Fuel rate hike leads to rise in retail prices of agri produce

With the rise in fuel prices, the operational cost of farm machines too will increase. Whether it is for tractors or harvester combines, the costs have gone up. All this adds to the cost of production and marketing that a farmer undertakes

Petrol and diesel prices were on Wednesday hiked by 80 paise a litre each, taking the total increase to Rs 10 per litre since March 22. This is the 14th hike in fuel prices in 16 days, reported CNBC TV 18 on April 6. "Petrol in Delhi will now cost Rs 105.41 per litre as against Rs 104.61 previously, while diesel rates have gone up from Rs 95.07 per litre to Rs 96.67," the TV Channel said.

Pending the State Assembly elections in 5 States in Feb-Mar 2022, petrol and diesel prices had remained frozen since Nov 4, 2021. But soon after the results were announced, prices began to rise by an average of 80 paise per litre per day. Instead of increasing the fuel prices in a jolt, this gradual increase per day was more or less to ensure 'jor ka jhatkaa dhire se' as they say.

Retail prices of almost all agricultural commodities have been on the rise. As the temperature soars, so does the food prices. It seems they are both operating in tandem. Even for the lowly nimbu the prices have touched the roof. So much so that nimbu is priced more than apples today, something that couldn't have ever been thought of. The turnaround in the prices of nimbu primarily is because of the steady hike in fuel prices, that's what the trade says.

A few days ago, I read a tweet by Ramandeep Mann, a farm activist. In his tweet, he said: "On April 1, IFFCO raised the price of DAP fertilizer by Rs 50 per bag. Now farmers will have to pay Rs 1,350 per bag of 50 kg." While fertilizer prices are on an upswing and there is already a growing assumption that the government will have to increase the fertiliser subsidy from the existing Rs 1.25-lakh crore to about Rs 2-lakh crore to meet the challenges of importing fertilizers at a higher price. The increase in the prices of ammonia and natural gas and also the resulting hike in fertilizer prices, after the US imposed economic sanctions against Russia following its invasion of Ukraine, will surely jack up the production cost for farmers.

With the rise in fuel prices, the operational cost of farm machines too will increase. Whether it is for tractors or harvester combines, the costs have gone up. All this adds to the cost of production and marketing that a farmer undertakes. We still don't know how much further increase in fuel prices will happen by the time the wheat marketing season ends in June. Ask a farmer and the stock reply you get is: "My cost of production is doubling whereas the price I get for my crop hasn't increased." It is not doubling of farm income, but it seems doubling of the cost of production has instead taken place. In fact, ever since the Baltic Sea region conflict broke out, prices of edible oils on the supermarket shelves have gone up and that too despite the edible oil trade committing to the Commerce Minister Piyush Goyal that it has enough stocks to keep a check on edible oil prices for the next six months. The Food and Agriculture Organisation of the UN estimates that wheat prices have soared from the already existing higher prices in 2021. Even before the war, food prices had touched a high, breaking all previous records. So is the case with maize, barley and sunflower oils. Considering that Russia and Ukraine together provide 25 per cent of the global wheat supplies, 28 per cent of barley and 18 per cent of maize, the tremendous gap in supplies becomes an opportunity for Indian grain traders to fill the void left behind.

We will revert to this question later, but first look at the price rise and its impact on Indian farmer. The minimum support price (MSP) for the rabi marketing season this year was announced as early as on Sept 8, 2021. Generally rabi prices have been announced in the first week of October, but last year the dates were advanced so as to enable the farmer to make the right decision for sowing the crop he wants to cultivate. The point was well taken. Accordingly, the price of wheat was raised to Rs 2,015 per quintal, a hike of Rs 40 per quintal over the previous year's price. Similarly, the price for mustard was increased by Rs 400 per quintal.

The price determination process that the Commission for Agricultural Costs and Prices (CACP) undertakes is quite laborious, and is therefore based on a data that it collects (along with separate estimates coming from States) almost a year back. Using these statistics, and also looking at the estimates prepared by the States, it comes up with its own set of recommendations to the government. Now the question is that a lot of escalation in production costs has taken place in the period, before the actual marketing operations begin on April 1 next year, when the wheat crop starts arriving in the mandis, the MSP that has already been recommended stays the same.

In other words, the MSP for wheat that the farmers are selling their harvest for is bereft of the increased cost of production. It does not incorporate the additional costs that farmers had to incur while cultivating the crop. The MSP that farmers receive therefore is not a true reflection of the actual cost. There has to be some mechanism to ensure that the MSP is amended time to time, as the need arises, and the price calculation becomes as close to reality as possible. After all, if the government employees can get periodic hike in Dearness Allowance to cover up inflation costs, why shouldn't farmers at least get the right price for his produce? Why should the farmer suffer the consequences of keeping the MSP deliberately low, that doesn't even cover the escalation in production costs?

In a digital age, when there is an app for every problem, I don't see why the CACP cannot develop a suitable app that can amend the prices time and again, incorporating the additional costs. The app should contain the relevant background data, and it shouldn't be difficult to add on the additional costs that farmers undertake. If agriculture-related data of 55 million farmers has already been digitalised, where AgriStack becomes the new push in agriculture to get digital access to scientific know-how, I see no reason why the digital platform cannot be expanded to incorporate additional costs the farmers have to spend on, and come up with a new MSP for farmers. After all, a Digital India cannot leave its farming population behind. If the farm data can be digitalised, the prices too can be digitalised.

(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)