Food prices skyrocket as India’s agri sector faces drought, low output

August 21, 2012 0 Comments

Friday, August 17, 2012 08:00 IST
Akshay Kalbag, Mumbai

With the Indian Meteorological Department officially admitting to a drought-like situation recently, agriculture, which primarily relies on rains for normal output, and all allied sectors such as food processing, are gearing up for a fresh round of hike in prices of raw materials and its cascading effect – spike in prices of the final product – processed food.

It is estimated the prices of raw materials have gone up by 20-30 per cent in India (and roughly the same overseas). As a result, a 10 per cent increase in the prices of the final products appears to be par for the course for now.

But experts from the food processing industry say that eventually the final product could cost almost as much as, if not more than, the raw material because of factors beyond the manufacturers’ control.

M A Tejani, managing director, Gits Foods Products Pvt Ltd, Pune, and president, All India Food Processors Association (AIFPA), explains, “First of all, it would be incorrect to refer to the current climatic condition as drought. We are halfway through the monsoon, and the possibility of a contrary situation cannot be ruled out. Of course, it will not make any sense for farmers to sow new seeds in anticipation of a delayed end to it and heavy rains.”

“Rainfall has reduced by about 20-25 per cent of what it was at the same time last year. As a result of that, the quantity of perishables has reduced by about 30-35 per cent this Kharif season,” he said.

Tejani pointed out, “We are grappling with inflation, which can be curbed with better planning on the government’s part. Prices are increasing, and food and fuel are bearing the brunt of it. And then our infrastructure isn’t upto the mark.”

He added, “Our roads and railway system need improvement, so that we can access the markets fast. And those that don’t find immediate buyers have to be stored for sale at a later date. And there’s a serious shortage of cold storage units in the country.”
In a telephonic conversation with FnB News, D V Malhan, executive secretary, AIFPA, said, “Foodgrain, fruit and vegetable farmers provide the food processing industry their raw material. Their output has been low owing to the poor rainfall.”
All this is bound to have a trickle-down effect. This fact was corroborated by Sitaram Sharma, managing director, Guruji Thandaiwala Pvt Ltd, Kolkata, and chairman, East Zone, AIFPA. “There will be an adverse impact on the prices. Now consumers at all levels will have to pay more for the product.”

An official from a Kochi trade association rued the fact that the government had not offered any subsidies to any industry engaged in the production of food, but said the hike in prices was unlikely to affect customers who were loyal to standalone establishments (as opposed to those who buy from retail stores) in the long run.

Meanwhile, K C Raghu, managing director, Pristine Organics, had a different point of view, “The shortfall of rains should now be converted into an advantage. Agricultural experts must now look to increase dry land farming.” That is the technique by which millets, pulses and oilseeds are cultivated.

He observed that in India organic farming (growing crops with little or no fertilisers) accounts for about 60 per cent of the agricultural activity. House gardens and small farms account for the bulk of the horticultural activity.

“Over 80 per cent of the milk and meat are sourced from cattle, sheep and goats that graze in the natural grasslands of India, and over a quarter of the poultry activity is carried out in the farmers’ backyards with no use of fertilisers,” added Raghu.
The current agricultural trend is to apply NPK (nitrogen, phosphorus and potassium) fertilisers in the ratio of 4:2:1. However, Raghu said NPK is depleting globally.

In 2011, India imported Rs 40,000 crore worth of oil, including palm oil from Malaysia and soya oil from the United States. Oil seeds can be cultivated using dry land farming, which, according to Raghu, is also the only solution to the aforementioned crisis.
Processed food makers MTR Foods and ITC Foods also stated that erratic rainfall leads to increase in inflation, and in turns, pushes prices up. It is undoubtedly a vicious cycle that traps everyone in its wake.

Ground reality
Indian farmers, whose livelihoods, and in some cases lives, are at the mercy of the monsoon, are not surprised by the latest data provided by the Indian Meteorological Department, which points to a dry spell across the country (incidentally, Malhan and Sharma also spoke about the same).

Meanwhile, state agencies in Maharashtra are pulling out all stops to make the lives of those who eke a living out of growing crops on small plots of land (often not their own) and selling their cattle’s milk in the market (and invariably incurring a loss) a tad easier – including providing them free fodder.

They have also set up relief camps, which have given the animals, which would otherwise starve or end up in an abattoir, a new lease of life. However, some particularly despondent farmers saw little sense in staying put in the rural communities, packed their bags and relocated to Mumbai.

More than half the Indian population is engaged in agriculture and allied activities, which account for just 14 per cent of the country’s gross domestic product (GDP). And those who have come to the big city in search of greener pastures are now lamenting a reduction in sales, which they hope will pick up during the festive season.

US affected too
India is not the only country where the rains are playing truant. The United States is, in fact, facing the worst drought in 50 years. The government slashed its projection for the annual corn yield by about 17 per cent in the last month, and it is now at its lowest since 1995.

But the question is, “Will the crop be able to replenish already-low stockpiles of commodities and reduce the prices of processed foods, animal feed and ethanol?” Analysts say no. In fact, one of them said corn and soya prices could increase by 20-25 per cent if there are no showers.

A survey by the government, to which over 25,000 farmers in the US responded, forecast a drop in the soybean yield and predicted that the production of animal products like eggs and milk could be lower than it is now.

CPI’s demand
The Communist Party of India (CPI) has appealed to Prime Minister Manmohan Singh seeking distribution of food stocked by the Food Corporation of India (FCI) to the people under the Universal Public Distribution System (UPDS) to ease pressures arising from the harsh weather conditions prevalent in the country.

S Sudhakar Reddy, general secretary, CPI, said that under the said scheme, 35 kg of food grains should be distributed to every BPL and APL family across the country, but if the government wanted, it could exclude those families paying income tax from its purview.

Apparently, FCI has over 5 crore tonnes of food grains in its godowns, and wants to export the same. In fact, an additional 5 crore tonnes is required to satisfy the country’s requirement.

UPDS should cover over 24 crore households across India, for which about Rs 1,80,000 crore would have to be earmarked.
CPI said the government is giving financial benefits to corporates in the form of subsidies, instead of diverting the money for implementing the public distribution scheme. It added that concessions to corporates were worth Rs 52,500 crore.The party also threatened to observe September 12 as Food Security Day if the government failed to announce UPDS, adding that it would picket peacefully in front of the collector’s office or FCI godowns.

(With inputs from Nandita Vijay, Bengaluru)