Distribution reform won't hold prices

With food price inflation edging close to 20%, the government has only firefighting measures to offer, and little to address the structural
issues that constrain supply. Policy interventions such as duty-free import of raw sugar till the year end, higher open market sales of foodgrains or more channels to distribute subsidised edible oils and pulses are only temporary palliatives that may or may not work.

The government must find permanent solutions to address the shortages in commodities such as pulses whose supplies are limited in the world market. A technology mission on pulses, aggressive procurement to incentivise farmers to raise output and promoting large-scale contract farming overseas would help augment supplies.

Sugar production, on the other hand, is cyclical. Farmers grow less cane if mills pay unremunerative prices, leading to a shortfall and surge in retail prices. Ideally, cane farmers should form producer companies like Amul, to produce sugar and share in the profits arising from shortage of sugar. Sugar cooperatives also seek to do this, except that cooperatives in India have been captured by politicians and bureaucrats.

The Centre should also dump faulty rules set for the sugar industry. It is indeed appalling that it sought to pin the blame on the Mayawati-led Uttar Pradesh government for banning mills from processing imported sugar. The problem was a central excise rule that prohibits an importing mill from outsourcing the processing of raw sugar to another entity.

The rule has been amended only this Wednesday. States have also been advised to remove VAT and other taxes on sugar and impose turnover limits to tame prices. There is, however, no guarantee that all states would follow this advice. Initiatives like augmenting the supply of subsidised edible oil through state-owned agencies are not out-of-the- box solutions.

But a crack down on hoarders and black marketeers is a must to prevent prices from rising further even if it does not bring prices down overnight. Hopefully, the prime minister’s meeting with the chief ministers to review the food price situation would set the tone for fundamental reforms in the farm sector to raise productivity.

source: ET