Food inflation touched a two- month high of 9.01 per cent for the week ended May 28, notwithstanding the Finance Ministry and Planning Commission claims that inflation would moderate.

Riding on the back of increased prices of fruits and onions, food inflation, as measured by the Wholesale Price Index (WPI), was 8.06 per cent in the previous week. In the last week of May, 2010, it was as high as 20.62 per cent. The last time when food inflation was above 9 per cent was for the week ended March 26, when it had stood at 9.18 per cent.

Wheat Procurement too has dropped by 69% so far.

Wheat procurement across the country has declined by 69 per cent so far this year at 38.38 lakh tons as arrivals did not pick up in the major wheat producing states of Punjab and Haryana.

The Punjab government set up 1634 procurement centres and activated its total machinery to ensure smooth procurement of wheat, an official said. In Madhya Pradesh, wheat procurement also declined to 14.09 lakh tons as against 17.84 lakh tons in the year-ago period even though the state government declared Rs 100 per quintal more to farmers than the Centre's minimum support price (MSP) of Rs 1,120 per quintal. In contrast, the FCI and other state agencies bought 1,0843 tons of wheat in Gujarat as against 624 tons in the entire 2010-11 marketing year.

The Election Commission tried to help procurement and gave green signal to the government's decision to give Rs 50 per quintal bonus to wheat farmers over and above the support price of Rs 1,120 per quintal for this year. The wheat bonus of Rs 50 per quintal over and above the MSP of 1,120 per quintal was approved for this year, by the food minister Mr K V Thomas. Although the Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Dr Manmohan Singh, had approved the decision (to give wheat bonus) on 6 April, it had not been notified due to the election in four states and a Union Territory. Over and above the minimum support price (MSP), the government offers bonuses to farmers to enhance procurement. It was also said there would not a problem of storage this year.

High growth in futures trading in farm products is having its pressure on current prices of foodgrains. “The over 100 per cent growth in trade value of agricultural commodities was mainly due to restoration of trading in suspended agricultural commodities such as chana, wheat, soya oil, potato and rubber, as well as higher volume of trade in guar seed and guar gum,'' Agriculture and Consumer Affairs Minister of State K. V. Thomas said. He added that the increase in volumes did not lead to increase in prices; rather it made the price discovery more efficient by increased participation and consequential liquidity. Such active and increased market participation, in fact, could lead to reduction in price volatility and not increase in prices. He has been proved to be wrong.

“As a matter of fact, due to suspension of trading in a number of essential commodities during 2007-08 and 2008-09, trade value in agricultural commodities had fallen from Rs. 13.17 lakh crore in 2006-07 to less than half at Rs.6.27 lakh crore in 2008-09. The subdued commodity prices in the wake of the 2008 global financial crisis were also a contributory factor.”

Easing grain prices is also leading to farm loan defaults.

Surplus foodgrain production this year could threaten banks with ballooning bad debt as a drop in spot prices and higher input costs are likely to squeeze farm margins and may force farmers to default on loan repayments, experts say.

India’s just-concluded rabi harvest has thrown up record wheat production, estimated at 84.27 million tonnes (mt) and prices in several parts of Gujarat, Bihar and eastern Uttar Pradesh have fallen to as low as Rs 1,000-1,050 a quintal, less than the state-set minimum support price (MSP)Rs. 1,170. There is an easing trend in prices of other essentials such as rice and pulses too.

“This sector is faced with a scenario of falling prices when costs are rising. The cost of labour has more than doubled in several states. In addition, prices of fertilizers, pesticides and fuel have been on the rise,” said Dhananjay Sinha, economist and strategist at Centrum Broking. “There is a significant risk of some serious rise in defaults on agriculture loans.”

Experts said Food Corporation of India's inefficient foodgrain procurement and distribution, large existing stocks, and a decision to shun exports are responsible for the drop in prices. A normal monsoon forecast, which bodes well for the next crop, has also been bearish on prices. “There is a problem of indebtedness with farmers with the cost of production going up,“ said T.K. Bhaumik, economist and adviser at JK Group. “That problem could balloon into a debt crisis.”

The problem of food inflation in a bumper crop year is indeed a story of distorted policy making which is based on social inequity and inefficient management and system which has become universal in Indian economy and society. It is a class manifestation to believe that big surplus producing landlords and urban traders of agricultural commodities are positive factors in agriculture sector of the economy. The fact is that in India there is a mass of farmers with small land holdings - more than of 90 per cent of the farmer population which has to fund for themselves and feed their families. What they can produce in their small plots of land are not enough and hunger and deprivation haunt them. They cannot afford to buy in the market for their consumption requirements and therefore become victims of moneylenders and land lord exploitation.

The only solution of the problem is radical land reforms that is redistribution of ownership of land on equitable basis for cultivation with the help of affordable inputs like fertilisers, seeds and efficient extension services from their itself for their which alone can control foodgrains prices. Since this is ruled out in the so called economic reform and development process of the present government there can be no way of controlling either prices or production in the agriculture sector. (IPA Service)