As Inflation Falls, Low Food Prices Hit Farmers

The retail inflation in December was 2.19 per cent, the lowest in 18 months.

Inflation seems to have now become a double-edged sword. As the retail and wholesale inflation continues to be at multi-month lows mainly driven by the depressed price of food items, it has now started to hit farmers badly. Priti Deshmukh, a consumer who lives in Mumbai's Dadar area, with her two kids and husband, is relieved as she is able to now buy more vegetables. Since the prices of the vegetables have fallen, she says that her savings have gone up.

"Now vegetables have become cheaper, I am happy. Earlier I used to spend around Rs 300-400 a week now I can work with just Rs 100-150 a week," said Ms Deshmukh.

On the other side, although the prices of agricultural produce is a good news for consumers, for farmers it is otherwise.

"It's good that consumers are getting food at low prices. We are here because of them. But we who are the producers, are in loss," said Kesarinath Govari, a farmer in Rangaon village near Mumbai.

The prices of vegetables have fallen in the last couple of months. For exmaple, onion prices have gone down from Rs 70/kg to Rs 20/kg...tomatoes have gone done from Rs 80/kg to Rs 40/kg...green peas from Rs 60/kg to Rs 25-30/kg.

The more vegetables Ms Deshmukh buys, the more nutrients she feels her family is getting and all because the prices of vegetables have fallen in last couple of months.

The retail inflation in December was 2.19 per cent, the lowest in 18 months. This translates into welcome news for an average household as it means lower expenditure on essentials. It also raises hope that the RBI (Reserve Bank of India) would cut interest rates, which would result in loans getting cheaper in a boost to economy.

However, it could just mean the agrarian crisis intensifying. Mr Govari, who grows leafy vegetables in his one-acre field explains how the input cost of fertilsers, pesticides, labour costs, transport costs increases every year but his output cost is going down. He spends Rs 50,000 for the season but ends up getting just Rs 30,000-Rs 35,000.

"See now, the input cost has gone up. For example, fertiliser which used to cost us Rs 800 per 50 kg has now gone up to Rs 1,300 per 50 kg. The cost of pesticides has also gone up. And after this, we don't even get any good selling price," said Mr Govari.

India is currently witnessing a low inflation period but the lowering food prices mean weakening rural incomes and rural demand. While the government promised to double farmers' income, disinflation in food prices is now putting pressure on farmers across the country. And in the long run, low food inflation would not only impact rural consumption but also the overall economic growth.