Economic growth shouldn’t have to suffer for want of a market solution

There is an old ditty that India’s struggle with inflation brings to mind: For want of a nail the shoe was lost / For want of a shoe the horse was lost / For want of a horse the rider was lost / For want of a rider the message was lost / For want of a message the battle was lost / For want of a battle the kingdom was lost / And all for the want of a horseshoe nail.

It illuminates the country’s plight, with its central bank constrained by high inflation from easing interest rates in response to signs of a slowing economy. Inflation is high because vegetable prices are high, onion and tomatoes leading the charge.

For want of control over some vegetable prices, India’s economic growth is repressed. Inflation in October came in at 6.2%, above the upper limit of the central bank’s target range for retail inflation.

Also read: Inflation hump: Will it continue beyond October?

Food and beverages have a weightage of 54% in this index, so even if most other prices remain calm, overall inflation spikes when food prices turn unruly. Among food categories, vegetable prices rose 42% last month, faster than September’s 36%.

The government cannot control vegetable prices, except by measures like export bans that depress sowing and guarantee shortages and higher prices in the following harvest season. Nor can the central bank tame veggie prices, except by such harsh rate hikes that growth would get choked altogether. Where the state is powerless, corporate action could be effective.

The problem is not that India cannot produce the vegetables Indians consume. The problem is that harvests occur seasonally, while demand for this farm produce is spread out across the year. The way to disperse the bunched-up farm output over the calendar is to store and process it.

In the case of grain, the task is easier: procure, store and distribute. In the case of perishables like veggies and fruit, storage works only in a few cases. For the rest, processing is the only solution—whether by canning, quick-freezing and packaging, conversion into paste and puree or desiccation of finely chopped pieces or flakes.

Decentralized food-processing has the added advantage of slashing India’s notoriously high crop damage and post-harvest losses, thereby increasing total supply.

Also read: Food inflation: Blame supply shortfalls as well as bad policy interventions

Apart from reliable power supply, it calls for motorable roads to transport the processed stuff to markets near and far. Advances in rural electrification and road connectivity have eased the logistical challenge of driving a food-processing revolution.

We await the entry of actors equipped with the scale, skill and chutzpah to convert this sector’s potential into reality. India’s dairy sector has been transformed by producer cooperatives that feed brands which carry out quality control, processing, branding and marketing.

Amul and Mother Dairy come readily to mind. But it is not just cooperatives that can succeed in this field. Large private businesses that procure raw materials for food products, like ITC, Hindustan Unilever, Pepsi and Dabur, can play a big role.

These companies could use their marketing skills and advertising resources to overcome another barrier: resistance to cooking with anything but fresh produce. They could rope in celebrities to evangelize cooking with puree, paste and flakes.

Also read: Why food inflation cannot be excluded from target inflation

Packaged veggies usually work out cheaper than fresh purchases. If India Inc launches a nationwide campaign to drive behavioural change in kitchens, processed ingredients could sell in sufficient volumes for bulk substitution to plug gaps in fresh-veggie supply and crush price volatility—and make monetary policy easier to conduct.