A disgusting reality! Farmers live in penury because urban folk want their food to be cheap

If policy makers can go on a war-footing to ensure food and vegetable prices are affordable, why is that no effort is made to keep housing inflation under check? Just to illustrate, isn’t it a fact that every household living in rental accommodation has to pay an increase in rental fare by at least 10 to 15 per cent every 11 months? Isn’t the inflation in rental fares the highest that an average family encounters?

Comes the festival season and newspapers become heavy. Obviously this is because of too many advertisements with most full-page ads coming from the realty sector. Quite invariably, the advertisements are about premier residences, high-end apartments, luxury suites, deluxe town homes and elegant villas indicating extravagant living, all coming at an enormous cost mostly in the range of Rs. one crore to Rs. three crore.

Extravagant living comes at an enormous cost. Not only for the rich, but even for those seeking a modest accommodation – one or two bedroom sets or a small plot. Moreover, the huge price keeps inflating every year.

Housing being a fundamental right, people spend their life savings and even take loans that they keep paying for decades together. The rising housing prices, including for rentals, may be the biggest lifestyle inflation, but it is strangely never measured in terms of rising inflation.

Now take a look at the onion prices on the other hand. Onion certainly is a primary vegetable for an Indian household. But when its retail prices start to rise, from Rs. 25-30 to Rs. 50-60 per kg in a fortnight, the media springs into action, raising a noisy pitch over rising food inflation and how households are beginning to feel the pinch. Immediately swinging into action, the government begins to sell onions at subsidised rates and at the same time imposes a minimum export duty of $800 per tonne to ensure sufficient availability at affordable prices for the domestic market.

A few months back, tomato prices had slid through the roof. At many a place, consumers had to shell out more than Rs 200 per kg. Between June and July, tomato prices spiralled and if measured on a year to year basis, headline prices increased by 201 per cent! This caused the retail prices inflation to jump to 7.44 per cent from a low of 4.87 per cent in June.

So much so that the global analytics company Crisil India blamed rising vegetable prices as not only the reason for distracting policy makers but also highlighted how the volatility in vegetable prices hits the national economy. Vegetables have been ascribed a weight of 15.5 per cent in the Consumer Price Index (CPI) basket, and therefore play an important role in food inflation spikes.

If policy makers can go on a war-footing to ensure food and vegetable prices are affordable, why is that no effort is made to keep housing inflation under check? Just to illustrate, isn’t it a fact that every household living in rental accommodation has to pay an increase in rental fare by at least 10 to 15 per cent every 11 months? Isn’t the inflation in rental fares the highest that an average family encounters in a year given that otherwise inflation remains within the band of four to six per cent?

Economists would say that since food and beverages carry a weight of 45.9 per cent in the CPI, managing food prices becomes vital for keeping food inflation low. But what they refrain from explaining is that while an average household spends a fortune buying an inflated priced house or spend a large proportion of his monthly earnings on house rentals if he/she is living in a rented accommodation, why is that when prices of land and commercial properties rise it is seen as an investment, but when minimum support price (MSP) for crops are hiked it is seen as leading to food inflation?

This is because of macro-economic policies that aim to keep inflation at four per cent (plus minus two per cent). Since food items alone carry a weight of 39.05 per cent (out of the total for food and beverages) keeping food prices low means that farming remains perpetually economically unviable. That is the primary reason why farm incomes continue to be at the bottom of the pyramid as a result of which farm distress is deepening.

The question that needs to be asked is why should 50 per cent of the country’s population, which lives on subsistence incomes, suffer the consequences of keeping food inflation low. How long will the society continue to keep food producers perpetually poor by keeping the farm prices low? Do we ever realise that farmers live in penury because the urban residents want their food to be cheap?

We may end up paying more for a one-way airline ticket by way of dynamic pricing than the entire monthly household food expenditure but blame rising food prices for inflation. We often end up paying more for taxi fares by way of pricing surge. We pay our lifetime earnings to buy a flat but still we blame rise in onion and tomato prices to be driving inflation up. But invariably, the argument in defending the howling we see over high food prices is the same. That food is consumed by the masses whereas only those who can afford will travel by air. This is woven deep inside our mindset as part of the economic design.

In reality, even in America, it is housing that drives inflation up more than anything else. Studies have shown that housing alone is responsible for 70 per cent of the increase in inflation there.

In India, we believe the construction lobby when it says prices increased because of inflation, not the other way around. But when it comes to farmers, and given a choice, we don’t want farm prices to increase at all. In fact, we are so accustomed to the low food prices that we generally believe that inflation does not touch the inputs that farmers use in cultivation. That is why we don’t want food prices to rise to at least cover up for the increased cost of production. We want the cost of production to be reduced instead (as if it is in the farmers’ control).

It is time to set the imbalance right. While housing prices are not part of the consumer price inflation basket, it is time to include it. This will reduce the weight of food items in the CPI basket. In other words, when the share of food in inflation index becomes comparatively low, the focus will shift to contain the housing prices. This is what is required.

We cannot use CPI inflation index to continue to penalise farmers by keeping food prices low. This flawed approach in dominant economic thinking has to change. And change now.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)