Of margins and the marginalised

The countrywide share of corporate retail in food distribution tripled in the past four years when retail food prices showed the greatest increase.

THE dramatic increase in food inflation over the past two years has been associated with several surprises. One major surprise has been how the top economic policymakers in the country have responded to it. The initial response was one of apparent disbelief, followed very quickly by the frequently repeated but thus far unsubstantiated conviction that prices would come down very soon.

Then this massive increase in the price of essential commodities was welcomed, even by those who should know better, as being a sign of greater material prosperity in the country and the success of pro-poor schemes of the government reflected in increased demand for food. Could it be that the economists who are running the country apparently believe that food demand does not increase much even in periods of significant aggregate income growth, and among a population that has some of the worst nutrition indicators in the world? Is that why they did not see any need to work towards increased supply of food and have been so surprised by even a slight increase in demand?

As it happens, the demand for food has in fact been growing much more slowly than could be anticipated by both income and population growth. Much of that has to do with the distribution of that growth, which has disproportionately denied benefits to the poor who would naturally consume more food. But even so, the fact is that it is really the conditions of supply reflecting the continuing policy neglect of agriculture as well as the nature of distribution and the pressures on the market from speculative activity that have driven food prices up. This recognition may be why the official arguments have changed somewhat recently. Most recently, the officially stated position put the blame on inadequate distribution chains, focussing on their inefficiency, rather than on any speculative pressures that can also affect supply. This has become the most popular interpretation of the ongoing food crisis by those in the corridors of power and by their stenographers in the financial press. This has consequently led to the demand that modern corporate retail chains (ideally with foreign direct investment) be brought in to manage food distribution.

As a result, there are now those who argue that the only solution to the problem of high food prices is to bring in FDI in retail. It is argued that this will reduce wastage in storage and costs of transport of food items, cut out intermediaries in distribution and provide food more effectively to consumers at lower prices.

Of course, this argument is rather foolish at several levels. First of all, if the traditional supply chains are so faulty and deficient, why did they not create such massive food price spikes earlier? Why was food inflation relatively low in the period until 2006, despite equally rapid GDP (gross domestic product) growth and the same system of distribution that is now being faulted?

Secondly, if the problem is inadequate infrastructure, including cold storage facilities and networks that facilitate faster distribution from farm to market, what stopped the government from intervening more proactively to ensure better cold storage and other facilities through incentives and promotion of more farmers' cooperatives? To announce such measures only now, as a weak response to a period of raging food inflation, is futile because such measures operate only with a significant time lag. This is all the more so because such proposals are mentioned explicitly in the Farmers' Commission Report, which has been lying with the government for five years now. The idea that cold storage and other facilities can only be developed by large corporates once they get involved directly in retail food distribution is ridiculous at best.

Thirdly, this entire argument ignores the critical role that the public distribution system (PDS) can play in moderating food price spikes and dampening inflationary expectations and tendencies to hoard. Instead of accepting the government's failure to use this system effectively so far, the tendency is to throw up one's hands and declare that only the large private sector can save us, even though international evidence indicates that corporate monopoly in food trade typically increases distribution margins instead of reducing them.

Evidence on margins

Unfortunately, though, we are forced to take such arguments seriously because they are being repeated ad nauseum by the media and pushed into government policies by corporate lobbies. So, let us consider what recent evidence on distribution margins indicates.

In fact, there is significant reason to believe that the margins between wholesale and retail prices of many important food items have increased in the recent period (see MacroScan, Business Line, February 23, 2010). The point is that this has happened in a period of increased corporate involvement in food distribution and food retail. The share of corporate retail in food distribution in the country as a whole is estimated to have tripled in the past four years, and has grown even faster in the major metros and other large cities. This was also the period when retail food prices showed the greatest increase.

The other point that emerges from a comparison of retail margins across major towns and cities is that such margins are the lowest in States (such as Tamil Nadu and Kerala) where there is an extensive, well-developed and reasonably efficient PDS that provides a range of food items on a near-universal basis to the population. In regions where the PDS is weak or non-existent (such as Uttar Pradesh and Bihar), the margins tend to be high and growing fast, even though corporate food retailing in these regions is expanding.

So to look at corporate retail as the solution to the food price increase is more than irresponsible. There is no question that the current system of food procurement from farmers is inadequate, faulty and often anti-farmer. There is much that needs to be reformed in the way market yards are organised and in the options available to farmers to get their produce to the market. There is a range of necessary and possible interventions for this, most of which have been stated many times to the government by various commissions of its own.

Yet, thus far the United Progressive Alliance (UPA) government has done little about any of these, even in terms of working with State governments to improve the situation, and instead seems to think that simply allowing more corporate (and FDI) activity in retail will allow it to wash its hands of the matter.

In this context, consider how retail margins have behaved in the very recent past in just one location, the city of Delhi. Charts 1, 2 and 3 describe the price behaviour of three significant but relatively less perishable food items: rice, sugar and tur dal.

It is evident that the retail prices have generally tracked the wholesale prices in terms of direction of movement, but still there are some noteworthy variations. On average, retail margins have increased for all these commodities, and quite sharply for tur dal. This may be the result of a number of features, and obviously requires more investigation. But even so it is worth noting that Delhi is a city that has witnessed a significant increase in corporate food retail. And the role of inflationary expectations in being able to influence retail price behaviour is obviously much greater for larger players.

The food prices that have been most talked about, of course, are those of onions. Onion prices are widely perceived to have great political significance, especially in North India. Because onions, like other vegetables, are highly perishable, supply conditions play a major role in deciding their price. Charts 4 and 5 describe the wholesale and retail prices of onions and tomatoes and their total market arrivals in the city of Delhi.

The evidence is somewhat surprising. For much of the period of falling market arrivals over the past year, onion prices were rather stable and the retail margin actually shrank. Prices started rising sharply only in October and this is the period after which supply actually increased quite sharply! In November and December, market arrivals increased but prices continued to shoot up. Surely, inflationary expectations and hoarding must have played their roles, along with the speculative pressure, and this was not sufficiently counteracted by government intervention through the public food distribution network.

The case of tomato prices is similarly interesting. It is evident that neither wholesale nor retail prices had much relation to market arrivals even for this extremely perishable commodity. But what the period of higher prices has been associated with is a significant increase in retail margins in October and November.

Dealing systematically with the problem of high food prices in a largely hungry population should normally be a priority issue for any government. There are certainly crucial medium-term policies that must be implemented to reverse the longer-run neglect of agriculture.

The issue of rapidly rising cultivation costs, which are making farming unviable once again, needs to be addressed in a holistic way. The concerns of storage, distribution and post-harvest technology also need to be dealt with. But in the short run, the problem cannot be avoided by talking of astrologers and the inability of mere humans to predict the future. Instead, creating a viable and effective PDS that counteracts tendencies to price spikes in essential commodities is an immediate requirement.

What people say: UTTAR PRADESH

THE poor and the marginalised are the worst affected by the rise in prices of essential food items. Zubaida, a migrant from Bihar, is a domestic help in an apartment complex in Ghaziabad.

The life of a domestic worker is better than doing beldaari work (breaking stones, lifting building materials, and so on). As a beldaar, I would probably get up to Rs.150 a day, but as a domestic help in five homes, I earn Rs.4,000 a month, she says.

Her husband, a rickshaw-puller, pays Rs.40 a day as rent for the rickshaw. They have a dream: to buy a rickshaw and pay off the moneylender. They stay in a hut. We use tarpaulin and plastic sheets as roof. The other day it blew away at 3 a.m. It was bitterly cold and, along with my four children, we passed the night in much misery, she says.

They do not have a BPL card. I have paid Rs.1,000 to get a ration card. I am told that it can be made for free, but I don't have a proof of residence. What do you think we eat? Earlier we used to buy a little milk every day. Now the children have tea. We'd like to eat eggs in this terrible cold but it is only in three or four days that I am able to buy two eggs for my four children. If I buy potatoes from the weekly market, then it is somewhat cheap, but most of the time I buy it from the provision store as I do not have the money to buy them in bulk from the market.

Domestic workers are part of the mammoth unorganised workforce whose salaries are certainly not adjusted to the vagaries of inflation.

Zabaida and others like her have cut down on all vegetables and even lentils. Fruits had disappeared completely from her diet long ago. The humble onion and garlic too have followed suit in the last six months.

T.K. Rajalakshmi in GhaziabadWhat people say: HARYANA

IN Kheri Kalan village of Faridabad district in Haryana, much of the agricultural land has been acquired by real estate developers. Hoardings on the Main Kheri Road that leads to the village in Sector 89 announces the first affordable mall in the National Capital Region and luxurious homes [that] can still be owned only if you hurry. The proposed mall promises shopping nirvana, entertainment bonanza, food fantasia, office ambience, etc. Behind the hoardings are the mustard fields in full bloom, the remnants of a sprawling agricultural landscape.

Vijender, a former farmer, says: We sold our land to the builders. The rates paid by the Haryana Urban Development Authority were very low, so we sold five acres [two hectares] of our agricultural land for Rs.3 crore an acre. Now his family supplies building materials. The price rise affects us, but not to the extent it does the construction worker or the agricultural worker who is hardly paid the minimum wage, he says.

Nearly 30 per cent of the people of Kheri Kalan are Dalits, and almost all of them are agricultural workers. With real estate developers and private educational institutions acquiring fertile agricultural land, the opportunities for work have shrunk. With falling incomes, nutrition levels too have plummeted. Tuberculosis and pneumonia are common in the families of agricultural workers. Roopmati, 30, frail and weak, had not cooked for the day. Her husband, an agricultural worker, was away looking for work. If he returned with money, there would be dinner, or else the family would go hungry.

Earlier, she said, when there was work in the fields, the payment used to be in part cash and part kind. Now the fields have gone; we have to buy everything from the market, and with no work there is no money, said Omvir, her brother-in-law. The family subsists on potatoes and bathua (a kind of leafy vegetable). Rather than buy one egg for Rs.5, which can feed one or two persons, I'd rather go for a kilo of potatoes so that the entire family can eat the curry prepared with red chilli, said Roopmati.

Work is rare as builders prefer labourers from Bihar, Chhattisgarh and Madhya Pradesh who work for as low as Rs.100 a day. People like Omvir get work in the village for 10 to 15 days a month. There is no work under the NREGS in Kheri Kalan. The children of the village go to school because they get a meal there. The only meal Roopmati's son Kuldeep, 12, eats is in school. His two younger siblings do not have that advantage.

In 1990, we used to get wheat, rice, sugar, pulses, kerosene, tea leaves, matchboxes and even notebooks and pencils from the ration shop. Now we get only wheat which is of bad quality. That too once in two months. They should give at least 40 kg to a family of five to seven members. The cost of grinding wheat has gone up from 50 paise to one and a half rupees a kilo. I go to the Bathauda village crossing every morning where there are several like me waiting for work. If I am lucky, I get work, or else I return home, said Omvir.

Prem Singh, also an agricultural worker, said the Haryana government had promised in 2008 to give hundred square yards of land to BPL families. That was under the Mahatma Gandhi Gramin Basti Yojana, which had not taken off in the village. Apart from plots of land, the government had promised basic infrastructure, drinking water and electricity. In fact, as per a memo issued in February 2010 by the Principal Secretary's office to the Town and Country Planning Department, private colonisers were directed to provide a certain per cent of the plots acquired for the economically weaker sections.

This definitely has not happened in Kheri Kalan village where multi-storeyed apartment complexes have come up. Even so, more than plots, the poor were in desperate need of alternative employment and a robust public distribution system.

Bhagwan Singh, a Dalit and a nambardar (a government employee who is supposed to assist officials in their village visits), said the entire basis of the BPL surveys was faulty. He narrated an incident in which surveyors declined to give BPL status to a family because they saw a Lux soap in the house.

In another house, when they were offered cold water in summer months, they decided the family owned a fridge and therefore could not be given BPL status.

Owing to the rising cost of food items, he said several families in his village had not bought quilts or warm clothes for children. We know of families who have picked up clothes from the cremation ground, meant to be burnt along with the dead bodies, in order to protect themselves from the cold, he said.

Representatives of farmers and government employees blame the government for protecting hoarders. The onion crop that is now available was harvested in the rabi season last year.

We can understand if the present kharif crop has been affected because of the rains. It was surprising that when the traders protested, the government stopped the raids. It shows on which side the government is really on, said Yaadram Singh, a representative of the Sarva Karamchaari Sangh.

Rajeev Bhati, a farmer who is heading a protest against land acquisition in Palwal district, said it was funny that while sugarcane was sold at Rs.2 a kg, sugar was priced at Rs.40 a kg. The farmer doesn't get anything. Today, one of the reasons that agricultural workers are not getting work is also because the small and medium farmers have taken to doing that work themselves, he said.

The situation of the marginal farmer is such that he sells good quality wheat and keeps the bad quality for his consumption. The wheat we sell at Rs.1,100 a quintal is the same that we buy for consumption at Rs.2,200 a quintal from the market, said Bhati.

T.K. Rajalakshmi in FaridabadWhat people say: TAMIL NADU

MALLESWARI, 65, a Dalit farm worker of Aththangi Kaavanur village in Tiruvallur district, does not know who heads the government's or the Reserve Bank of India's attempts to rein in inflation. But her predicament is akin to what the disciples of Jesus are said to have felt about feeding the multitude with five loaves and two fish. I have my husband, four sons, one daughter, three daughters-in-law and five grandchildren living with me. Never before have I seen such a steep hike in the prices of vegetables and pulses. A single onion costs Rs.5 and a single tomato costs Rs.3. It has become impossible for me to ensure that all the members of the family get their share of side dishes, she says.

Her family gets 20 kg of rice at Re.1 a kilo through the public distribution system, but that does not last a week. We buy rice from private traders at Rs.22 a kg.

The people in the Dalit colony have their cup of woes. E. Laila, who stays with her son, daughter-in-law and three grandchildren, says that she and other farm workers of the colony get job only for 30 days in a year as landowners prefer migrants to work in their fields. We are engaged by very few farmers, that too only for paddy transplantation. More than 12 farmhands have to share Rs.1,000 provided for one acre.

Implementation of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has not provided any worthwhile remedy to the problems of the jobless farmhands in this village where 420 job cards have been issued for 320 families. When the scheme was announced five years ago, it raised our hopes of getting work at least for 100 days in a year. But the records show that only two persons have completed 100 days' work. Only 20 persons were able to work for 80 days to 99 days, one farm worker points out.

All this has left them at the mercy of usurious private moneylenders. Though government agencies offer financial assistance through self-help groups, the rising prices of essential articles have made our day-to-day life more difficult, R. Vasantha, another agricultural worker, says. She gets funds under the State government-sponsored livelihood development programme, Vaazhnthu Kattuvom Thittam. But not all the eligible poor have been enumerated under the BPL category and not all needy elders are given old age pension.

Narayanan, 61, an agricultural worker of Kaniyamoor village near Chinnaselam in Villupuram district, has three sons who are daily wage earners. According to a study done by the Tamil Nadu Vivasaya Thozhilalar Sangam, his nine-member family needs 70 kg of rice in addition to their PDS quota every month. He buys the extra rice from private outlets at 22 times the cost of PDS rice.

As we cannot afford the rice and pulses available in the open market, we have reduced the consumption of these. Soaring health costs have already pushed us into debt. Though we are prepared to work in the fields, we do not get enough work and are not paid the minimum wages fixed by the State government in this rain-fed area, Narayanan told Sangam activists.

Small and medium farmers too are reeling under the impact of price rise. A.G. Kannan of Tiruvallur district says, Even as the cost of farm inputs and the hiring charges of machines steadily increase, the price of agricultural produce has been dwindling. I have raised Bapatla', a fine variety of paddy, this time. Last year we sold it at Rs.1,150 a 76-kg bag. This year we struggled to push it for Rs.750 to Rs.850. This is because the market is decided by rice mill owners and intermediaries, he says.

M. Manavalan, a medium farmer, says the rent for harvesting machines has gone up to Rs.2,100 from Rs.1,600 an hour. The farmer has to bear the expenditure on weighing, packing and transporting the stock to the rice mills. The cost of seeds has also gone up manifold, he adds.

Pooh-poohing the theory circulated by some rich farmers that the rise in the prices of vegetables is mainly because of the non-availability of farmhands, the national vice-president of the All India Agricultural Workers' Union, S. Thirunavukkarasu, says, Several lakhs of agricultural workers have become migrant labourers.

Farm workers need work for at least 200 days in a year and fair wages. Before the implementation of the Green Revolution, labourers had work for 180-200 days in a year. In the post-Green Revolution era, this dwindled to 100-110 days. In the present globalised scenario, farm workers are unable to get job even for 70 days, thanks to a combination of factors such as the use of modern equipment in the labour-intensive sector, the taking over of farm lands for industrial and real estate purposes, and the introduction of corporate and contract farming, he says.

Referring to the much publicised nine-point plan of the State government to tame prices, Thirunavukkarasu says this should not become a knee-jerk reaction. He has called for sincere steps such as the strengthening of the MGNREGS; enacting comprehensive legislation to support farm workers, ensuring food security for them; and the banning of futures trading in essential commodities.

Such measures are important for the State, which has over 86.37 lakh farm workers and 51.16 lakh cultivators, he feels.

S. Dorairaj in Chennai