Farm to Fork: High prices of food staples a boon for farmers in India

The first of a four-part series highlights the impact of rising food prices on farmers' income

As the monsoon rains lash north India, Jaskaran Yadav, a resident of Bahrauli in Uttar Pradesh, is getting ready to sow rice. Thanks to the rising prices of food staples, farmers like Yadav are upbeat about their future after a long time.

“The current rabi marketing season has been good owing to the robust demand in the market, which fetched us good prices at the government-run procurement centres,” says Yadav, whose family is also into dairy farming. Yadav cultivates rice, wheat, mint and potato on his five-acre ancestral land.

In recent months, the sharp rise in the demand for wheat in the international market, along with domestic players proactively buying up the crop, had led to rising prices and increased income for farmers. And even though the government took several measures in May to cool food prices, farmers like Yadav have not been impacted. Despite price controls, their average incomes in the last few seasons have improved and are higher than previous years.

Farmers of food staples like rice and wheat have also been protected because the middlemen, who made huge profits when the prices were rising, are now taking the losses in their own books.

In May this year, as food inflation touched a 17-year high, an alarmed central government banned the export of wheat, and allowed the import of two million tonnes each of sunflower oil and soybean oil at zero duty. The government also capped sugar exports at 10 million tonnes for the current season.

The price of cooking oil has also started falling now. In June, the prices of major food commodities, led by edible oils, have moderated by 5-10 per cent, though prices continue to be higher as compared to last year. For example, compared to December last year, the prices of wheat and rice are higher between 6 and 25 per cent.

Experts say that since these food products are the heavyweights in the food inflation index, a fall in their prices would also mean a fall in food inflation. Fortunately for the farmers, prices began softening in the off-season, thus protecting most of their income.

Sudhir Panwar, a food policy expert and president of the Kisan Jagriti Manch, an association of farmers, says that the government had estimated that the sudden spike in the global prices of wheat and sugar due to the Russia-Ukraine war, would result in a windfall for domestic traders and farmers.

“When prices were rising, the farmers at least got the full Minimum Support Price (MSP). They also had the choice of higher open market prices over and above the MSP. This matrix changed for wheat when domestic production was affected owing to adverse climatic conditions, while the high prices of these commodities started stoking inflationary pressures,” Panwar said.

The government went on to ban the export of wheat while also putting certain restrictions on sugar shipments.

Says Vijay Sardana, a techno-legal agriculture expert, “Consumer inflation, or the prices that consumers have been paying for food products, was never reaching the farmers. The maximum benefits were taken away by the middlemen.”

Sardana says that to ensure that farmers get the most from the rising prices, the government should take a policy initiative by removing the mandi tax for consumers, and allow organisations and housing societies to buy food grains and pulses directly from farmers.

“This will narrow the middlemen chain, resulting in farmers getting more money, consumers paying lower prices, and middlemen margins coming down to reasonable levels,” Sardana says.

Experts point to the fact that the prices of all food commodities have gone up in the last two years.

“Farmers are happy with the rising returns and have remained neutral to the inflation control measures,” says Ajay Kedia, director, Kedia Advisory, a Sebi-registered advisory company. “Looking at MSPs, the government’s focus has been on oilseeds, which has seen increased sowing,” he adds.

The rising prices of seeds, fertilisers, tools and machinery, coupled with the increase in the cost of electricity and diesel, and high freight rates, have affected the prices of commodities and farmer’s margins.

“Due to high inflation, the purchasing power of consumers has dropped significantly,” says Kedia.