Saturday, April 30, 2011

The great Indian food price trick

These days one of the hottest topics being discussed in the print and electronic media is the rising food inflation. Politicians in India are aware of the fact that rising food prices can cost them their chairs and hence seem to be swift in dealing with price rice of sugar or potato. What has disappointed me is that most of these actions are very reactive and never address the root cause of this issue.

This topic is a favorite of mine because of a personal experience. When I was a student, I have often looked at the Tandoori (grilled) whole chicken on display in the streets of Trivandrum with hungry eyes. I could have bought them if I wanted to , but gave it a pass. Almost a year after landing on a job, one day I decided to eat this chicken. I pulled Rs 300 from an ATM and ordered half chicken, could barely eat it and had to pay only Rs 95. (I was willing to pay Rs 300 for it). I went back home, narrated my experience to members of my family and said .." This is going to be a problem, there are millions of young men like me with disposable income now, that previous generations did not have and are willing to pay "premium prices to eat"; Its just a matter of time before they raise the price of such food". My parents were quick to remind me that young people with disposable income is still a small minority in the vast population of India. A month after my statement President Bush made a similar statement about rising income levels in the developing world being the primary driver behind rising food prices across the globe. I stood vindicated.

Then and now I have thought about this problem and observed the reactions of our politicians and policy makers only to be frustrated at the lack of a long term plan to address this issue. Flush with foreign reserves, what we do is to import on a knee jerk basis commodities from global market and sell them at subsidized rates at home, just to keep the prices in check and the chairs in tact.

I come from a semi agrarian family and hence is aware of the mismatch in prices between what the farmer gets Vs what price it is retailed at. This mismatch in my opinion is the first thing to address. With Public Distribution System, the Govt has demonstrated , how inefficient and wasteful they can run a system. Millions of tons of food grains rot in public warehouses while people go hungry. ( ) The middle class and upper middle class that are the price drivers have anyway detached themselves from the PDS. What the Govt hence must do is to create an infrastructure and climate for the efficient procurement of agricultural products from the farmers and sell them at below retail prices across in India by private players.
Only large private groups with massive logistics can make this happen. The trick will be to allow multiple players to compete for the market share thus promoting an atmosphere of efficiency. Properly regulated, such a system will ensure stability of food prices and a steady availability of these commodities. The cell phone market in India is a good example of this model, where competition drove the prices down. A regulator like TRAI can be formed to ensure that the playing field is maintained level at all times.