Why food prices go up before the elections?

Sudden spike in onion prices for no apparent reason? 

It has come as a rude shock. After the unimaginable drubbing in the State elections, Congress party now realizes the folly it made in not controlling food inflation. Sonia Gandhi has admitted that rising inflation has been instrumental in building peoples’ anger against the ruling party.

They had taken it rather casually. Remember Agriculture Minister Sharad Pawar expressing his helplessness at rising prices. He said he didn’t know why the onion prices were rising. Instead of initiating tough measures, Delhi Chief Minister Sheila Dixit had pleaded with folded hands before hoarders and black marketeers not to raise the prices at the time of elections. Prime Minister Manmohan Singh had very conveniently blamed the global economic for the spirally prices in India. 

Onion prices were on boil. So were the prices of other seasonal vegetables. Ginger and Garlic selling for Rs 100 per kg, Peas at Rs 120/kg, Cauliflower at Rs 80/kg and even spinach sold at Rs 60 per kg. In fact, no other vegetable was available in the market for less than Rs 40/kg. Such high price prevailed when the monsoon rains had been more than bountiful, and there was no shortfall in production, defied all economic logic.

Let us not forget, prior to elections onion prices had remained abnormally high for several months – from July to mid-November, and had started receding just when the election process had begun. The question that needs to be therefore asked is that why inflation invariably spikes before elections? 

In early December, onion prices had crashed. According to a report in Economic Times (Dec 13, 2013) prices had halved to Rs 13/kg in three weeks in western markets. The report says that prices had stubbornly refused to come down before the assembly elections even when the supply was marginally low. If you have followed my earlier blogs, I had been saying that production fell by only 4 per cent whereas prices had gone up by 600 per cent in various markets. 

Well, the answer is not difficult to find. Over the years, the wholesale and retail trade in fruits and vegetables has monopolized the entire supply chain. Right from procuring vegetables from the farmers to making it available at your doorsteps through a network of hawkers is now an organized business. As I have been saying, these traders or arhtiyas have now turned into money bags for the political parties. No wonder, these wholesale and retail traders are affiliated to one political party or the other. For instance, the Azadpur mandi traders association in Delhi is aligned to the ruling Congress party. In Punjab, on the other hand the traders associations predominantly back the ruling SAD-BJP combine.

It is primarily for this reason that the major political parties had opposed bringing the parties under the Right to Information (RTI) Act. It is therefore a matter of convenience for both the political parties as well as the traders association. While the government remains conspicuously indifferent by not initiating any strong action against hoarding and manipulative trade practices, the trade goes for a killing. This understanding helps the political parties to meet a considerable part of the heavy electoral expenses.

Otherwise I see no reason why the vegetable prices should zoom prior to every elections. Onion prices were no exception. An investigation by a newspaper showed how the trade made a neat Rs 150-crore in just four days when prices peaked at Rs 4,500/quintal on Aug 13.  A sting operation by another TV channel exposed traders hoarding huge stocks in Madhya Pradesh. Even when the prices were touching the sky, the Agriculture Produce Marketing Committee (APMC) in Nasik had acknowledged that more than 2.5 lakh tonnes of onion were available with farmers in 66 villages of Lasalgaon. 

Subsequently, another expose by NewsX TV channel had shown that farmers had got as low as 0.50 paise per kg in Maharashtra while the price consumer paid was Rs 100/kg. Who benefited from such a massive manipulation? Your guess is as good as mine. 

Read it's Hindi version in Rajasthan Patrika, Dec 14, 2013.
http://epaper.patrika.com/c/2064129

How the food prices are manipulated

You have been witness to a stupendous rise in food prices. Some say that the price rise has broken a 10-year record. You have also heard the Prime Minister, Finance Minister, Food Minister and the deputy chairman of the Planning Commission repeatedly telling the nation that prices will come down in 2 to 3 months time. You have probably even lost count of how many times they said so.

You have also been following the daily reports about price rise in the newspapers. Popular TV channels have been holding special programmes on the food spiral. More often than not you have come across party spokespersons fighting it out in the TV studios. But none of the TV channels and the print media took you to where the real action is.

I am talking about a visit to the wholesale market.

I was therefore delighted to read a newsreport by two young and enterprising reporters Vikas Kumar and Abhishek Kumar of The Sunday Indian magazine who actually took the trouble of taking a walk in the Azadpur mandi. This is what they say: "A walk in Azadpur Mandi in Delhi, one of the biggest wholesale markets of fruits and vegetables, is not the most enchanting experience but it opens one’s eyes. Here one comes face to face with reality, the murky world of arhatias, commission agents and traders who are ready to take hapless farmers for a ride. No market theory can explain this phenomenon."

So when Montek Singh Ahluwalia says that price rise has benefitted the farmer, you know who is he trying to cover up. If only the government had cracked down to break the nexus at the country's big wholesale markets, prices would have come tumbling down.

The reporters learnt firsthand what I have been saying for long. The price rise had nothing to do with the supply demand constraint. It was simply the outcome of price manipulation. This is what The Sunday Indian digs out: "There are approximately 5,000 licensed commission agents in Delhi which include 1000 big commission agents. Having established monopoly in the market, they have created an elaborate nexus. They have employed vegetable retailers at monthly salaries and supply vegetables in the residential areas."

“They are supposed to deal with wholesale trade only but the reality is that some of them also control the retail trade. I cannot take action against them as they are very dangerous. One more question that needs to be investigated properly is that when prices of food products are rising steeply, how revenues of most mandis are falling,” says another top official of a mandi on the condition of anonymity. The number of fake commission agents is huge," the news report quoted an official on assurance of anonymity.

In addition to the wholesale-retail nexus, I have also been calling for a strict action against the Big Retail. They came to India on the assurance that they will buy directly from the farmers and by squeezing out the middlemen, will sell cheaper to the consumers. Nothing like this happened. In reality, the Big Retail behaved like the small hawkers and exploited the situation to the hilt. They made Big Money.

"Even Mother Dairy and Safal outlets are busy making money by selling vegetables and fruits at even higher prices. Mother Dairy, a wholly owned company of the National Dairy Development Board, had been established to support farmers by purchasing directly from farms and supplying to consumers without the added expense of middlemen. However, we found that prices at various Safal outlets in the city were higher than those at local retailers’. The obvious question arises that if Mother Dairy is not benefiting either farmers or consumers, then why is the government doling out subsidies to the entity?"

But then, the problem is that the government is hand-in-glove with the retail trade. Even the small hawkers -- the rehriwallas -- have formed local unions, and if their leaders have to be believed these unions also fund the political parties.

You can read the complete report entitled "The true story of rising prices" published in The Sunday Indian (April 4, 2010) at:
http://thesundayindian.com/04042010/storyd.asp?sid=8737&pageno=1

This is merely a tip of the iceberg. If you want to know more, I suggest you take a walk or a series of walks through the Azadpur and Okhla mandis in Delhi. Be a citizen journalist and investigate for yourself. If your report is not picked up by TV channels, you can send it to Ground Reality.

And now a simple riddle. Have you ever thought why the prices of eggs, whether you buy in Delhi or Mumbai or Bangalore or in Ludhiana, are almost the same? How come the poultry hens cater to the demand of the city -- and I am sure the city varies in numbers -- in a manner that the prices should remain the same? Shouldn't they vary depending upon what the economists call as the demand and supply factor? And also because of the transportation cost, shouldn't the price of eggs differ from place to place?

Remove Sharad Pawar, and food inflation will ease

I have got tired of answering questions about food inflation. So when a TV journo called me yesterday inviting me to a show on food inflation, I apologised. "What new can I say on food price spiral," I told him.

"No, Sir", he replied "We know you were alone when the entire class of economists were trying to pass the blame on supply-demand constraint. They were proved wrong. Whatever you said about food prices, and the failure of the government to control it, has come out to be true. Please come on our show and tell us what will happen this year." 

Anyway, to cut the long story short, I accepted the invite. 

To my pleasant surprise, when the TV channel played the introductory package wherein we heard Sushma Swaraj speaking in Parliament, the young anchor told me that more than six months prior to her I had said almost the same on this TV show. The anchor in fact reeled out some of the prescriptions that I had doled out for curbing the price rise.

I was amazed. I never expected a TV anchor to be so keenly following a story. It only tells us that not all TV hosts are dumb. Not only this girl, I find most of the anchors quite sharp and bright. Of course, I am not comparing them with the likes of Karan Thapar, Rajdeep Sardesai, Pankaj Pachauri and Hindol Sengupta, but I must say that over time most TV channels have begun to look for real good anchors.

Nevertheless, returning back to food inflation, I was asked to respond to the UPA government's latest claim that food prices will ease by April. Although food inflation has risen to 17.87 per cent for the week ending Feb 20, chief economic advisor Kaushik Basu has been quoted as saying that the food price have come down, and the high inflation is because of the base effect. Analysts say that the April harvest would be crucial, and the pressure on inflation will ease after the new crop flows into the markets. 

I don't think food inflation will ebb after April. In the days to come we will first see the Budget decision to hike duties on fuel impacting prices, an indication of which is coming from Anand, Gujarat, where the milk cooperatives are warning of a rise in milk prices. In the past few days, the price of 500 gm pack of curd in Mother Dairy has already gone up by Rs 2, and that of cheese by Rs 4. 

Once this price rise stabilises, the food prices will be on a continuous spiral pending the hike in urea prices by 10 per cent, which will come into effect from April 1. 

Fertiliser manufacturers have promised not to raise the price of other fertilisers besides urea in Kharif 2010, but after the monsoon season is over, it will be free for all. That is where the fertiliser manufacturers are waiting to make a killing. This will have a cascading effect on food prices. In short, we must learn to live with higher food prices. 

Once again, I was asked as to what needs to done. I am spelling out the corrective steps that needs to be undertaken immediately: 

1. Any strong government, if it wasn't faced with the compulsions of coalition politics, would have removed the Food & Agriculture Minister by now. The Congress cannot wait any longer. It must get rid of Sharad Pawar, and you will see the prices coming down.  

2. We have no reason to complain if we believe in market economy. This is what the markets do when left on its own. The markets need a danda. And that is what the government is reluctant to do because it will go against the norms of a free economy. The government needs to regulate the markets, even if it means going against the flawed thinking that markets correct itself. 

3. Hand over the sugar swindle (or call it mismanagement) to the Central Bureau of Investigation (CBI). There is no reason why the sugar stocks continued to climb in the stockmarket at a time when the industry claimed it was running in losses. It was all designed. 

4. Go for a nationwide crackdown against hoarders, not only the wholesale trade but also the retailers. Simultaneously, put a full stop on future trading in agricultural commodities.

5. Curb the big retail. They are also responsible for the price hike.