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Price rise & main street
27 May 2011
All newspapers faithfully inform that food inflation has risen against to 8.5% for the week ended May 14 from 7.47 % in the previous week. But this not the real picture as it is based on whole sale prices & not the price main street pays. Nevertheless, does it reflect that the farmer is getting higher price? Newspapers don't inform this.
Let’s take a look at onion, which has shown upward hike of 8.32%. The farmers are unable to sell onions even at Rs. 1/Kg in wholesale markets of Delhi & Gurgaon. In disgust, Kishan, farmer threw all onions (60 quintal) on road in Gurgaon. Like Kishan, small farmers have no power against the might of the big wholesale traders who exploit their helplessness. The story would have been different if the government had bothered to give adequate attention to cold storage facilities. Team SARCAJC found that the retail price of onion in Gurgaon was in the range of Rs.10-15/Kg. The farmer is not the beneficiary of the price rise of onion, so who is minting money at the expense of producer as well as end consumer? And no prize for getting this one right, but the challenge is to predict how long will this greed run unregulated?
1 May 2011
The advertisement by Indian Food security and standard Authority features a young woman frying pooris in rural surroundings? The punch line reads- “those who take care of cleanliness will not get troubled by diseases”. The ad goes on to list three precautions with accompanying photographs. But the accompanying photo of food served seems rather unreal as in era of price rise of food; the main street cannot afford such lavish platter!
27 April 2011
Does it Surprise: The latest report by ADB Report- “Global Food Price Inflation and Developing Asia” has made it to the front page of Economic Times and Financial Chronicle. Financial Chronicle highlights- “High Food Inflation puts 50m in extreme poverty”. Priya Dash & Soumik Dey start off-“Persistent double digit food inflation for 20 months till March this year is estimated to have pushed around 50 million people into extreme poverty based on the $2.52 a day poverty line.” While in Economic Times, the new item starts off- “Rising food and fuel prices could hurt growth in India and push millions of countrymen into extreme poverty...The finding could raise alarm bells in the policymaking circles of Asia’s third largest economy....”. But, hang on, why should the findings of ADB Bank come as a surprise, anyway? Unprecedented rise in food prices has made a hole in pocket of the main street for long and surely the lead economists are not unaware of this fact.
Many friends of SARCAJC point- all along it seems, they were pre-occupied with achieving high GDP number, now even GDP growth might be slightly getting adversely affected the concern? If you have been following SARCAJC regularly, this ADB report will not surprise you, right? Food inflation forcing old women to work, small children to eat mud & wood, others cutting down on fruits, vegetables, milk..what more to follow?
Video (women from self help group) voicing concern about price rise
UNCTD on Price Bubble
7 June 2011
The newly released report- Price Formation in Financialized Commodity Markets:The Role of Information by United Nations Conference on Trade & Development (UNCTD) contains crucial pointers that can't be brushed aside.Take a clue-
“..this study shows that the Efficient Market Hypothesis does not apply to the present commodity futures markets. Market participants also make trading decisions based on factors that are totally unrelated to the respective commodity, such as portfolio considerations, or they may be following a trend. Therefore, it is difficult for other agents in the market to discern whether or not their transactions are based on information about fundamentals, which in any case is sometimes difficult to obtain and not always reliable. Trading decisions are thus taken in an environment of considerable uncertainty. In such a situation, it is rational to follow other participants’ trading decisions. A wide range of motivations leads traders to engage in this so-called “intentional herding” on a perfectly rational basis, the most important one being imitation in situations where traders believe that they can glean market information by observing the behaviour of other agents. In an environment of herd behaviour there are limits to arbitrage. Acting against the majority, even if justified by fundamentals, may result in large losses, often of borrowed money. It may therefore be rational for market participants to ignore their own information and follow the trend. This is what many financial players do by default, basing their trading decisions purely on the behaviour of price series (algorithmic trading), which can lead to a commodity price bubble... “. The report among other policy responses, argues for introduction of a transaction tax system could generally slow down the activities of financial investors in commodity markets.
No so long ago, the Indian Minister of State for Consumer Affairs, Food & Public Distribution had categorically underlined in a written reply in Lok Sabha-“No study has identified forward trading as one of the reasons for spurt in agri-commodity price”.The Abhijit Sen Committee (2008) report had found no conclusive evidence of whether future trading impacted prices of essential commodities or not. Reserve Bank of India (RBI) in its annual report (2010) had given a clean chit to the futures market. RBI claimed to have analysed data for six years (2004-2009) and pointed that inflation is highest in vegetables and fruits which are outside the purview of futures market and became equally high in commodities such as sugar, tur (pulse), urad (pulse) after suspension of futures trading. However, none of them (Abhijit Sen Committee, RBI) bothered to find out the reasons for the unprecedented price rise in vegetables & fruits. Holistic economic analysis is incomplete without going deep into the reasons for the obvious, and for that one has to walk over to vegetable market- regularly! No time for mundane work? During this time, SARCAJC was presenting clues via pointers in Reality Check in Newspaper watch; take a clue from two of them:
26 September 2010
Reality Check: Price of vegetables & food has reached the roof & is going further up- everyday. The leading economist have blamed the monsoon. But is the monsoon entirely responsible for high retail price paid by the main street? Let’s do a reality check-up. Today an advertisement has appeared that lists maximum & minimum the price of fruits and vegetables in whole sale market in Azadpur Mandi in Delhi. Now going by this ad, the retail price of select vegetables is beyond any logic. How to justify cauliflower selling at 295 percent of its wholesale price in National Capital Region of Delhi? Perhaps, lead economists too should go shopping for vegetables in retail and ask the logic! Nevertheless, these vegetables have gone beyond the reach of the common man, but do you care?
6 October 2010
Price Watch: During a private equity international Indian Forum in Mumbai, Subir Gokaran, Deputy Governor of Reserve Bank of India (RBI) revealed the reason for the unprecedented price rise in food- more people are moving towards protein-based diet. Implying that price rise is due to more consumption of high protein commodity like pulses. Now, that’s an interesting claim, but what’s the source of economic analysis behind his conclusion? Keep guessing! Logically, if there is a movement towards protein commodities (read pulses), prices of other commodity should go down (substitution effect), but this has not seen on the ground level. The price of vegetables has gone beyond the roof.
Price RISE : SOME EXTRACTS FROM NEWSPAPER WATCH