Why Rural And Urban Food Price Divergence Is At The Widest Since 2014
Only urban areas are seeing a pick-up in food prices, while rural food costs remain subdued, showed inflation data.
Food prices have been on the rise since last year, reversing a downward spiral, which has lead to disinflation and aggravating rural distress. The pick-up in food prices, however, is inequitable across rural and urban areas.
Only urban areas are seeing a pick-up in food prices, while rural food costs remain subdued, showed inflation data released earlier this week.
Led by higher food prices, retail inflation rose to 3.21 percent in August, according to data released by the Ministry of Statistics and Programme Implementation. The difference between rural and urban food prices has widened to the highest since the use of the revised series on base year 2012. Urban food prices rose by 7.07 percent in August, while food prices in rural areas rose by only 0.85 percent- a divergence of 6.2 percent.
Within the food basket, fruits, vegetables and pulses, showed steep divergence for rural and urban areas. The commodities have a high weightage in both urban and rural inflation indices and had exhibited a fall in prices through the course of the last year.
For fruits, the divergence between price growth in rural and urban areas widened to nearly 11 percentage points in August. For pulses, growth rates in rural and urban areas differed by 10.5 percentage points in August while the difference was steepest in prices of vegetables which diverged by 20.5 percentage points in both indices. Prices of vegetables in rural areas continued to contract albeit at a declining pace while prices in urban areas continued to show a steep rise in prices.
Inflation in rural areas for vegetables contracted by 0.13 percent in rural areas, while they rose by 20.5 percent in urban areas.
The divergence could be because of a combination of factors, said Ashok Gulati, Infosys Chair Professor for Agriculture, ICRIER.
Though the difference in rural and urban food prices is because of the value chain, the divergence is further compounded in the rainy seasons by floods choking supply.Ashok Gulati, Infosys Chair Professor for Agriculture, ICRIER
August especially is characterised by the end of season before the new harvest, Gulati said. However, even in a bumper harvest, when farmers have to sell at low prices, storage, distribution, transport costs and retailer margins do not justify the high divergence, he said.
Another possible explanation is the weak purchasing power in the rural economy due to an extended period of low wage growth.
Purchasing power in rural areas has remained compressed since demonetisation, said Siraj Hussain, visiting fellow at ICRIER. That, along with longer supply chains in urban areas has contributed to rising divergence between both indices, he added.
Among 35 states and union territories, 17 showed a divergence that was higher than the national average of 6.22 percent.