The policymakers should take note of the large differential between wholesale and retail prices of essential food products
Deeply concerned over inflation, the government recently took a series of decisions to augment supplies and contain elevated food prices. The steps include lifting import restrictions on refined palm oil, customs duty reduction, extending validity period of specified pulses import, stock declaration and suspending derivatives trading in a number of sensitive food commodities.
Import trade lobby
It must be recognised that allowing unrestricted import of refined palm oil and palmolein till the end of 2022 is a progressive step in the interest of consumers. The edible oil trade in the country is controlled by a handful who are large importers and refiners. The market knows who they are and the clout they wield with policymakers.
Nearly 50 per cent of the import trade is controlled by just about half a dozen firms. These firms have always lobbied for own business interest. Restrictions on refined oil import meant that non-refiners or trader-importers were virtually precluded from the import trade. This created an uneven playing field and emboldened the large players to call the shots.
But now that the import policy has been liberalised, the playing field is level. While refiners can continue to import crude oil for refining and subsequent distribution, traders can import refined oil for prompt distribution. This will augment availability for direct human consumption and not allow any interest group to play the market. Importing refined oil in consumer packs can further shorten the distribution time.
Wholesale, retail price differential
Another area that deserves the policymakers’ attention is the large differential between wholesale and retail prices of essential food products such as edible oil and pulses. Retail prices are far above what the wholesale rates would justify even after accounting for packing, distribution and related costs.
While high food prices at the retail level make little difference to affluent consumers, the middle-class is the worst sufferer. ‘The retail loot’ of essential food products has been going on for long years without any check.
Our own Rabi harvest and southern hemisphere harvest combined with the anticipated fall in international crude oil prices in the first quarter of 2022 should bring some relief to food inflation. The government would be well advised to review some of its recent decisions sometime in April. Even by early March, the crop prospects in our country and elsewhere in the world would crystallise.
While remaining somewhat elevated, the current expectation is for a softening tendency in food prices around the world. As for imported commodities like edible oil, the one factor that can neutralize, albeit partially, is the Rupee which is already weakening.
It is critical to recognize that tinkering with the trade policy and customs duty from time to time is only a short-term measure to tide over a tough time, but should not dilute our focus on boosting domestic production and productivity.
(The author is a policy commentator and agribusiness specialist. Views are personal)