The Hindu Business Line : Support prices keep inflation in food articles in double digits

Chennai, Feb. 9 The annual rate of inflation based on the Wholesale Price Index (WPI) was lower at 5.07 per cent for the week-ended January 24 compared with the 16-year high of 12.91 per cent witnessed in August. Despite this, inflation rate in food articles is still hovering in the double digits – 11.14 per cent in the latest review period.

For the January 24 period, the index for Food Articles, which makes up 15.40 per cent of the WPI, was up at 245.4 points against 220.8 during the same period a year ago. The Foodgrains index was up at 242.6 against 218.8, while that of cereals at 239.8 against 217.

Why is inflation in food articles is still in the double digits?

40% MSP hike

One reason for this could be the hike announced by the Centre in the minimum support price fixed for various kharif and rabi crops.

The year 2008 saw the Centre raising the support price by as much as 40 per cent for some crops such as cotton, coarse cereals and pulses.

For example, the minimum support price of jowar and bajra was raised to Rs 840 a quintal from Rs 600 last year. Already, the prices of these cereals had gained last year in tandem with maize (corn), which spurted on export demand despite a record crop.

In view of the hike in support prices, jowar and bajra prices are currently ruling at around Rs 1,000 a quintal. “With maize witnessing an export demand again, it is unlikely that the prices will go down,” said an exporter.

Maize prices are currently around Rs 910-915 a quintal, up from Rs 825-850 during the same period last year.

Same is the case with wheat and rice. In the case of wheat, the Centre announced the support price only during the last week of January. Hopes of higher support price had kept the rates at around Rs 1,150 for the dara variety, used by flour mills. After the support price was announced, the rates gained by as much as Rs 50 before stabilising with a hike of about Rs 30.

On the index, wheat has gained 10 points from 233.7, while rice has increased 30 points to 226.7. Jowar has increased to 326 from 312, while bajra is up at 258.6 from 234.9.

In fact, compared with the same period a year ago, not a single commodity in the food articles basket has declined, though some have dropped from a high witnessed during August-December period last year. For example, the Pulses index increased to a high of 268.4 for the week-ended November 1. For the current review period, it has slipped to 263.1 points.

The minimum support price mechanism is to ensure that farmers get the floor prices fixed by the Government.

Market intervention

The Centre can ask for market intervention by its agencies such as the National Agricultural Marketing Federation (Nafed) when prices decline below the support price. In July last year, when maize prices dropped after its exports were banned, Nafed was asked to procure the coarse cereals from the farmers.

For the trade, too, it could make sense to buy what it wants at prices around the support price level. One, they can procure the quantity they want, even it were for exports a few months away. Two, they can not only procure quality produce but also ensure proper storage, which sometimes is a drawback with procurement made by Government agencies.

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