be scrapped or substantially amended. The central government prepared a Model APMC Act in 2003. But agriculture being a state subject, many states have yet to adopt this Model Act - which provides for direct selling by farmers, contract farming and aims to remove interstate barriers for movement of food products - or implement it faithfully due to vested interests.
There are some honour-able exceptions. For instance, Andhra Pradesh has started `Raythu Bazar` (farmer`s market) where farmers can sell their produce directly to consumers at select locations in the city. ITC, meanwhile, has started an `e-chaupal` scheme to provide internet connectivity to farmers so that they can decide to sell their produce directly to supermarkets or through market yards. The scheme covers four million farmers in nine states.
However, neither these exceptions nor modifying the APMC Act will be enough. Presently, 30-35% of food products perish during sto-rage and transportation. If this proportion is reduced, supply would substantially increase and prices would come down. For this, we need to develop cold chains for storage and transportation all over the country on a massive scale.
Barc scientists have proved that gamma rays increase the storage life of food pro-ducts like onions. And scientists at CSIO in Chandigarh have developed a high voltage process to disinfect milk in seconds. This will replace the current method of pasteurisation and save a huge amount of energy. But, needless to say, farmers just cannot afford cold storage or gamma ray equipment. Nationalised banks should step in and create a network of food banks to make storage facilities available to farmers on a rental basis. Farmers could then safely store their produce in these food banks and sell only when the market rate was remunerative. They could also get loans for buying seeds, fertilisers and pesticides from the banks.
Contract farming is another idea whose time has come. The Model APMC Act provides for this. Some companies have already made forays, sourcing produce from farmers under contract and selling them under their own brand names. More such initiatives are required by corporate retailers for a variety of farm produce. This would improve farm productivity and total food production.
Unseasonal rains, famine or pests hit farmers every three to four years. In order to prevent such calamities from devastating them, insurance companies should come forward with different schemes to give insurance cover to farmers so that they can protect their incomes. In fact, given how essential this is to our food security, the government should make it compulsory for insurance companies to do so. It should also bear fully or partly the cost of insurance for small farmers so that they are not unduly burdened. That, again, would make farming a safe and remunerative vocation.
Presently, agricultural produce does not freely move across state boundaries. The time has come to remove such restrictions. In fact, why not go for free trade in food crops among all Saarc countries? If food prices start going up in some area, supplies could be rushed from other states or neighbouring countries. Also, there is an urgent need to exempt all food products from import duties and sales tax to bring food prices under control.
No country in the world has as much fertile irrigated land as we have. But our food productivity is quite low; China`s food productivity is double that of India`s. Contract farming or precision farming technology developed by our agricultural universities can help double our food productivity too.
In short, the government must take these urgent steps if both farmers and consumers are to benefit. Merely increasing interest rates will not do.
What is the cause of food inflation? Some say that increased urban demand is the culprit. But production of food products has been increasing in step with the rise in urban population. And export of food products is too insignificant to have any impact on prices. What, then, is the real reason for the runaway rise in food prices?
In 1951-52, 89% of what the consumer spent on food reached the farmer. Now, only 34% reaches him while 66% goes to middlemen. This amounts to a whopping Rs 20 lakh crore. And why is it so? Because as per the Agricultural Produce Market Committee Act (APMC Act), a farmer must take his produce to a `market yard` and sell it through middlemen. The chain of middlemen consists of eight to 10 links, each adding his profit margin of 30% or so. No wonder, then, that a farmer gets only Rs 5 per kg for onions while the consumer pays over Rs 30 per kg!
The APMC Act, passed in 1954, needs to be scrapped or substantially amended. The central government prepared a Model APMC Act in 2003. But agriculture being a state subject, many states have yet to adopt this Model Act - which provides for direct selling by farmers, contract farming and aims to remove interstate barriers for movement of food products - or implement it faithfully due to vested interests.
There are some honour-able exceptions. For instance, Andhra Pradesh has started `Raythu Bazar` (farmer`s market) where farmers can sell their produce directly to consumers at select locations in the city. ITC, meanwhile, has started an `e-chaupal` scheme to provide internet connectivity to farmers so that they can decide to sell their produce directly to supermarkets or through market yards. The scheme covers four million farmers in nine states.
However, neither these exceptions nor modifying the APMC Act will be enough. Presently, 30-35% of food products perish during sto-rage and transportation. If this proportion is reduced, supply would substantially increase and prices would come down. For this, we need to develop cold chains for storage and transportation all over the country on a massive scale.
Barc scientists have proved that gamma rays increase the storage life of food pro-ducts like onions. And scientists at CSIO in Chandigarh have developed a high voltage process to disinfect milk in seconds. This will replace the current method of pasteurisation and save a huge amount of energy. But, needless to say, farmers just cannot afford cold storage or gamma ray equipment. Nationalised banks should step in and create a network of food banks to make storage facilities available to farmers on a rental basis. Farmers could then safely store their produce in these food banks and sell only when the market rate was remunerative. They could also get loans for buying seeds, fertilisers and pesticides from the banks.
Contract farming is another idea whose time has come. The Model APMC Act provides for this. Some companies have already made forays, sourcing produce from farmers under contract and selling them under their own brand names. More such initiatives are required by corporate retailers for a variety of farm produce. This would improve farm productivity and total food production.
Unseasonal rains, famine or pests hit farmers every three to four years. In order to prevent such calamities from devastating them, insurance companies should come forward with different schemes to give insurance cover to farmers so that they can protect their incomes. In fact, given how essential this is to our food security, the government should make it compulsory for insurance companies to do so. It should also bear fully or partly the cost of insurance for small farmers so that they are not unduly burdened. That, again, would make farming a safe and remunerative vocation.
Presently, agricultural produce does not freely move across state boundaries. The time has come to remove such restrictions. In fact, why not go for free trade in food crops among all Saarc countries? If food prices start going up in some area, supplies could be rushed from other states or neighbouring countries. Also, there is an urgent need to exempt all food products from import duties and sales tax to bring food prices under control.
No country in the world has as much fertile irrigated land as we have. But our food productivity is quite low; China`s food productivity is double that of India`s. Contract farming or precision farming technology developed by our agricultural universities can help double our food productivity too.
In short, the government must take these urgent steps if both farmers and consumers are to benefit. Merely increasing interest rates will not do.
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The writer is chairman, Kinetic Group.
The writer is chairman, Kinetic Group.
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