Storage solutions to sticky retail inflation

India’s retail inflation easing to 4.83% fails to bring any respite to average consumers in Assam, who are grappling with skyrocketing prices of essential commodities, including perishable food items. The state also bucked the national trend and recorded retail inflation at 5.70% for the month of April. The annual inflation rate in rural Assam is on the higher side of 5.85% (all India average 5.43%) compared to urban areas with 4.91% (all India 4.11%). The unending dependence on supplies of food items, including fruits and vegetables, from outside the state explains the steep price hike. Without effective supply-side intervention, prices cannot be expected to be moderated. Farmers are reluctant to increase production on a commercial scale because of their apprehension over the wastage of perishable commodities due to a dearth of adequate market linkage. This leads to a shortage of adequate marketable surplus for farmers, who are required to meet the growing market demands. As population and economy have grown, the demand for raw and processed food items has also increased manifold in the state. The demand-supply gap is getting wider as production and productivity are not gaining the desired momentum. Across the country, retail inflation has eased primarily due to a decline in fuel prices, while the vegetable inflation rate has soared to 27.80%, burning larger holes in consumers’ pockets. The government data puts the annual inflation rate for pulses and products at a high rate of 16.84%. The government collects the price data from selected 1,114 urban markets and 1,181 villages across all states and Union Territories. Rising prices of eggs, broilers, potatoes, onions, and other vegetables have also affected retail sales, as consumers are buying in smaller quantities to prevent household budgets from going haywire. Reduced earnings for retailers are also reflected in less procurement from wholesalers and from farmers. As of August 2020, the state had 39 cold storages with a total capacity of 1.78 lakh MT for storing perishable horticultural produce like fruits and vegetables. Since then, the state has added 16 cold storages, which have led to an increase in the storage capacity to 2.16 lakh MT as of March 31. There is, however, no room for complacency, as the installed capacity is inadequate to meet the requirements of farmers and traders. A “comprehensive study on cold storage facilities for potatoes in Assam,” conducted by the North Eastern Development Finance Corporation Limited (NEDFi) and published in October 2019, highlighted that the state needs 40 to 45 lakh MT of potatoes annually, against which production estimates during 2018–19 were put at only 11 lakh MT. The storage capacity, even when estimated only for potato demand in the state, is just around 2.5%. On the other hand, these cold storages can store less than 20% of the total produce in the state, implying that more than 80% of the produce will have to be sold off by growers before the stock perishes, at whatever prices traders offer them. The NEDFi study also revealed that the majority of the storage capacity is used by wholesale traders, and for farmers, utilising the storage at the individual level is not feasible financially unless the government takes measures to form clusters of potato growers. The study found that under the prevailing scenario, “it is obvious that the price prevailing in neighbouring states and transportation costs, with a marked-up profit margin as decided by the wholesalers, determine the prices of potatoes in the local market.” West Bengal, which is one of the major sources of potato supply to Assam, has 515 cold storages with a capacity of a capacity of 59.48 lakh MT. The figures speak volumes about the neighbouring state being the second-largest potato producer after Uttar Pradesh. Without better price realisation, the farmers in Assam will not be keen to increase production, and the state will perpetually be dependent on supplies from Uttar Pradesh, West Bengal, and Bihar. There will be no respite from price shocks. This also holds true with respect to other perishable vegetables and different types of fruits. A combination of infrastructure support by the government and farmers building capacity through the formation of collectives for commercially viable use of the installed storage capacity and marketing facilities can boost production. The NEDFi recommended that smaller cooling facilities with alternative sources of power and cheaper costs may be considered at the farmers’ field / houses / common areas for temporary, short-term storage for small farmers, which sounds pragmatic and deserves to be pushed by the government through the articulation of schemes and projects on a wider scale. Assam can hope to get respite from sticky retail inflation only through boosting production and putting in place the required support system for farmers to go for production on commercial scales. While efforts in that direction should continue, any unfair practice by traders to inflate the prices of essential goods must be curbed with strong regulatory measures.