Agriculture is the only sector of the Indian economy that posted a positive growth of 3.4% in the pandemic year of 2020–21. But this stability in production did not reflect in agricultural prices, especially food prices. The pandemic brought about unprecedented volatility in food prices in both 2020–21 and 2021–22.
Besides supply disruptions caused by the lockdowns, some other factors responsible for this are as below:
Increase in labour costs
Many fertile agricultural regions of India witnessed an acute labour shortage thanks to the departure of migrant workers to their native villages. This pushed up the labour cost and hence the food prices too. Farmers in Punjab even offered cell phones to lure labourers back from eastern UP and Bihar besides hiking wages from Rs.350 to Rs.500 per day. This pushed up the overall costs and open market prices of vegetables, wheat, and basmati rice etc.
Many fruits and vegetables like perishable mango and even cashew with a longer shelf life etc. could not be exported because workers were not allowed to do harvesting and post-harvest processing. Mango crop in tens of thousands of acres in Srinivaspur, Kolar got simply destroyed because the government did not allow mangoes to be transported by trucks to ports on the western coast like Mangalore and Karwar for exports even in the summer of 2021. Other crops like bananas too got destroyed in many areas due to labour shortage. This pushed up the prices.
Petroleum price hike
India meets 85% of its requirement of petroleum and petroleum products through imports. They also account for 25% of the total national import bill. The price per barrel of crude oil was $67 in January 2020, and rose to $70.68 in January 2021 and $80 by April 2021. It reached $120 in February 2022 thanks to Russia’s war on Ukraine. The under-recovery or subsidy on diesel alone—used mainly by the goods transportation sector—was to the tune of Rs.173,253 crore in 2012–13 according to a study by Nielsen. The agriculture sector accounts for 13% of the end use of petroleum products, especially diesel use in pump-sets, tractors and other machineries and in transportation. Above all, petroleum products are key inputs for fertilizers.
After the steep increase in crude price in international markets, in April 2021 the fertiliser companies hiked the price of di-ammonium phosphate fertilizers (DAP) steeply by 58%. The DAP price shot up from Rs.1200 per bag to Rs.1900. Prime Minister Modi, who was already facing the heat of farmers’ agitation, decided to play it safe and hiked the subsidy to fertilizer companies by 140% on 19 May 2021 and directed them to sell DAP at the old price.
Apart from fertilizer production, petroleum products have other direct and indirect uses in agriculture. A National Institute of Public Finance and Policy study has shown that a 10% increase in fossil fuel price could cause the wholesale price index (WPI) to rise by around 4.3% in which 0.7% increase would be contributed by the farm sector alone. According to an estimate by the RBI, retail inflation would go up by a full percentage point if the crude oil prices went up by 33%. The crude oil prices have already moved from Rs.90 to Rs.120 per barrel over the pandemic period between March 2020 and March 2022.
Food exports and imports
Food accounts for nearly 45% of the weight in the Consumer Price Index (CPI) and within the food commodities segment wheat occupies one-third weight among the cereals. The pandemic years witnessed bumper crops in both wheat and rice. FCI had comfortable stocks. The prices of wheat and rice remained more or less stable because of the MSP and procurement for the PDS system. In 2020, wheat price was Rs.2200 per quintal in April immediately after the lockdown was imposed and the price fell to Rs.1600 and recovered to Rs.2000 by September 2020. That was due to pandemic disruption. In 2021, the wheat price increased by only around 3%. Even this modest increase could be because the wheat export in 2020–21 was modest at $340.17 million which sharply increased by 387% to $1742 million in 2021–22. But the explosive increase in export prospects and the 40% increase in wheat prices in the international markets in March 2022 itself under Ukraine impact could be a game-changer for wheat prices in the coming months.
In fact, the open market prices were lower than the MSP in 2019–20. A 10% rise in wheat prices in the open market would lead to an overall food inflation in the WPI and 1.5% rise in CPI. The government-fixed MSP for wheat for kharif 2022–23 is Rs.2015 per quintal. But thanks to Russia’s Ukraine war, there is a spurt in the world market prices of wheat. Both Ukraine and Russia together account for 27.6% of total world wheat exports. The recent increase in the international market price is so sharp that the exporters are offering Rs.2700 per quintal to the farmers. This would push up the procurement price from the open market and the food subsidy bill would go up. The re-elected Uttar Pradesh government of Chief Minister Yogi Adityanath has also extended his free food grains scheme by 3 more months, adding to the food subsidy bill.
But the question is why the wheat/aata prices remained stable in the open markets during 2020 and even for a good part of 2021. This was probably because the government decision in May 2021 to increase fertilizer subsidy by 140% played a major role in stabilizing the food grain prices.
Like the agricultural economy as a whole, agricultural exports also defied the pandemic and registered a 17.34 percent growth to $41.25 billion in 2020–21 in the pandemic year. But farmers do not do the exporting. They depend on exporting companies and these take the lion’s share of additional earnings in exports.
On the other hand, about 60% of India’s requirement of edible oils is met through imports and India has no control over the international market prices. Further, big capital is invested in importing companies which also draw their pound of flesh. Disruption of edible oil imports due to the pandemic saw the prices soaring by more than 40%.
Covid spike in e-commerce
Online delivery grocery shopping in India increased by 55% in 2020 when most of the retail stores remained closed during the lockdown. Online purchases continued even after unlocking and besides Amazon and Flipkart, numerous local start-ups were also engaged in online delivery of groceries and food items. In some cities, some start-ups even delivered milk and vegetables on online orders. The value of the e-commerce industry as a whole in 2021-22 was $60 billion as against $48 billion in 2020–21, showing 25% growth in the first pandemic year.
Among e-commerce majors, Flipkart revenues grew 12% to Rs.34,610 in 2019–20. The revenues jumped by 25% in the pandemic year of 2020–21 to Rs.43,357 crore. Amazon India clocked a revenue growth of 49% in 2020–21 to Rs.16,200 crore. Reliance Retail’s revenues crossed Rs.50,000 crore in January 2022. Groceries account for 21.2% of the online sales of Reliance Retail.
A supply-side executive of Flipkart in Prayagraj told Covid Response Watch: “We increase the prices when supplies trickle down and bring down prices when supplies become cheaper. When we anticipate a price rise, we increase the inventories and when prices are about to fall we bring down the stocks. We are better equipped in this respect than the farmers and even conventional wholesale traders”.
Findings from a Karnataka Study
Dr.TN Prakash Kammardi, Professor in University of Agricultural Sciences and former Chairman Karnataka Agricultural Prices Commission, conducted a sample survey among 1285 farmers from 30 districts in Karnataka and brought out a report titled, ‘Can You Hear the Voice of Farmers?’, in September 2021. This study, available on the public domain, mentions (on page 17) that by the first week of April 2020 in the wake of commencement of the lockdown, only 22% of ragi, 20% of jowar, 15% of tomato, 20% of onion, 26% of bananas and 36% of grapes had arrived at the APMC regulated markets compared to the turnover in the previous year.
The survey finding is that only 30% of the surveyed farmers could sell their entire produce during the lockdown and another 43% could sell only part of their produce and the crops perished in the case of 11%. Around 68% of the surveyed farmers felt that the price they received for their crops during the lockdown period was far less compared to the price they used to receive in normal times. Only 6% said they received better prices in crops and in regions which recorded sharp scarcity.
Around 16.4 million tonnes (which is the 3-year average from 2017–18 to 2019–20) of paddy, jowar, ragi, maize, bajra, tur, chana, urad, moong, groundnut, soyabean, sunflower, and coconut crops produced by Karnataka farmers were covered by MSP and 7.3 million tonnes of tomato, onion, potato, chilli and mango were not covered by any MSP and this made a huge difference in the price situation in general and the perishables not covered by MSP took a huge hit during the pandemic, as per the study. Regarding input supply chains, after being struck by the pandemic in 2020, for the next crop seasons in 2021, only 63.2% of the surveyed farmers felt there was adequate supply of seeds, 60.3% felt adequate supply of fertilizers was there and 30.3 felt adequate finance was available.
Only 43.8% of those surveyed felt there was no scarcity of labour and 19.1% of the farmers had experienced loss of job for at least one member in the household. This was the abnormal scenario in which prices shot up subsequently in a somewhat paradoxical manner.
Agricultural reforms by States and food prices
Horticultural farming, accounting for 30% of the agricultural GDP, has already overtaken food grain farming whose share is 25%. Overwhelmingly high share of horticultural products—even to the extent of 90%, especially high-volume products like onion and tomato—were already outside APMC regulated markets earlier. Agribusiness firms are already procuring directly from the farmers sans any regulation.
Even without the three controversial farm laws, which were scrapped by the Indian government following protests by farmers, there has been a steady entry of corporate players in agriculture over the years. Out of 28 States in India, 23 have permitted direct purchase by private parties, including companies, from farmers bypassing APMC mandis; 21 States have allowed e-trading in agricultural produce; 22 States have allowed private wholesale markets – the private clones of APMC markets. As per a column in Financial Express by columnist N.Chandra Mohan 20 states have allowed contract farming even by November 2021. Further pursuing this lead on the web revealed that most of these reform measures in the states happened during the pandemic period.
There is no study yet on the impact of these reforms spurred by the pandemic on agricultural prices. But some studies, including one by the RBI, have shown that the pandemic has widened the gap between the producer price and the consumer price (known in academic literature as ‘mark-ups’). Farmers get only 30%—70% of the consumer price in different crops. The main reason for this is hoarding by the wholesale trade mafia and speculation by the agricultural futures traders.
Mr.Asokan, who is from the family of rice merchants in Red Hills on the outskirts of Chennai and whose father was the president of the wholesale rice traders’ association there, told Covid Response Watch” “The impact of Covid-19 on rice prices was marginal. The open market prices also remained stable because of free supply of PDS rice to the poor by governments, some of which also found its way to the open market. Whenever we anticipate price increase, we all start hoarding but a few hoarders stock-up on a massive scale and they determine the open market prices of rice in Chennai.” This wholesale mafia enjoys political patronage. That is why despite the Essential Commodities Act empowering the State governments to launch de-hoarding, that seldom happens. Even a crisis like pandemic could not force the State governments to act against the wholesale trade speculators.
N.Murthy, a prominent left leader in Andhra Pradesh, told Covid Response Watch: “Paddy farming has become unviable and unremunerative in Andhra Pradesh and Telangana due to steep input cost increase during the pandemic. A “paddy strike” was organised by paddy farmers in 2021 in some parts of AP when they left their lands fallow. Instead of increasing the support price over the paddy MSP, both the governments are urging the paddy farmers to shift to other crops.
”Even much of whatever MSP increase is announced for paddy goes into the pockets of rice millers and the farmers get only a fraction of it. Millers who procure paddy from the farmers through their agents have not cleared the farmers’ 2021 dues even now in many areas”, he added. According to him the governments are not acting against the powerful millers.
However, SEBI banned futures trade in 7 agricultural commodities—paddy, wheat, chana dal, mustard, soya, palm oil and moong dal—on 20 December 2021, thereby acknowledging their role in food price manipulation. Such measures are episodic in nature. But there is no uniform policy yet for regulation of futures trade to prevent its food price manipulation on a regular and permanent basis.
What governments could do to avert price crashes
Economist R.Vidyasagar from Chennai told Covid Response Watch, “The governments should increase the flow of investment in cold-storages and value-addition food processing in perishables like tomato through Farmer Producer Organisations (FPOs) and other cooperatives of farmers to avert sharp fluctuations and periodical steep fall in prices that affects the farmers.” If the prices fall below the MSP, the government should make cash payments to make up for the price differentials as experimented briefly in Madhya Pradesh, he added.
Vijoo Krishnan, Joint Secretary of All-India Kisan Sabha suggested that all State governments should follow the example of the Kerala government which started giving food kits containing 20 items every month to the poor, including migrant labourers from other States, since April 2020 which is continuing even now. This could help in mitigating farmers’ distress and bring down distress sales, he opined.
Globally, food prices have surged very high during the pandemic. FAO’s world food price index was 95 in December 2019 and it crossed 135 in January 2022. Economies have revived to pre-Covid-19 levels and normalcy has been restored but there is no sign of food prices returning to pre-Covid levels anytime in the near future.
B.Sivaraman is a researcher based in Allahabad, Uttar Pradesh