Did Pawar miss early warnings?
As early as November last year, agriculture minister Sharad Pawar began pitching for sugar exports, anticipating a bumper crop and high global prices.business Updated: Jan 15, 2011 02:17 IST
As early as November last year, agriculture minister Sharad Pawar began pitching for sugar exports, anticipating a bumper crop and high global prices.
On January 1, 500,000 tonne of sugar was notified for exports. An inter-ministerial panel eventually put this on hold.
The ministry correctly spotted trends in international sugar markets, but evidently missed signs of a brewing crisis in the domestic onion markets.
Analysts say India's inflation shocks could have been blunted had the government picked up early warnings and not put up just a tepid fight against inflation so far.
Last November, untimely rains in Maharashtra and Gujarat damaged two crop cycles: the main summer crop, which was standing, and the late summer crop, which had just been planted. This caused onion outputs, according to official estimates, to fall by 30%. Horticulture officials kept the ministry posted on this.
The only action taken was to raise the minimum export price — from $300 to $525 to $1200 — which did not deter exports because of lucrative deals.
There were no efforts to spruce up imports. Until December 21 — when onion prices touched R40 a kg in the wholesale markets — exports continued.
"The main price shock in wholesale onion rates came on December 20 and was reflected even in old retail stocks the same day, indicating a trader nexus," said RP Gupta, director of the Nashik-based National Horticulture Research and Development Foundation.
While measures were inadequate, statements from the minister perhaps added to the crisis. Pawar's statements on shortages of sugar, milk and onions, many say, have given the cue for speculators to hoard and traders to fire up prices. When onion prices spiralled, Pawar announced they would take three weeks to fall at the retail level.
On January 21 last year, Pawar had said: "Unless there is a decision (to increase prices), I do not know whether the states will be able to procure (milk) to meet demand." Milk prices have risen by over 20% since.
"Speculation did have a role (in the recent price spiral)," said NR Bhanumurthy, an economist with the state-owned National Institute of Public Finance and Policy.
During crises, Pakistan is India's most viable supplier of fruits and vegetables, where most of India's food inflation is entrenched. The neighbour, however, halted vegetable export to India due a wrangle on another front.
India had stopped cotton supplies to Pakistan last May to ensure adequate cotton at cheap prices for the domestic textile industry. Pawar's ministry, which oversees both cotton and vegetables, failed to sense a looming tit-for-tat.
After a glut in 2007-08, when sugar yields were gradually shrinking, the food ministry failed to curb exports in time. Even without the drought that followed, cane output would have dropped because of surplus-shortage cyclical nature of the crop.
Still bruised by the 2008 food crisis, the ministry largely relied on strategies that take years to show results, such as increasing productivity.