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Shrinking cereals, growing food parks

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Local grain in Mapusa market, North Goa

Local grain in Mapusa market, North Goa

This short comment has been written for India’s alternative economics group, Macroscan, and you’ll find it here.

The first release of summary data from the 64th round of the National Sample Survey Organisation, ‘Household Consumer Expenditure in India 2007-08‘ (NSSO report 530), captures the early impact of the rising trend in food prices for rural and urban India. This period is significant in the recent history of food price rise in India, for it signals the strengthening of the factors that led to the retail food price highs of 2008 which began to be recorded around two years earlier. Several of the most important factors have to do with the rapid pace of urbanisation (most visible in the non-metro tier 1 cities) and the steady growth in the food processing and food logistics industries, which has taken place alongside the deepening of the agricultural commodity markets.

“To judge from survey data of food intakes, the situation has been getting worse rather than improving, at least in terms of per capita calories consumed, and this phenomenon is fairly widespread affecting all classes, rural and urban and those below and above the poverty threshold,” the FAO report, ‘World agriculture: towards 2030/2050‘ had stated in 2006 in its comment on India’s growth-malnutrition paradox. The report’s authors had at the time commented that matters in India “are getting worse in the rural areas as people have to pay more than before for things like fuel and other basic necessities of life” and that rural incomes have not improved at anything near the rates implied by the high overall economic growth rates.

To illustrate the continuing impact of rising cereal prices on rural households in Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh and Orissa, district per capita incomes for 2004-05 to 2009-10 are estimated for five representative districts from these states. These are districts that record a median per capita income based on data for the 2004-05 year (the last NSSO household consumption survey year) available with the Planning Commission’s district domestic product tables: Bhabua in Bihar, Dhamtari in Chhattisgarh, Deoghar in Jharkhand, Khandwa in Madhya Pradesh and Jajpur in Orissa. The per capita income increases in these districts are recorded upto 2006-07, and taking the national GDP growth rate for the years following (9.7%, 9.2%, 6.7% and 7.2%) the overall finding is that statistical per capita income increases are between 36% (for Khandwa) and 47% (for Dhamtari) for the period 2005-06 to 2009-10.

Expenditure on food and non-food needs, Indian states

Expenditure on food and non-food needs, Indian states

In these five states, the cereals basket occupies a dominant share of monthly per capita expenditure (MPCE) on food, accounting for 42% of MPCE on food and 25% of total MPCE in Bihar, 41% and 21% in Chhattisgarh, 42% and 25% in Jharkhand, 33% and 17% in Madhya Pradesh, and 42% and 24% in Orissa. The impact of a steady upward trend in the prices of cereals in these states – whose rural households spend roughly the same on food as they do on non-food needs (see Chart 1) – can be gauged from retail price data on essential food items collected by the Department of Economics and Statistics, Ministry of Agriculture. This data, although the most reliable weekly series recorded in a number of centres in the country, is weakened by deficiencies (gaps in series, numerical mismatches and so on). Even so, the patterns they provide are valuable.

From 2005 January to 2010 January, the prices of atta in Sehore and Bhopal (MP), of desi wheat in Bhopal and of maize in Patna have risen by 200%. The prices of ‘kalyan’ wheat (a widespread HYV cultivar) in Bhopal, Sehore and Patna (Bihar) have risen by 173% to 177%; the prices of maize in Ranchi (Jharkhand) and common quality rice in Bhubaneshwar (Orissa) have risen by 171%; the prices of ‘desi’ wheat in Patna and atta in Ranchi have risen 170%; and the prices of common rice in Cuttack and in Dhanbad (Jharkhand) have risen by 169% and 164%. Over this period, the price of the available basket of cereals has risen 157% in Cuttack, 162% in Bhubaneshwar, 159% in Sehore, 174% in Bhopal, 176% in Patna, 166% in Ranchi and 152% in Dhanbad.

Erratic data posting (and possibly validation difficulties) have meant that a better understanding of the food baskets of North-East India is yet to be achieved. Even so, NSSO 530 shows the heavy reliance by the households of the North-Eastern states on cereals (rice) with the regional average consumption greater than that of the states of eastern and central India in which rice also play a major dietary role: West Bengal, Orissa, Chhattisgarh, Bihar and Jharkhand. What Chart 2 illustrates is that for those regional populations dependent on rice, the cost of this dependency is high.

Cereal consumption and prices, Indian states

Cereal consumption and prices, Indian states

This is not so for wheat in Punjab and Haryana, whose average per capita consumption quantity of the cereal is both relatively low (as a percentage of the cereal component of the food basket) and less expensive. For Gujarat, Maharashtra and Karnataka – all three states affected by rapid urbanisation and absorbed by the race to build urban and transport infrastructure – their rural households are far less dependent on a single cereal than their counterparts in North-East, Eastern or North India. Wheat is the preferred cereal in Gujarat but accounts for no more than 40% of the total cereals purchase; rice is the preferred cereal in Karnataka but accounts for no more than 53% of the total cereals purchase; wheat is the preferred cereal in Maharashtra but accounts for no more than 36% of the total cereals purchase.

Food inflation is now a concern for the Reserve Bank of India (RBI) which has begun to make direct causal links between per capita availability of foodgrains and high retail prices. Deepak Mohanty, executive director of RBI, in an address on ‘Inflation Dynamics in India: Issues and Concerns’ (March 2010) has also drawn a connection between food prices the minimum support price (MSP) announced by the Government of India for procurement of various commodities. “The high increase in MSP since 2007-08 has given an upward bias to agricultural prices. Reduced availability of foodgrains also tends to keep food prices high. As per the Economic Survey 2009-10, per capita net availability per day of cereals and pulses has been lower than that observed in the previous four decades. The per capita daily availability of foodgrains was 447 grams in the 1960s and 1970s, which successively increased to 459 grams in the 1980s and 478 grams in the 1990s but came down to 446 grams during 2000-08 and stood still lower at 436 grams in 2008.”

At the same time, the Government of India has approved proposals for joint ventures and foreign collaboration (including 100% FDI) in processed food businesses (including 100% export oriented units), and “mega food parks”. According to Indian Credit Rating Agency (ICRA), the processed food market accounts for 32% of the total food market with the “most promising” sub-sectors listed as soft-drink bottling, confectionery manufacture, fishing, aquaculture, grain-milling and grain-based products, meat and poultry processing, alcoholic beverages, milk processing, tomato paste, fast-food, ready-to-eat breakfast cereals, food processing, food additives and flavours. From the point of view of the major national industry associations (CII, FICCI, Assocham) the approximately 7,500 regulated mandis lack critical infrastructure, the provision of which will cost at least Rs 12,000 at 2009 prices. The potential of the public-private partnership model in the foods business is seen by industry as being embodied in ventures such as Safal market in Karnataka (considered an example of wholesale market modernisation), ITC’s e-Chaupal, Hariyali Kisan Bazaar, Mahindra Shubh Labh, Cargill Farmgate Business and Tata Kisan Sansar.

Removed from such a view are the recurrent protests since late 2009 in a number of urban centres over food inflation, urgent signals that the increasing corporatisation of food production, procurement, movement and distribution is contributing to household food insecurity, particularly amongst the rural and urban poor. The ‘Report on the State of Food Insecurity in Rural India‘ (M S Swaminathan Research Foundation) explicitly stated that “over the longer period of 1993-94 to 2004-05, the states of Karnataka, Orissa and Madhya Pradesh show significant increase in the percentage of population suffering acute calorie deprivation. On the whole, it is clear that, by our measure of food insecurity, the period of economic reforms and high GDP growth has not seen an improvement in food security but deterioration for the majority of Indian states.”

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What they spend their rupee on

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Volunteers at a rally, Mumbai, India

Volunteers at a rally, Mumbai, India

The data have just been released of the National Sample Survey Organisation’s 64th Round, on Household Consumer Expenditure in India, 2007-08 (survey period July 2007 – June 2008). The Ministry of Statistics and Programme Implementation, Government of India, has put out the findings in its report No 530. A sample of 31,673 rural households and 18,624 urban households spread over the entire country was surveyed in the Consumer Expenditure Survey of the 64th round. The highlights:

Level of consumption in 2007-08

1. Average Monthly Per Capita Consumer Expenditure (MPCE) in 2007-08 was Rs.772 in rural India and Rs.1472 in urban India at 2007-08 prices. About 65% of the rural population had MPCE lower than the national rural average. For urban India the corresponding proportion was 66%.

2. The survey estimated that in 2007-08, around one-half of the Indian rural population belonged to households with MPCE less than Rs.649 at 2007-08 prices. In 2006-07, the corresponding level of MPCE for the rural population had been estimated as Rs.580.

Rytu (farmer) of north Karnataka

Rytu (farmer) of north Karnataka

3. In urban India, one-half of the population belonged to households with monthly per capita consumer expenditure less than Rs.1130. In 2006-07, the corresponding level of MPCE for the urban population had been estimated as Rs.990.

4. About 10% of the rural population had MPCE under Rs.400. The corresponding figure for the urban population was Rs.567, that is, 42% higher. At the other extreme, about 10% of the rural population had MPCE above Rs.1229. The corresponding figure for the urban population was Rs.2654, that is, 116% higher.

5. Real MPCE (base 1987-88) was estimated to have grown by about 21% from 1993-94 to 2007-08 (that is, over a 14-year period) in rural India and by about 36% in urban India. The annual real terms increase from 2006-07 to 2007-08 in average rural MPCE was 2.2% and in average urban MPCE was 5.4%.

Pattern of consumption in 2007-08 and share of food

1. Out of every rupee of the value of the average rural Indian’s household consumption during 2007-08, the value of food consumed accounted for about 52 paise. Of this, cereals and cereal substitutes made up 16 paise, while milk and milk products accounted for 8 paise.

Crowds at a religious gathering in Mumbai, India

Crowds at a religious gathering in Mumbai, India

2. Out of every rupee of the value of the average urban Indian’s household consumption during 2007-08, the value of food consumed accounted for about 40 paise. Of this, cereals and cereal substitutes made up 9 paise, while milk and milk products accounted for 7 paise.

3. While the share of most of the food item groups in total consumption expenditure was higher in rural India than in urban India, fruits and processed food were exceptions. For non-food item groups, the share was usually higher in urban India. The noticeable differences were in case of rent (urban share: 6%, rural share: 0.4%), education (urban: 7%, rural: 3.7%), consumer services other than conveyance (urban: 7.8%, rural: 4.5%), and conveyance (urban: 6.4%, rural: 4%).

4. The share of milk and milk products in total consumption expenditure was found to rise steadily in rural India with MPCE level from under 3% in the bottom decile class to nearly 10% in the ninth decile class. The share of fuel and light was about 12% for the poorest decile class of the rural as well as of the urban population and fell steadily with rise in MPCE to 7% for the top decile class in rural India and to 6% in urban India.

5. The share of food in total consumption expenditure of rural households varied among the major states from 41% for Kerala and 44% for Punjab to 58-60% for Orissa, West Bengal, Jharkhand, Assam and Bihar. In the urban sector the share of food expenditure varied between 36% (Kerala and Chhattisgarh) and 47% (Assam and Bihar).

6. Tobacco was consumed in as many as 61% households in rural India compared to 36% households in urban India. About 62% of rural households and 59% of urban households were estimated to have consumed egg, fish or meat during the last 30 days. In non-food items, consumption on account of entertainment was reported by 28% of rural households and 63% of urban households. Consumer expenditure for rent was reported by only 7% of rural households and 38% of urban households.