21 August 2009

there is no bread...

Increase in food prices is automatically associated with decrease in yield. However, there is another reason for this: stimulating short supply of food grains subsequently means increase in price of food even though there is no real shortage of supply. This manipulation of demand-supply is the reason for current sky-rocketing prices of foodgrains especially in the case of pulses.

In 2008, the production of pulses was 14.76 million tonnes in India. In 2009, it fell to 14.66 million tonnes, a drop of 0.1 million tonnes. The production of pulses has remained within normal limits of deviation. If demand has outstriped production then even 2008 should have been a bad year as far as prices were concerned. Some economists have projected the demand to be around 17 million tonnes and it is claimed that India has imported 2.5 million tonnes of pulses this year. This brings the total of available pulses in the market to 19.5 million tonnes, which means that supply outstrips demand and the prices should drop. Even if the imports were higher in cost, it only makes up a fraction of the total and therefore not significant to make an impact on retail prices.

According to Devinder Sharma as expressed in his blog, the reason for the rising prices is market driven by sentiments - the economic parlance used to justify hoarding and speculation. The trade has been holding up the supplies, wanting to exploit the sentiment. This year the sentiment has been the delay in monsoon, next year it may be something else. Conspiracy theory? - Then consider this: After turning a blind eye for many months, several State Governments have swung into action and raids to godowns have become widespread. In Madhya Pradesh the State found 34,000 quintal of sugar kept illegally and the market price came down by Rs.3/kg in just two days! As a result, the price of sugar in the wholesale market has come down by Rs 140/quintal. In Maharashtra and Rajasthan, the prices of pulses has come down by Rs 250 to Rs 400/quintal.

Drought and irregular monsoon has always been part of the Indian agricultural scenario. In the past we have seen gradual inflation which is a predictable economic phenomena. However, this sudden increase in prices of foodgrains has made nutrition unaffordable to many people. Populations already on the knife-edge are now under the knife. The recent increase of support prices by the Government is going to make pulses even more expensive. The Government has also proposing reducing exports of wheat to ensure higher supply within the country. But all these measures do not address the real issue and still leaves the question unanswered.

Inspite of external factors affecting agricultural production within the country - yield has not reduced by much. This basic point is something that has evaded every press release and every government statement on the issue. If supply had not changed drastically and demand has not changed drastically - why has price increased? I'm beginning to buy into the conspiracy theory of hidden piles of grains waiting to be raided.

...until then we can all eat brioche

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