6/27/2014

Curb food prices without harming the farmers - The Economic Times

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Curb food prices without harming the farmers

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27 Jun, 2014, 03.23AM IST

By: S Sivakumar
Various measures have been deployed to combat food inflation. Subsidies on food and
fertilisers, imports of food as well as regulations to prevent hoarding of farm produce did
succeed in stabilising prices from time to time. But such crisis management has been able to
provide only short-lived relief, and prices have gone up from 2007.
Bringing down food inflation will benefit the consumer, but make prices unattractive to farmers.
This will accentuate poverty. Unremunerative prices discourage investments in agriculture,
causing supply-side shortages, fuelling inflation further. So, the most effective way of tackling
this issue is to focus on bringing down consumer prices, ploughing a larger share of the
consumer spend back to the farmer.
First we need to lower transaction costs. The Agricultural Produce Market Committee (APMC)
Acts mandate all farm produce should be brought to mandisfor auctioning, making these
platforms virtual monopolies. The farmer pays to transport his produce over long distances,
before knowing the price at which his produce would be sold, or whether any other market
would have paid a better price.

Bringing down food inflation will benefit the consumer, but

make prices unattractive to farmers. This will accentuate
poverty.

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The journey from farm to consumer involves multiple levels of transportation, handling expenses, commissions of agents and a mandicess,
adding nearly 20% cost to food prices. This absurdity was acknowledged years ago, and anew Model APMC Act recommended by the Centre
in 2003.
This Model Act must be implemented in all states. Unless farmers have the freedom to sell at farm-gate or other transparent platforms directly
to buyers, transaction costs will remain high and drive consumer prices higher. Next, we need to cut wastage. Anywhere from 5% to 40% of
food is wasted along the chain, depending on the perishability of the crop and the season. First, market instruments must empower farmers to
produce as per tomorrow's demand, rather than be guided by yesterday's prices.
If the Forward Contracts Regulation Act (FCRA) is amended to permit trading in options, farmers are assured of a minimum price when
sowing, based on future projections simulated by a market consensus. This will align production volumes to future demand conditions and
minimise wastage. We need large investments to set up climate-controlled infrastructure to enhance the shelf life of farm produce. The private
sector has the capacity to invest and add value to such infrastructure.
But regulations like the Essential Commodities Act (ECA), which impose stock limits and curb movements, create uncertainty, acting as a
deterrent to such long-term investments. We need to add value to farm produce by facilitating food processing on a much larger scale. Food
processors do not find it worth their while to engage with farmers directly due to APMC restrictions. And the ECA does not distinguish between
hoarders and genuine market players. The risk management capacity of food processors is squeezed, because options are not permitted
under FCRA. So, reforms in APMC, ECA and FCRA are critical to mobilise investments in the food processing sector.
India's agricultural yields are far below the best-in-class. Depending on the crop, productivity improvements can range from 20% to 100%.
Though Indian farming has seen progress, induction of technology and mechanisation is still below par. Agriculture is still exposed to high
climate variation risks. Given that around 65% of India's total sowed area meets its requirements from rainwater alone, it is imperative to invest
in technology to make agriculture climate- and weatherproof.
These include introduction of specially-developed seeds that withstand extreme weather, diverse soil conditions and various biotic stresses.
Solutions like crop and weather insurance are also essential to whet the risk-taking capability of the farmer, who can then invest to step up
productivity, participate more effectively in agricultural value chains and garner alarger share of consumer spends.
Market-distorting subsidies have to be rationalised to make agri-business more viable and bring investments into the sector. Private
enterprises engaged in agribusiness must focus on research and innovation to make agriculture remunerative to farmers and ensure the
products are relevant to consumers.
http://economictimes.indiatimes.com/opinion/guest-writer/curb-food-prices-without-harming-the-farmers/articleshow/37280685.cms?prtpage=1

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6/27/2014

Curb food prices without harming the farmers - The Economic Times

The writer is divisional chief executive, ITC agri-business

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http://economictimes.indiatimes.com/opinion/guest-writer/curb-food-prices-without-harming-the-farmers/articleshow/37280685.cms?prtpage=1

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