Food grain prices soaring
Nidhi Arora | 07 Aug 2009

Why are food grain prices soaring? While the thinkers at the Central Secretariat nod their heads and the poor lose, here is an opinion on what can be done, and quickly.

About an year or so ago, I did a post and saved it to drafts. That is where it stayed. It never saw the light of day because I am not an economist.


The post said something like this: (it was about farmer suicides)


At this point, unless the government intervenes with long term, root level reforms in the agricultural sector in general and in the agricultural marketing channels in particular, one of the following two will happen:


1. Farmers will be forced to increase the prices of the produce to a point where common food items are beyond the reach of the poor, exposing them to malnutrition in addition to poor sanitation and even more poor medical care. This will inevitably result in an epidemic of some sort. It will only be a matter of time before disease spreads from the poor to the not so poor. In effect, we are looking at a volcano of disease and malnutrition.


2. More and more farmers will commit suicide or sell their lands for commercial development, or convert to cash crops. This will lead to a real and artificially created scarcity of basic foodstuff. That means an unmanageable increase in the prices of basic food stuff. If the government considers a Band Aid treatment at that time, we will be forced to import (and pay high prices for) basic food items. These will be placed out of the reach of the common man, leading to the same malnutrition induced disease epidemic as in Option 1.


Why did I not post this then? Because I m not an economist. I am just a lowly CJ. If I can foresee this, then surely the wise policy makers at the Central Secretariat can see this too. Surely they will not let this happen.


And why is this being posted now? Because we are at Step1 of that epidemic. It’s a chance in a million, but someone might google for increase in price of food items. And land here.


What is my proposed solution?


It’s a four  pronged approach –

1. Reducing the Cost of Production:


High Yield seeds have to be made available for less. We cannot allow the Monsantos of the world to make profit while we stop the next step in the chain – the farmer, from making more profit.


Cost of Labour has to go down – NREGS has ensured that the cost and availability of farm labour is impacted. The same scheme can be converted – each farmer may be given “Coupons” of labour units. He gives these coupons to the NREGS beneficiaries in return for farm labour. But that means 2 contact points with the government and twice the corruption. So an ideal situation would be to release some labour from NREGS towards farm labour. Meaning, if a person is eligible for and employable as farm labour, he must not be covered under NREGS. Let NREGS be for people who cannot otherwise obtain employment. Not for displacement of labour. And definitely not for displacement that is detrimental to the core agricultural sector.


Consolidation of Assets: During the Nehru era, some work was done in this direction and one read about with great pride and wonder. Now, the same idea must be implemented, but using the social entrepreneurs and the social structures of the agrarian society. Joint farming, sharing of equipment..


2. Improving the Marketing Channels: The produce has to be out of the farmer’s hands as soon as possible. A quick turnaround time on the capital invested means a shorter debt cycle for the farmer, and also more crops per year. If the farmer’s energy is wasted wondering when someone will buy that produce, he will not be preparing the field for the next crop for that long.


But that does not have to mean that the farmer is forced to sell his produce cheap, just because he cannot afford to hold on to it. The Marketing channels have to be driven by business, and the government has to regulate it tightly. Though the co-operative marketing and the regulated markets are in place, they are means of exploitation because the buyer’s cartel fixes a price in the morning and forces the farmers to sell at that price or hold, knowing fully well that the farmers cannot hold.


Obviously, a prime requisite for this to work, is the creation of cold storage and pest proof warehouses where the farmers can stock their produce if required. Once farmers get the power to hold, the need to hold will vanish.


3. The Supply Chain : Both the supply chain to the farmers and from the farmers. In Punjab, this summer, there was a government order indicating that sarkari offices will close early so that the power can be diverted to the fields. Never mind that the state still did not have enough power to save its crops. The same goes for water. We should think of canals more than borewells. Borewells need power.


The supply chain from the farmers needs to be revamped very obviously. There are no warehouses, no checks in place for the PDS.


4. Easy and reasonable credit /micro credit  and Crop Insurance: Small farmers can do very well with micro credit. Medium and Big farmers need access to reliable credit on easy terms. This credit and its terms means the difference between a farmer who is alive and one who has committed suicide. Also, the availability of crop insurance is a must if we have to prevent farmer suicides. The only way to ensure crop insurance is to make it a mandatory requirement for all life and non life insurers to have a certain percentage of their portfolio as crop insurance. I believe that the micro credit and credit instituations should get this insurance to cover their loans. That will reduce their NPAs(Non Performing Assets) and also prevent farmer suicides in the event of a crop failure.


It is still not too late. The government should at least wake up now and start root level reforms and start them on a warfooting. Unless, of course, the vote bankers want that malnutrition induced mass epidemic.