Crisil Says India's Dairy Success Holds Key To Food Price Stability
Long-term supply-side measures are necessary to control price volatility, according to Crisil.
Retail inflation rose to 7.44%, the highest since April 2022, led by inflation in food and beverages which stood at 10.47%, the highest since January 2020.
As prices of various food items rise due to a combination of global and local factors, including extreme weather conditions, the government has continued supply-side interventions. These include releasing buffer stocks, imposing export curbs on some commodities and importing more of others.
But the need for long-term supply-side measures persists.
According to Pushan Sharma, director at Crisil, volatility in prices of perishables is high due to their sensitivity to temperature, rainfall, and issues around shelf life.
While the government has announced minimum support prices for field crops, there is limited government procurement and no benchmarks for prices when it comes to vegetables and fruits.
Pushan Sharma, director at Crisil.
Excerpts from the interview:
Is there space for policy intervention to help stabilise prices?
Pushan Sharma: Some of our policies are focused on addressing near-term challenges. Bringing in supplies into the market can tackle short-term measures. However, structural measures need to be taken to address recurring challenges.
There is need for food processing. While milk is one of the most processed foods with multiple by-products, that's not the case for tomatoes. Just about six months back, farmers were forced to sell tomatoes only for Rs 2-3. They were not harvesting crops since it was more expensive to harvest than selling the produce. Cut to now, tomatoes were fetching even over Rs 200 per kg.
If you have excess produce, process and store it at the right temperature, you can have longer shelf life. Same goes for other vegetables such as onions. Even in case of fruits, such as bananas, we feel that it has low shelf life, but that too can be enhanced when stored at the right temperature and controlling air composition because oxidation process is what ripens it.
Structural measures can help in the medium-term, not immediately. The lowest hanging fruits for this problem is to get better sorting, grading and processing infrastructure. Sorting and grading similar quality together also incentivises farmers to produce better quality. That's being done very manually today. It needs to be more scientific.
From the government perspective, what can be done?
Pushan Sharma: From the government perspective, best practices can be drawn from the dairy value chain and wherever sustainable, can be applied to the crop value chain.
For instance, almost half the milk that's produced goes to farmer producer organisations. While so much milk is running through FPOs, coverage of FPOs on crops is limited because of the value proposition. A farmer will engage with an FPO if he derives value from it. In case of milk, the FPO will provide artificial insemination, care for cattle, fodder, procurement at a fixed price, that's not solved in case of crops.
One needs to see how the value proposition of FPOs can be enhanced on the crops side. There is need for more availability and access to agri extension services as well, by the public and private sector. Farmers understand climate change and need to prepare for changing patterns to reduce volatility.
Barring pulses, sowing for all other crops is in excess of what it was in the corresponding period last year. What's the price trajectory going forward?
Pushan Sharma: There is a reason for that. Pulses are sown in the month of May and June. Because of extremely low rainfall in Maharashtra and Karnataka then, the sowing window was lost then.
The impact is already showing on prices, with prices of tur already trending at over 30% more than an year ago. For pulses, we may see government imports and supply-side interventions. However, overall agri production is set to be higher than last year.
Wheat is not in season, stocks are slightly low because the government has not procured as much as it intended to. Besides, these are commodities linked to the global prices, with both rice and wheat seeing higher global cues.
In case of vegetables, while the rise in tomato prices is seasonal and might wane, onions might cause some pressure. Milk has seen a sharp increase in prices but prices are expected to stabilise going forward.