Raising Commodity Prices - How to Stop? - Is there a Solution?

How to stop raising prices of Essential commodities

First of all we should know why the prices are raising. We don’t have a mechanism to find out why the prices are raising. Let us examine the production consumption (Supply demand) Balance Sheet

Supply demand Balance sheet:

The ratio of Supply/ Demand should be preferably more than 1 in order that the prices will not raise and remain stable. In a year the ratio might fluctuate because of various reasons:

1. Delay in Imports to maintain the ratio more than 1 or
2. If there is a crop failure or delay in arrival of fresh crop
3. Crop failure necessitating additional imports and delay by the government taking action to import
4. Spoilage of stocks held due to poor storage condition or transportation and distribution system or damage due to natural calamities and accidents
5.  Increase in floating population regionally due to Tourism
6. Increased demand by the producers of value added food products due to anticipated export demand.
7. Need to maintain higher stock levels because of futuristic reasons (draught forecast or Tourism increase)

A bumper crop in a year will increases the ratio and result in fall of prices and at the same time gives an opportunity to increase stock position and exports of raw produce or value added products.  Similarly crop failure in any year will result in price raise which can be offset / controlled if government takes decision to import or release from the buffer stock in time. Export commitment at the same time increases then the price raise will be more. In such situation processors may have to be permitted to Import directly. We have systems and procedures in place to deal with any such situation. But then why the prices are rising? Only reasons are:

1. Government is not acting in time
2. Traders are hoarding
3. Traders are forming cartel and unilaterally increasing the price.

Why the government does not act in time to control the price? Is it because vested interest of groups controlling the government? Or because of lack of proper infrastructure to reach the food stocks to the regions requiring immediate attention? Or the Government is watching and waiting for the situation to improve? Governments in power will always be willing to act fast to gain confidence of the people, in particular the voters. Or is it because of the failure of the Government machinery to act in time? Or the collusion of the Government machinery with the vested interest groups to make some quick money?

If traders are hording to create artificial scarcity, then the Government can catch them and take legal action including confiscation of the commodity.

If the traders are forming cartel and raising prices then government can frustrate the trader’s greed by resorting to imports and / or release from buffer stock and directly distributing to the consumers. 

Only when the people in government and in opposition collude with traders then the price raise cannot be controlled. Only the public should act and expose the people involved.

There is a need to bring in transparency in our system so that no one can play with the commodity prices. In order to speed up the government actions powers should be decentralized so that the District level officers should be in a position to act without the need for anyone’s approvals when such action necessitates. There should be a mechanism where the traders and processors can import commodities freely without any Government approval. Such mechanism can be if the inflation rises beyond certain level or the price index for essential commodities / food stuff crosses certain limit fixed for the year registered traders and processors should be allowed to import without any permission or license. Farmers should be allowed to sell directly to the consumers including the household consumers. At present we are protecting the interest of traders and millers and not that of farmers and consumers.