At a recent conference, someone remarked “Swiftness of information flow across the countries and continents is responsible for higher prices”. He meant 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 a locust attack destroying a few thousand acres of wheat in, say, a remote part of Australia or in Ukraine may have taken a few days, if not weeks, to reach us in India, in the pre 24/7 new media/ Internet era.

This is not the case today; global traders and even some governments would immediately take positions on the Chicago Board of Trade (CBOT), anticipating higher wheat prices in the months to come. Is such access to information good or bad for the market, and for for commodity prices around the world?

There is no denying that prices will firm up in the short run, as a result of adverse news flashed across the world. However, it enables institutions/governments that have systems and protocols in place to take corrective action. In the long run it provides lead time to take action before the disaster strikes.

Contrarily, in the absence of such swift information flow, farm markets and consumers can be badly hit. If one analyses the events leading to the onion price spike in India in last November and December, this is what happened. The severe inflation in onion prices in Delhi in December 2010 was actually due to a crop failure in Maharashtra in November 2010. There was a lag of 30 days for corrective action to be taken, and the price volatility was a result of the decision-makers' lack of access to the right information.

Centralised system

Unlike in other countries, such situations tend to have an exaggerated impact in India because of the large population and ever-growing demand fuelled by greater economic activity. Minor variations in the production cycles of any crop would result in a production dip of a few million tonnes and jack up prices.

The global trade in agriculture commodities, especially perishables, being razor thin, it becomes extremely difficult to import perishables within a short time-frame to tame inflation. 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 lead to better incomes for farmers.

First, there is a dire need for a robust, centralised agriculture intelligence gathering system. Such a system should capture production details of all crops, the demand levels and market prices, and closely monitor the weather and its implications on crops. When a query is posed on any crop on any day, the system should be able to come up with accurate numbers and facts.

The intelligence gathering should not be limited to Indian conditions but also factor in the ground realities in neighbouring countries and major importing destinations. The US Department of Agriculture (USDA) has had such system in place for many decades and has proved pivotal in taking decisions on export and import of agriculture commodities.

Producer companies

Second, an institutional mechanism in the form of producer companies or farmers associations needs to be put in place to use intelligence efficiently. For instance, if an early warning system predicts a sub-normal or delayed monsoon, information on cultivation of short-duration crops must be conveyed to farmers.

Producer companies would be the right vehicles to disseminate such information quickly and mobilise farmers to shift their cropping patterns. The bargaining power of farmers would also improve if they organise themselves into producer companies. This could be effectively leveraged to strike better deals for purchase of inputs as well as sale of farm produce.

Electronic platform

Last, electronically connecting farmers and consumers could go a long way in eliminating intermediaries and taming inflation. This would ensure higher farm gate prices and lower consumer prices. Fortunately, we have a head start in this area, as such models are already operational in the market, by way of electronic spot exchanges such as the 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. They ensure farmers get best prices from across the mandis/processors/retail players in the country. The Government should look at providing enough support to these institutions to scale up rapidly and operate in every district. One can look forward to a rapid deceleration in food inflation if such spot exchanges are, in turn, connected to producer companies.

The institutional innovations suggested would resolve issues related to higher inflation and efficient distribution of perishables and also ensure higher incomes for farmers.

(Sanjeev Chopra is Joint Secretary, National Horticulture Mission, and S. Baskar is Head, Agriculture Division, FICCI.)

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