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LATEST NEWS UPDATES | Why farm deflation is essentially a problem of liquidity -Harish Damodaran

Why farm deflation is essentially a problem of liquidity -Harish Damodaran

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published Published on Apr 20, 2018   modified Modified on Apr 20, 2018
-The Indian Express

The main problem for farmers today is not production or having sufficient crop to sell. Instead, it has to do with prices that they are getting for their produce.

The Met Department has forecast a third-in-a-row “normal” south-west monsoon this year, thanks to the very low probability of an El Nino event — the abnormal warming of the equatorial eastern Pacific Ocean waters, which is known to adversely impact rainfall in India during the season from June to September.

However, as the experience of the last two years shows, a good monsoon is only a necessary, but not sufficient condition for farmers’ prosperity. The main problem for farmers today is not production or having sufficient crop to sell. Instead, it has to do with prices that they are getting for their produce.

The accompanying table shows the annual price increase in key agricultural commodities for the latest month of March and also the corresponding average figure for the 2017-18 financial year as a whole. Since the inflation rates here are based on the official wholesale price index, they are a reasonable proxy for the extent of raise or decline in farmer realisations at the mandis.

It can be seen that in a majority of crops, inflation has been negative, with prices actually falling year-on-year. The incidence of deflation has been particularly pronounced in pulses and oilseeds, but also recorded for wheat, condiments and spices, and natural rubber. In most other crops — be it paddy, milk, egg and meat, cotton or sugar — the price increases are at very low single-digits.

The only exception has been fruits and vegetables, though even in their case, the inflation is mainly on account of a low base. Potato, for instance, is selling in Uttar Pradesh’s Agra mandi at around Rs 10 per kg, which is just about remunerative for the farmer. Last year, at this time, the tuber was fetching a mere Rs 3.7-3.8/kg. On the other hand, the average modal price of onion at Lasalgaon (Maharashtra) has crashed from Rs 15.50 to Rs 6.25 per kg in the last two months, while tomato is currently trading at Rs 4.50/kg in Kolar (Karnataka). This, in peak summer, when vegetable prices are expected to generally firm up!

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The Indian Express, 19 April, 2018, http://indianexpress.com/article/india/why-farm-deflation-is-essentially-a-problem-of-liquidity-5143150/


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