Readers may recall that in recent weeks, AgriMatters has been debating about the Food Inflation, wheat exports, onion prices and the possible options for India. This week’s column is devoted to understanding how information flows across continents is affecting prices, and the institutional steps that can be taken to leverage this information for the benefit of the farmers and consumers, rather than intermediaries. In other words, acknowledging the fact that information is power is the first step in building a system that can address the issues connected with it.
In his celebrated work , “The Earth is Flat”, Thomas Freidman writes about information being the driver of the next phase of globalization. While in the earlier phases of globalization, physical movement of goods, commodities, people and documents was imperative, the internet has changed it all. As information about weather, crops, prices and policies in different parts of the world becomes available almost instantly, it has far reaching implications on the markets. The big question now is whether this leads to price stabilization, or an escalation, for the view currently doing the rounds in several conferences on Agri commodities is that “Swiftness of information flow across the countries and continents is responsible for higher prices”.
What it means is that quick access to information by various stakeholders is leading to knee jerk reactions and causing panic/over-reactive market signals. For instance, news of locust attack destroying few thousand acres of wheat in far off place like Australia/Ukraine would have taken few months to reach in pre 24/7 new media/ internet era. This is not the case today as global traders and even some governments immediately take positions on Chicago Board of Trade (CBOT) anticipating higher price of wheat in the months to come. Therefore, is the access to information good or bad for the market?
Let us examine how the information can good and bad for commodity prices around the world.
There is no denying that the prices will firm up in the short run as result of adverse news that gets flashed across the world. However, it is good for institutions/governments that have systems and protocols in place to take corrective action. It is good in the long run as it provides right signals for taking corrective action before the disaster strikes. In the event of lack of information about the supply side situations till the last moment. Probably in hind sight, one can say that the ‘price spiral ‘of onions in December 2010 could have been avoided if the decision to ban exports, and allow duty free imports had been taken in the month of November itself , that is within the first few days of the aberrant weather conditions . In other words, the ‘policy decision’ can be calibrated not when the crops fail, but even when the weather conditions have given the first signals. Having said this, it must be borne in mind that global trade in agriculture commodities especially perishables being razor thin, it may still be difficult to import perishables in shorter time frame to tame inflation. However well informed, is well armed, and even the news that governments can, and will step in to take corrective action can affect the market sentiment.
In the context of climate change and unpredictable variations in weather patterns across the world, it is of utmost importance to be prepared for such eventualities. Three institutional innovations could go a long way in taming inflation as well as better incomes for farmers.
Firstly, there is a dire need for a robust centralized agriculture intelligence gathering system. This system should have ability to capture production details of all crops, demand, market prices, closely monitor weather and its implications on crops. To put in a simple words, if a query is put to such intelligence system regarding any crop on any day, it should be in a position to cough up accurate numbers. The intelligence gathering should not only limit to India conditions but also neighboring countries and our major importing destinations. US Department of Agriculture (USDA) has such system in place for many decades and has proved pivotal in taking decisions related to export and import of agriculture commodities. In fact, farmers in USA actually use such information to plan their crops based on anticipated market prices based on anticipated global production patterns.
Secondly, an institutional mechanism in form of producer companies/farmers associations need to be put in place in order to use the gathered intelligence efficiently. For instance, if an early warning system predicts a sub-normal delayed monsoon, information about cultivation of short duration crops needs to be transmitted to farmers. Producer companies would be the right point of contact to disseminate information quickly and mobilize farmers to shift their cropping patterns. The bargaining power of farmers would also improve by virtue of manifesting themselves into producer companies. This higher bargaining power could be effectively leveraged to strike better deals for purchase of inputs as well as sale of agri produce. The government, civil society and the private sector should come forward in developing and strengthening producer companies.
Lastly, connecting farmers and consumers electronically could go a long way in eliminating intermediaries and taming inflation. This is an ideal agriculture marketing platform which ensures higher farm gate prices and lower consumer prices. Fortunately, we have a head start in this area, as such models are already operational in market by way of electronic spot exchanges i.e. MCX supported National Spot Exchange Limited (NSEL) and NCDEX Spot Exchange (NSpot). These spot exchanges enable farmers to participate on their platforms for sale of agri produce in lots as small as 10 quintals. As they are not the direct buyers, they ensure farmers get best prices from across the mandis/processors/retail players in the country. Government should look at providing enough support to these institutions to scale-up rapidly and operate in each district. One can expect fast deceleration in food inflation if these spot exchanges are in turn connected to producer companies.
However getting these different pieces of the jig saw as a coherent picture will call for a dialogue between the governments, farmers organizations, co-operatives, corporate and industry associations. The Planning Commission, which is currently in the process of drafting the Approach Paper to the Twelfth Plan may also like to give a considered view on this by inviting the organizations mentioned above for a meaningful dialogue.
Bhaskar Reddy, the Head of Agri & RD Division of FICCI has given valuable inputs for this column which are gratefully acknowledged