Food inflation: Why are prices so high and what is the solution?

Working class and toiling families are facing an intolerable situation, with the prices of every essential of food – rice, wheat, pulses, sugar, eggs, milk, vegetables, including onions and potatoes – spiraling upwards since the last nearly one year. Prices that started rising a year ago are continuing to spiral up and the rate of inflation has crossed 20%.

Working class and toiling families are facing an intolerable situation, with the prices of every essential of food – rice, wheat, pulses, sugar, eggs, milk, vegetables, including onions and potatoes – spiraling upwards since the last nearly one year. Prices that started rising a year ago are continuing to spiral up and the rate of inflation has crossed 20%.

This means that families that depend on monthly wage or salary or fixed income of a retired person have been robbed of the value of what they earn. Even a worker who has received 10% or 15% pay hike is poorer today than a year ago in terms of the amount of food he or she can afford.

The working class which is faced with this spectre of never-ending food inflation has to understand why this is happening and where the solution to this serious problem lies. The drought or heavy rain in 2009 can explain some part of the steep increase in prices of pulses, rice, onion, potatoes and other vegetables since July 2009. However, such episodic events cannot by themselves explain why prices of so many food items are rising and continuously for so long.

The root cause lies in the capitalist relations of production that dominate the economy, including agricultural production and trade in agricultural products.

Problems in food production

A review of production trends, in the last 15 years or so and a comparison of food production and demand projected for 2009-10 and thereafter, reveal that production is either short of meeting demand or just in excess of it. In fact, this demand projection of basic food items is underestimated because it ignores the fact that a large section of our working people in cities and countryside are actually underfed and under-nourished – in the very real sense, just trying to survive on the barest minimum necessary for survival. It is not based on ensuring a healthy well-fed, well- nourished population.

Compared with most manufactured goods of mass consumption, the social labour required to produce in agriculture has declined very little. There has been much slower progress in the productivity of labour in agriculture compared to industry and services except in some areas where large scale capitalist agriculture driven by machines is in operation, there is application of technical scientific advances, and there is some assured irrigation.

In conditions where there exists a very large number of small and tiny landholders in agriculture alongside capitalistic agriculture based on machinery and hired labour, the small holders have to work twice as hard to produce the same value because they are competing with greater efficiencies of production that lower the price of the produce. On top of this, they are not assured of receiving the value of the commodities they sell, as big companies and wholesale traders use their monopoly position to push the prices of farm produce below their values.

In a capitalist economy, if prices go up and there is more profit to be made from a commodity, then capital flows into that sector. When prices are rising, it is logical that there is an incentive for farmers to produce more of these crops to earn higher incomes. This happens in the case of those agricultural products where the farmer – because of a combination of soil potential, irrigation, the availability of technical know how, and capital – shifts from one crop to another which seems more profitable. (Sugarcane, cotton, and various cash crops are examples). Even here, the farmer gets ruined in the inevitable down cycle of falling prices of his produce. However this has not happened with other crops where the state has refused to provide assured support prices to farmers, such as with pulses, and has also failed to provide other inputs. Thus the deficit in pulse production has not disappeared over time. The annual production of pulses has stagnated at around 150 lakh tonnes for the last ten years. Increasing demand of pulses is being met through imports which have arisen from 4.6 lakh tonnes in 1998-99 to over 20 lakh tonnes in 2008-09.

Rising food prices but poorer producers

In general, peasants do not gain when prices increase. In a capitalist economy, prices of commodities whose production is concentrated to a high degree tend to rise relative to prices of commodities whose production is less concentrated. This makes the terms of trade unfavourable for a majority of the peasants, because they are numerous small individual producers and not concentrated or monopoly producers.

The peasant trades with various buyers of his produce. The peasant whose toil produced the fruits of agriculture generally gets only a small portion of the value created. The degree of exploitation depends upon the degree of inequality in the trading relation, i.e. depends upon how large a monopoly trader the peasant has to trade with. In this context, the role of public procurement becomes very critical for the producer, and that of procurement and public distribution at the retail level for the working and toiling majority in the cities.

Procurement and support prices offered by the state was a major factor in promoting and extending wheat, rice and sugar cane cultivation in various parts of the country over several decades. Till the 1980s, prior to liberalisation, the government was procuring wheat and rice from the producer at a minimum support price. This was not extended to other crops, so pulses and oilseeds were not included. Sugar too was not covered consistently so the sugarcane farmers were not sure of what to expect on their crop. In fact, even with wheat and rice, the MSP was never announced in advance for the peasant to plan his acreage for each crop. This meant that distribution through the PDS was also restricted to only cereals, sugar and did not cover essential pulses. The basic nutritional requirement of the working population was not being fulfilled through the Public Distribution System.

Since the mid nineties, the government has completely dismantled the system of PDS in cereals for our working population. Wholesale and retail trade in food products has been increasingly liberalised, and today less than 35% of the trade is channeled through the public procurement and distribution system. With the elimination of the Universal PDS and introduction of the Targeted PDS (TPDS), the stocks handled by the government have registered a sharp fall.

The entry into and play of big corporations in retail trade has widened the gap between the wholesale and retail price; according to reports, the onions sold to the retailers at Rs.10/kg is getting sold at Rs.18/kg in the retail market. In recent months, big retailers have exploited the reports about the drought, and therefore potential shortage of supplies, to hoard their stocks. According to an estimate, of the total 31 million tonne potato production in 2009, around 18 million tonne is stashed away across various cold storages in the country, waiting for the prices to go up further.

It is capitalist law that every private trader is in the business for maximising profits and so takes advantage of projected shortages and gaps in supply and demand. Private profiteers like Reliance and other big capitalists are profiting from the soaring food prices and the Government of India is doing nothing to assure food supplies through public distribution.

Demand of the working class

Skyrocketing food prices are hurting the working class, even as wages have remained stagnant, and many workers have lost their jobs in the past two years.

The workers cannot afford to buy the most essential items of consumption and are victims of hunger and malnutrition. The small and middle peasant producers have been driven to ruin because agriculture cannot guarantee them a livelihood.

Agricultural products are grown across different regions according to agro-climatic zones. No area is self-sufficient in all the food crops necessary for the people. Therefore movement of food – procuring it from the producers, transporting it across the country and making it available at the retail level at affordable prices is crucial. This activity then cannot be allowed to remain a source of profits for wholesale traders.

The economy has to be re-oriented to serve the interest of the working class and toiling people. The bourgeoisie is neither capable of nor interested in such a re-orientation. It is only driven by the aim of maximising profits.

Working class must take political power and one of the first steps it must take is to assume full control over food trade. It must use this control to eliminate any profit from this trade. Internal wholesale trade and all imports and export of trade in food must be under public control so that the role of any private middleman is completely eliminated. Once in power, the working class must create a modern Public Distribution System that will ensure that all essential items of mass consumption – food grains, cooking oil, pulses, vegetables – are available in adequate quantity and of good quality and at prices affordable to the working people.

The working class, once in state power, must assist the peasantry to increase the productivity of agriculture, and to plan the production of different crops so as to meet the growing needs of the people of cities and countryside.

Today, the working class must step up its demand for immediate action from the bourgeois governments at centre and states to expand PDS to cover all durable food items and adequate provision for this in 2010-11 budgets. It must demand that the government take full responsibility for confiscation of all unreported stocks, and release of the stocks through the expanded PDS to afford immediate relief to the workers and toilers. Working class must demand that the government immediately offer adequate support prices for all agricultural produce of mass consumption, so that farmers engaged in their production are ensured guaranteed livelihood. Working class must demand that all wholesale trade in agriculture produce must be taken out of private hands and brought under public control so that the interests of both the farmer and the worker are protected.

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