FOOD INFLATION-GOOD OR BAD?

With almost all countries in the world seriously worried about food inflation which causes upward movement of prices of most foods in the market, India seems to be a unique exception, with one of its ministers "boldly" stating  that rising inflation is a happy trend to be welcomed. His reasoning is that high consumer prices would bring higher returns to the poor farmers of the country! Can it be true? Can a responsible government favor a particular segment of the Society to the detriment of others? Is it alright if consumers are forced to pay high prices to the every day foods required to lead a normal life? What type of a philosophy is this? One can understand such a position taken by a farmers' lobby but not by a responsible government spokesman. Such utterances make the efforts of the government in subsidizing every agricultural crop grown in the country appear insincere while making the so called free market economics based policy a laughing stock! Here is a glimpse into this ridiculous situation created by this minister through his irresponsible utterances. 

Union Minister for Steel Beni Prasad Verma seems to have made a  habit out of courting controversies. His latest comments are not just likely to spell trouble for the Congress, but also will not go down well with the Samajwadi Party, that supports the UPA government at the centre. Talking to reporters on the sidelines of a function in Barabanki, near Lucknow, on Sunday, the minister said he was happy with the rising prices of these food items as it will benefit farmers. "Dal, atta, vegetables have all become expensive. The more the prices rise the better it is. I am very happy with inflation," he said.  Clarifying his remark today he said, "I am happy when farmers' income increases. High food prices good for farmers." He added he was sticking to what he had said.  Mr Beni Prasad Verma's  inflation rationale has been slammed by the Opposition. "The Congress leaders are not affected by inflation at all. They are turning a blind eye to what inflation is doing to people. Hence they are saying senseless things like farmers are benefitting from inflation. This shows the Congress' mentality," BJP Shahnawaz Hussain said. The Congress today tried to distance itself from Mr Verma's comments. "We put a stop on interest rate to control inflation. You should know that inflation is a matter of concern. I will offer sweets to him (Beni Prasad Verma) and ask him to keep his words sweet."

One wonders whether this minister, after enjoying power and perks for many years so freely bestowed by the government has forgotten whether he is still living in India where there is a wide disparity between what farmer receives and what consumers pay in the market. It is an established fact that the market situation in India is neither farmer -friendly not consumer-friendly, with almost 40-200% of the consumer price being swallowed by the middlemen through monopolistic and unfair trade means. Against such a background how can one expect the farmer to be benefited by high ruling market prices. The ones who will be benefited are the middlemen who act as a conduit for flow of food materials between the producer and the end user. It is fortunate that the views expressed by this insensitive politician are not shared by others in the government!  

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

FOOD INFLATION-HOW TO CORK THE GENI!

Economists world over consider inflation as a dampener for growth and suggest fiscal discipline to control inflation. Running into uncontrollable debts is not considered an ideal way of managing development though its avoidance completely is not practical. When it comes to food which is consumed day in and day out for life sustenance, unless there is price stability it may be difficult for the people to balance the family budget and higher the inflationary pressure lesser will be the purchasing capacity of the citizen forcing reduction in the intake of food with disastrous consequences in the long run. Thus any government worth the name must consider controlling food inflation as a high priority effort to protect its population from vulnerability to frequent price escalation. If Asian Bank experts are to be believed countries in the South Asian region are undergoing stress from food inflation caused by many factors and unless the governments in these countries tighten their policies to control inflation their population may be most vulnerable to food related discontent leading to unrest and misery among them. Blaming developments else where in the world for their problems can bring very little solace and the solution has to come from within. Here is a discussion paper put out by ADB for guidance of the countries in the SAARC Region. 

"Asian Development Bank (ADB) said major direct impact of persistent higher food prices in South Asia to have adverse impact on growth as it reduces real income consumption, saving and investment. Interest rate tightening as policy response to control inflation would reduce aggregate demand and lead to further economic slowdown.  Implementation of food subsidies and other social safety net programmes are likely to increase current expenditure and worsen the fiscal deficit. In particular Bhutan, Sri Lanka, India, Pakistan and Maldives, which already have relatively high fiscal deficits, according to ADB South Asia Working Paper Series, 'Food Price Escalation in South Asia-Serious and Growing Concern', released on Monday. The ADB Working paper pointed out South Asia is arguably the most vulnerable region to increasing food inflation given the large segment of the population living below or near the poverty line. This paper deals with the problems related to food price inflation in South Asia in a comprehensive manner. It presents an in-depth empirical analysis of the possible factors that could explain the increase in food inflation and discusses the impact of food price inflation on poverty and macroeconomic stability in South Asia. The paper proposes some practical policies to address the situation, including how regionalism may be a solution to food inflation".

High fiscal deficit is a continuing feature of the economies of these countries and invariably raising interest rates has been the standard response by the governments. Whether such fiscal policies can impact the food inflation is a matter that needs to be considered though many believe it is so. The net effect of food inflation will be progressive reduction in the purchase of food by those who are already languishing in poverty, making their lives more miserable. The massive food subsidies help to insulate those who are below poverty line from such inflation to some extent but such subsidies are confined only to food grains whereas for a healthy life one needs protective foods like fruits and vegetables, pulses and edible oils which are the victims of uncontrolled price inflation. Whether ADB's suggestion to cork the Geni of food inflation will work or not is some thing remains to be seen in these countries if and when they accept them. 

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

INCREASING MSP FOR FOOD CROPS-GOVERNMENT DILEMMA!

Only recently that economic pundits in India were worried about the increasing disparity in grain prices between that rule within the country and that prevalent in global markets. The uncertainty regarding the decision to be taken by the Indian government as to what to do with the bumper crops expected this year is vitiating the situation further. While government does not have adequate grain storage capacity to store all the food procured, export is likely to be uneconomical, especially wheat, if one goes by the prices obtaining in international market. One of the reasons attributed to this "catch-24" situation is the relatively high prices being paid to the farmers who find it profitable to sell their "fruits of labor" to the government rather than to private traders. If the recommendations of the CACP, which are under the consideration of the government, are accepted there is bound to be a cascading effect on domestic food prices with potential for civil unrest by a population already burdened with high food inflation. Here is a take on this critical issue which raises more questions than answers regarding the direction in which the country is moving. 

"There is unease in the government, especially in the finance ministry, on the implications of the 15-53 per cent rise proposed by the Commission on Agricultural Costs and Prices (CACP) in the Minimum Support Price (MSP) for kharif crops.  However, the CACP has defended its recommendations as just enough to ensure a reasonable return to farmers and for food security. The Cabinet is likely to take a decision on the MSP next week, to give enough time to farmers on planning their sowing decisions. Official sources were doubtful if an increase could be sustained beyond 10-25 per cent, barring one or two crops where production needs to be enhanced or farmers had faced big losses due to unfavourable weather conditions, as in groundnut. Besides, the Prime Minister's Office has ruled out any possibility of a bonus in addition to the MSP. Officials say a bonus is to be considered if the MSP does not take into account any sudden increase in cost of production or any external factor not factored in. There is no case for an additional, said officials. It is learnt the ministries of finance and food have questioned the recommended increases of the CACP, citing high inflation and food prices as a cause of worry"

CACP is, of course, a knowledgeable body and may not like any questions raised against its calculations and estimates. But if these new MSP figures are worked out on the economics of running a farm of one acre of land or such small land holdings, so common in India, it may be a skewed projection. Government must take into consideration the non-viability of farms below a certain size and if feasible evolve a program that will compensate poor farmers in stead of raising MSP to alarming levels which will only enrich the pockets of large farmers running big farms. It is true that the task of a government in balancing the interests of farmers and consumers is an unenviable one and offering advice ad libitum may be easy for critics. Still all hues of opinion must be listened to before taking a realistic decision equitable to all.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com