The food inflation has been hovering at around 10% even post kharif harvest. This is the official figure, which is based on wholesale price. The situation on the ground at the retail level is much much higher, and varies from 15-35%. The Government talks of higher demand due to better pay in the rural areas (due to income from NREGS!!!). Or in other words, the rural india is eating more, as per the wizards sitting in Delhi. If such is the case, then logically, the farmers should be getting higher returns from their crop, which in turn logically means better wages for the farm workers. And if they do, then the poverty levels should be lower in the rural areas. This is not the case. Rural India is struggling to make both ends meet.
So where is the problem.
The problem has always been with the inefficient agricultural marketing and distribution system. There are many levels of middle men, who, without providing any value added service, take a huge margin and thus pushing up the prices.
I used to give the examples of the Coconut pricing while giving lectures on Macro Economics for MBA Students. A coconut is purchased from the farmer in a thanjavur village for Rs 2. By the time it reaches the local mandi, the price becomes Rs 3.50, and Rs 6 when it reaches Thanjavur, a District HQ. The State Capital Chennai is 300 kms away, and the selling price ranges from Rs 15-20. And when it is exported to, say, Kuwait, it is sold at 0.400 fills, which is approximately Rs 70. The only value addition is removing the husk, and then there is the transportation cost. But by no stretch of imagination one can have a selling price of Rs 20 (In India) for a product (which is non taxable) which costs Rs 2.
The above example is only illustrative. The story is replicated in the case of all agricultural products. The support price for a Grade A paddy in Tamil Nadu is Rs 11 per kg, which means this is what the farmer gets. But the retail price of rice, when sold in bulk, is Rs 35 (at least for the rice that comes out of a Grade A Paddy). And this is in rural Tamil Nadu. The price is higher in cities. The value addition is limited to converting the paddy to rice, which doesnt cost more than Rs 2 per kg.
For an unbranded product, a reasonable marketing cost should be around 30%. Which means if the rice were to be sold at Rs 40, then the farmer should get 70% of this, which is Rs 28. But he gets Rs 11. Of course one has to add the cost of processing the paddy to rice. Even then he should get Rs 26. And this 30% marketing cost is inclusive of the margins. So where does the difference between Rs 11 and Rs 26 go to?
It goes as supernormal profit to the long line of middle men, who dont add any value, and who ultimately fund the political parties. One also has to understand that hardly any tax, either excise or sales or income, is taxed on anyone in this chain.
Why the Government cannot proactively create a well streamlined marketing system to market the rural produce, is beyond by imagination!
