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Resource centre on India's rural distress
 
 

Rural incomes: Why farm prices are now more prone to falling than to rising -Harish Damodaran

-The Indian Express

The transition from a regime of ‘downward stickiness’ to ‘upward stickiness’ has relevance beyond economic jargon. Here’s how

Agricultural commodity prices in India have traditionally exhibited what economists call “downward stickiness” — resistance to any declines, while rising at the slightest demand-supply imbalance. That conventional wisdom may have been turned on its head by demonetisation. The tendency now is for prices to be increasingly “sticky upward”.

The accompanying table (right) compares current benchmark mandi prices of major crops with their corresponding year-ago levels, just before demonetisation happened on November 8. In all these crops, rates have not just fallen; they are also significantly lower than the officially-declared minimum support prices (MSP).

True, we have crops like paddy and wheat that have escaped price declines, mainly because of assured MSP-based procurement by government agencies. One can similarly point to onions and tomatoes; their respective ruling average prices of Rs 2,950 per quintal at Lasalgaon (Maharashtra) and Rs 2,034 per quintal at Kolar (Karnataka) are way above the Rs 950 and Rs 367 levels fetched during this time last year.

But then, onion prices have risen only since August. For a full one-and-a-half years prior to that, they were trading in Lasalgaon at below Rs 1,000 per quintal. The same goes for tomatoes, where the price spiral seen from June followed seven months of very low producer realisations. The trigger for prices moving up in both cases was drought in Karnataka during the critical June-July sowing period, coupled with reduced plantings by farmers in response to previously poor realisations. Add to this the impact of heavy rains in both Maharashtra and Karnataka during the time of harvesting in September-October, and it translates into a classic supply shock-induced inflation.

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