The principal reason behind high food prices is India’s record export of food and agricultural products, including vegetables, spices and fruits during 2009 and 2010. The food and agricultural products export in the last 10 months were estimated at nearly $ 9 billion. The export may top the $12 billion mark by March 31, 2011. This is part of a conscious government policy, knowing well of its consequences on the domestic wholesale and retail markets in terms of supplies and prices.

The government may have shown some desperation and recklessness in issuing licences to exporters of agri-products and processed foods in 2010-11 as the country’s general merchandise exports showed a big fall, almost 20 per cent in dollar terms and 13.7 per cent in rupee terms. Indian Rupee (INR) appreciated vis-à-vis USD for the best part of last year. India’s total export earnings during April-December, 2010 were estimated at $117.58 billion, almost $30 billion less than the earnings during the corresponding period in 2009. A whopping trade gap forced India to go for softer option to allow massive export of agri-products, which are in great demand in West Asian countries, Pakistan and Europe. In other words, it snatched away a good portion of foods from the common man’s plate to nourish the export market. Local hoarders have little to do with the high food prices, especially of those perishable fresh vegetables and fruits. The real beneficiaries are those powerful agri-products exporters and, of course, our forex-starved government.

If the current trade pattern continues, India may have no choice but to export more agri-products during this year and also in the coming years. The Agricultural and Processed Food Products Export Development Authority (APEDA) has already set an ambitious export target of $22 billion by the end of 2014, or achieving five per cent of the global food export in another three to four years’ time. That means the food prices will continue to go up in the coming years unless there is a radical increase in domestic food and agricultural production and supplies which is unlikely unless Indian farmers resort to cultivation of genetically modified (GM) agri-products in a big way.

It is true that there are abundant investment opportunities in expanding the agri-products export market. Increasingly, importers from West Asia are looking for Indian potatoes, tomatoes, red onions, garlic, ginger, green peas and green chilly to meet their growing local demand. An increasing acceptance of Indian food products backed by strong market development efforts has been lately witnessed in many parts of the world. According to the APEDA, India ranks fifth in the world in cropped area under cultivation and production of potatoes. India produces 40 per cent of world’s mangoes, 26 per cent bananas, 18 per cent cashew nuts, 28 per cent green peas and 12 per cent onion. India also represents some 20 per cent of the global population. Exports of mangoes, grapes, mushrooms have started moving to the United Kingdom, Middle East, Singapore and Hong Kong. Among vegetables, onion occupies the top position. Potatoes and green vegetables like okra, bitter gourd, green chilly have high export potential.

Everyone knows that inflation is the result of demand-supply mismatch as more money chases limited supplies, whether of goods or services. In recent years, the money supply with the public has been the most robust, well above the supplies of goods such as vegetables and fruits, cereals and other food products for the common man’s consumption. In the last five years, stated Reserve Bank (RBI) Deputy Governor Subir Gokarn, there had been a 39% rise in income per person in India which might have created an extra 22crore regular consumers of milk, eggs, meat and fish.

However, ask the agricultural ministry, there is no shortage of farm products as such, certainly not from their levels around this time, last year. Conversely, the output of most farm products has increased by 15 to 20 per cent or more. Some are blaming hoarders for the supply shortage in the domestic retail market. That is not entirely true. Hoarders were always there. But, they won’t take the risk of playing with perishables such as fresh vegetables and fruits for long.

At the retail market, the price rise for most commonly consumed food items hovered at around 30 to 40 per cent. Vegetables and fruits prices are normally at their lowest in winter months. The prices of potatoes are already firming up. So are the prices of cauliflower, cabbages, tomatoes, green peas, gourds, brinjals, ginger, green chilly. The prices of bananas, oranges, papayas and guavas are ruling at their highest, this season. The prices are shooting up simply because supplies of fresh vegetables and fruits for domestic consumption are far less than their demand. An artificial shortage of these common consumption food items is taking place because the government has been pushing their exports to earn more foreign exchange to import more luxury items for the rich and the upper middle-class. Therefore, the government is fully aware of the reasons behind the supply shortage of agri-products in the domestic market.

Take for instance, the prices of garlic in the domestic retail market, which are hovering at around Rs.250-Rs.350 per kilo, depending upon the quality. The prices of garlic were just around Rs.80-Rs.100 per kilo only two-three years ago. Then in 2009-10, India exported some 10,750 tonnes of garlic, an all-time high. Garlic exports have since increased. Similarly, exports of spices too reached an all-time high in last financial year at 5,00,000 tons fetching $1.173 billion. The items included chilly, cumin, turmeric and pepper. That explains why prices of all these agri-products are so high this year.

It is absolutely mischievous to blame Union Agricultural Minister Sharad Pawar alone for pushing exports of agri-products causing price distortion of items of the common man’s consumption in the retail market. Export and import are the function of the union commerce minister. Decisions on export and import of essential and sensitive items like food, fertilizer and oil, their licences and government levies are not taken by an individual minister. They are taken by the whole Union Cabinet in consultation with the concerned departmental minister or ministers, finance minister and the prime minister.

Unfortunately, some sections in the ruling Congress Party, including general secretary Rahul Gandhi, the opposition and the media seem to be in the habit of blaming Pawar, deliberately or ignorantly, for all the ills in the agri-products market although he may have some nominal role in the supply and price distortion of a commodity or commodities in the market.

The real culprit is the government’s failure to raise the country’s merchandise exports, especially manufactured goods, and control avoidable imports, including luxury items and ‘dumped’ products, for the widening trade gap. India has been constantly lagging far behind its export targets while imports have been surpassing all official projections. The trade gap this year threatens to exceed $135 billion as imports are inching forward to get close to $300-billion mark. The first UPA government had set a $200-billion export target at the end of its five-year term in 2008-09, which remains a far cry even at the end of 2010-11. The lop-sided foreign trade policy is at the root of high domestic price inflation of food products. (IPA Service)