The arithmetic of dal, atta and rice….T. Nandakumar
During the last six months, much debate has focused on the price rise in agricultural commodities, especially in the price of food. Some of these discussions have been educative, some interesting and some full of drama. It is true that food inflation affects most families, particularly the poor. Therefore, the attention it gets is both justified and necessary.
Almost every discussion on the subject has displayed comparative prices between particular periods, mostly 2004-05 and currently.
For a moment, recall June/July of 2009. We were facing one of the worst droughts of post-independent India. There were demands that this be declared a national calamity, there were apprehensions that there could be a severe shortage of food and imports may have to be resorted to on a large scale, and there was distress among the farmers. The impact of this drought is not over yet.
My purpose here is not to analyse the reasons for price rise or suggest solutions at this stage. Let the debate continue on RBIs interventions, steps to reduce the cost of intermediation etc but let us also look at some of the issues through the eyes of an arithmetician.
Consider, for instance the comparison of prices between 2004-05 and 2010. Are we suggesting that the prices (retail, mind you) should remain the same? Are we expecting the farmer to produce, even in a drought year, foodgrain and vegetables at the same cost as he did five years ago? If not, what is the increase we are willing to pay?
Take atta for instance. Assume, as some have said, that prices have gone up from Rs 11 to Rs 14. It is well understood that minimum support prices, or MSPs, for these commodities set the floor price for cereals in the market. The MSP for wheat was Rs 640/quintal in 04-05, and it is Rs 1100/quintal in 09-10. If the farmer is paid Rs 1100 per quintal of wheat in a Punjab mandi, the cost of acquisition comes to Rs 1300 in Punjab itself (including taxes and commissions, labour, cost of gunny bags etc). Add freight to the destination and additional handling charges. Add conversion charges and process losses for the flour mill, and packing and retailing costs by the retailer to get the retail price. Also remember that wheat gets sold in May and June from the farms and there are holding costs.
Reverse this logic: if we want atta to be sold in Delhi at Rs 11 per kg, the farmer will get less than Rs 700 per quintal of wheat!
Take rice. Prices, reportedly, have gone up from Rs 15 to Rs 35 per kg (subject to the caveat that price comparisons for rice can go terribly wrong, since there are many varieties of rice). In the case of rice, there is a conversion rate of 65-66 per cent from paddy to rice. This ratio takes into account a high incidence of brokens (about 20-25 per cent). The retail price of rice, with less than 5 per cent brokens, de-stoned, cleaned and sold in a neatly packed polythene packet in an air-conditioned store will factor in all these costs. There are the usual taxes, charges, handling and packing in gunny bags involved. In addition, is the transport to a rice mill and milling charges. An MSP of Rs 1000/quintal for common fair average-quality paddy will mean a price of about Rs 1750/quintal at the mill gate itself.
Conversely, if our expectation is Rs 15/kg of rice at the retail outlet, the farmer has to sell paddy at less than Rs 650/quintal. Is it our case that the farmer needs to be paid only this much in 2009-10 against an MSP of Rs 570/quintal?
Take the curious case of pulses. Take tur dal for instance. It is well known that pigeon pea (tur) is cultivated in rain-fed regions without irrigation facilities by resource poor farmers. Productivity is low due to water stress, low or no application of fertilisers (due to water stress), pest damage etc and if you talk to farmers in Uttar Pradesh, they will talk about the blue bull menace as well. India imports about 3 million tons of dal. It is impossible to get tur dal or any of our preferred dals in those quantities in the global market. We buy dal in the market in split, cleaned and packed condition. No brokens, no stones, no discoloration, no chaff. The farmer sells whole tur, separated from the pods, cleaned and dried. The dal mill processes the dal, involving two steps: de-husking and splitting the seed. Calculations show that there is a loss of at least 20-25 per cent in this process. This means that, dal prices at the mill gate will cost upwards of Rs 45 per kg for whole tur bought at the MSP of Rs 3000 per quintal. Add other costs and taxes to get retail prices.
Conversely, if tur dal prices have to remain at Rs 22/kg, the farmer will have to sell whole tur in the mandi at about Rs 15 /kg.
Just ask any farmer in the country whether he is willing to produce at the above prices! Forget cost plus 50 per cent as advocated by the National Commission for Farmers, these prices will not cover even his costs!
Let us not ignore this basic arithmetic and disincentivise farmers; let the debate focus on the farmers well-being as well!
The writer is a former agriculture and food secretary