The Price of Onions Explained

Why has agriculture sector growth not eased surging food inflation?

In a departure from earlier years, Finance Minister Pranab Mukherjee in pre-Budget consultations on 7 January listened to the concerns of agriculturists before industrialists. As  food inflation rises, it seemed a wise move. “To achieve and sustain double-digit growth, it is vital for the agricultural sector to grow at 4 per cent per annum,” Mukherjee said.  This looks like a possibility: agriculture has grown by 3.8 per cent in the first half of 2010-11; the farm sector should grow by 6 per cent this year, by some projections.

So why has this growth not eased surging food inflation?

Have we faltered on production? Largely, the answer is no. Official growth mainly records the production of cereals (like rice and wheat), whose government-regulated supply fails to offset the high price of pulses, vegetables, fruits, milk, spices and now, eggs. Unlike cereals, the other food basket items are subject to local distribution networks, where speculation can create perceived shortages. “[This] gives signals to domestic speculators to seize on the opportunity,” says Dr A Ganesh-Kumar, an economist at the Delhi office of International Food Policy Research Institute, citing it as a reason for the current price rise. “[The] other culprit is the way the wholesale trade is conducted in the country where lack of competition among specialised traders (of each commodity) gives them a good opportunity to cartelise.”

The Government’s crackdown on onion hoarding, which began last week, came too late to control prices. Traders had already capitalised on an onion crop failure in Maharashtra.

Others feel that a tightening of monetary policy would help tame speculation and check hoarders’ ability to influence prices. There is, however, a limit to squeezing demand as a solution, as food is necessary for survival.

This means a long-term solution might be found by strengthening the supply chain. “Private money can play a role here by bringing in logistical solutions to wastage of food products, as nearly 30-35 per cent of food products perish due to lack of cold storages and refrigerated supplies to markets,” says P Chengal Reddy of the Consortium of Indian Farmers Associations.

Either way, finding a long-term solution to rising food prices will address the more immediate concerns of the aam aadmi and change the script of a growth story that looks rapid rather than inclusive.

About The Author

Shailendra Tyagi