Food inflation all about exploitative profits

Devinder Sharma

Food & Agriculture specialist

In an interview with a student publication of the Indira Gandhi Institute of Development Research (IGIDR), Mumbai, a question was asked about the steps that need to be taken to curb food inflation. Nothing unusual, this question is on everyone’s mind. Right from the Reserve Bank of India (RBI) to any TV discussion or a newspaper report on inflation, it is invariably rising food inflation that appears to be the villain of the growth story.

We have been programmed to believe that food being necessary, the rise in its prices has to be contained within the macro-economic fix of 4 per cent, plus or minus 2 per cent. Therefore, whenever the new procurement prices are announced, twice in a year and separately for rabi and kharif crops, the media is agog with fears of rising food inflation. This year too, when paddy prices were announced, a question repeatedly asked on TV channels (and in newspaper editorials) was whether it would fan food inflation. Even though the price announced for 11 of the 14 kharif crops was less than the inflation rate, and also less than the compound rise in input prices, still there are fingers pointed at the nominal hike in procurement prices for inflationary pressure.

That food carries a weight equivalent to about 45 per cent in the Consumer Price Index (CPI) is well-known. But sometimes I wonder why housing, whether rented or owned, and which has the largest share in monthly expenditure for any household, is never measured as an inflation matrix. Similarly, the expenses on travel, with fuel prices steadily rising and dynamic prices for air, train and taxi services often exceeding the average monthly kitchen budget, again don’t get adequately reflected in the inflation index. Former J&K CM Omar Abdullah had recently termed the skyrocketing air ticket prices from Srinagar for a day when most flights were cancelled as an ‘open loot’. Many have complained of paying an abnormally high air fare of Rs 25,000 for a one-way ticket between Mumbai and Delhi. That is why the need to revisit what constitutes real inflation, and recalibrate weights ascribed to different components.

The point I am trying to make is that no eyebrows are raised when taxi aggregators go in for frequent surge pricing even at an unearthly hour of 6 in the morning. But if tomato’s price jumps from Rs 20 to Rs 40 per kg, all hell breaks loose. The tomato price rise for a household may still be less than the surge price Ola/Uber had charged from consumers during a day’s travel, but it is invariably the rise in tomato prices that ignites anger. This is how our minds are wired. We have been made to believe that a supply-demand mismatch leads to rising prices, but what we normally don’t realise is that there is a third hidden factor — manipulation. There have been instances when the shortfall in onion production for instance was barely 4 per cent and the retail prices shot up by 600 per cent in several markets.

Listen to what MJ Prabu, an organic farmer in Tamil Nadu, has to say: “I sell coconut at my farm for Rs 8 per piece. The middleman sells it further at Rs 28 per piece, and the street hawker (as well as organised retail) sells it at a price varying between Rs 50 and Rs 55 per piece.” What the farmer gets is only a fraction of the end consumer price. It is the greed of the supply chain that inflates prices seven times by the time a coconut reaches the consumer. Food inflation, therefore, has not much to do with farm prices, but is all about exploitative profits that supply chains end up with.

Visit a supermarket and scan the prices. A new emerging trend of an abnormal increase in the prices of large packs is visible. Normally, economics tells you that big packs of processed farm products should be relatively cheaper. An analysis howsoever shows that prices of 62 per cent of bigger packs have been raised in the past three months. No one knows why. For example, take Tata Gold tea. For a 100-gm tea pack, the price is Rs 40 and for a 500-gm pack, the retail price is Rs 310. Ideally, the price for a 500-gm pack should have been less than Rs 200. Most FMCG products, and that includes soaps and toiletries, fall in this category. Many others haven’t raised the price for popular brands but reduced the pack size by 15 per cent. While consumers have paid 10 per cent more for FMCG products, reports say the FMCG companies are making huge profits, recording a jump of 40 per cent on a year-to-year basis.

This is a global phenomenon. In America, corporate profits are at a 70-year high and the annual inflation rate zoomed to 8.6 per cent in May, the highest in 41 years. While profits for 2,000 US publicly traded companies have soared much beyond the pre-pandemic period, an Oxfam report has pointed to the increase in the number of ‘food billionaires’. Strangely, while the farm incomes haven’t risen anywhere, retail prices have already increased substantially. Even before the Russia-Ukraine war erupted, speculation had driven food prices globally to a record high, beating the time of the 2007-08 world food crisis.

To blame food inflation, therefore, is grossly unfair. There aren’t many instances when high prices to farmers have resulted in an abnormal hike in retail food prices, except in cases of short supply. It is simply the greed of the middlemen, and that includes agri-business giants, which results in manipulation of the prices at will. Recall the OECD-ICRIER study that said Indian farmers lost Rs 45-lakh crore in 16 years, between 2000 and 2016. Even during that period, when farmers earned 15 per cent less than the international prices, the food inflation rate was not in the negative but had remained quite persistent.

It is therefore time to replace food inflation with a more appropriate term — ‘greedflation’. 

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