Because despite the shift in consumption patterns, rice and wheat still dominate in policy debates

Food prices are again pinching the pockets of Indian consumers; the recent data released by the ministry of commerce and industry revealed that food inflation breached the double digit again after six months. With no relief in the household budget, the inflation stands at 10.5% in April as compared to 9.9% in March 2012. Vegetables, which had shown some sign of relief in the previous month, shot up to 61% in April as compared to 30.6% in March, while potato prices increased by 53.44% from 11.6% the previous month, thus denting the household budget even further. The inflation for meat, eggs and fish remained unchanged, with some relief to the budget, but milk showed slight sign of increase.

If we try to understand the dynamics, as to what causes the shift, then it is noteworthy that within the food basket, with rising incomes, consumption patterns are diversifying. The per capita consumption of rice and wheat by the Indian consumer is slowly declining, whether it be the rich or the poor in either rural or urban areas. On the contrary, if we look that over the years from 1983-2004, the per capita consumption of fruits and vegetable has increased from 49 kg to 76 kg for the rural household and 55 kg to 81 kg for the urban consumer, and budgetary share of cereals has declined by 17% in rural areas and by 8% in urban areas, which has been diverted towards high value food commodities. The increasing shift from rural to urban and also increased demand from the processing industry for products such as juices, jams, pickles, ready-to-eat items etc has added additional pressure on the demand side. Due to inadequacy of storage and refrigeration facilities, vegetables and fruits suffer over 30% wastage due to perishable tendency. Increasing reach of MGNREGA has substantially increased the wage rates of agricultural labourers, thus increasing the input cost and also increasing the demand because of increase in earning. Average daily wage rates in agricultural sector have increased across the country. The minimum wage for agricultural workers in Andhra Pradesh in 2007 was R64 and in 2010 it was R112; similarly in Haryana and Punjab, it was at R98 per day in 2007 and in 2010 it was R162 and R136, respectively, for the two states. Another important factor of price rise is the impact of the seasonal cycle. In every new season, during the initial weeks, the slow supply of vegetables in the market results in higher prices, and then over a couple of weeks with an increase in supply the prices fall.

So, what steps can be taken to divert pressure and balance the supply and demand equation? Despite the shift in the consumption pattern, in policy debates, rice and wheat still dominate and remain the focus of food security concerns. It may be interesting to note that India has rice and wheat stocks 125% higher than the buffer stock norms; stocks exceeding 70 million tonnes. So, India has been not only meeting its effective demand for basic staples but also producing enough surplus to build its buffer stocks. The shift is required towards high value produce, and investment priorities and programmes need to be shifted towards high value food commodities (vegetables, fruits, milk, meat, poultry and fish). It is welcome that the year 2012-13 is being celebrated as the year for horticulture. Programmes for introducing best practices, promoting micro-irrigation and fertigation, and linking producers with the markets are necessary. Investment in post-harvest infrastructure, such as cold storage, refrigerated vans, processing units etc will help to reduce wastage and help in improving supply of these commodities in distant and remunerative markets where demand is high.

The role of the organised private sector is important in developing markets and for post-harvest facilities. Investment in infrastructure such as roads and transportation will help to connect markets.

Another important step forward is the development of market institutions such as modern food retailing that strengthens and compresses the value chain and offers low prices to the consumers and higher realisations for the farmers. Opening of foreign direct investment in multi-brand retailing will help in strengthening the supply chain and increase centralised procurement of agri-products from farmers. This will open new avenues of assured market and technology inputs, and increase the knowledge of market demand, thus creating affordable prices for the consumers.

The authors are with the International Food Policy Research Institute