The most obvious way to reduce food prices is to raise agricultural productivity?after all, if there is more supply of anything, prices will fall. This, however, is a bit of a longer-run thing, and requires serious upgrading of the government?s ability to deliver agricultural extension services, better irrigation and so on. It does happen, and maize and cotton are two crops that have seen a huge hike in productivity (100% for cotton and 60% for maize) in the last decade, but there have been no such changes in foodgrains or vegetables and fruits. The next-best option, and a much faster one, is to reduce the difference in the farmgate selling price and retail prices. Typically, the farmer gets 20-30% of the retail price. Reducing the margin was the subject of an FE front-page story on Wednesday.
Prices rise at two levels. First, at the mandi where they more than double; they rise by another 60% or so while going through 3-4 more levels of intermediaries before reaching the retail outlet. Under the Agricultural Produce and Marketing Committee Act, farm goods can only be sold at the mandi. Since this is where the most mark-up takes place, controlling the mandi is critical. Organised sector retailers, such as Mukesh Ambani and Sunil Mittal, have seen huge profit potential here and so have asked to be allowed to buy directly from farmers, bypassing the mandi. This got caught up in the big retail versus small kiranas debate and never took off. A prime minister?s task force, which includes Ambani, has suggested a way to bypass the tricky debate?allow private mandis licensed by the state government. The plan will now go to the prime minister?s trade and industry council, which includes Ambani and Mittal among others like Ratan Tata, so presumably it will get
endorsed. Whether it will move beyond this remains to be seen. If it does, it will provide a big fillip to organised retailers. But even the smaller vegetable vendors will find it easier to buy fruits and vegetables at lower prices. Seems a win-win proposition for all, except for those who control the mandis right now.
