Saturday, February 13, 2010

Food Inflation @ 18%. What a joke!!

I received a SMS from my friend Vishy which reads as follows –

“Tur dal rates for one Kg as on 8 pm today (10/2/10) – Nilgiris Rs. 115/-, Spencer’s Rs. 99/-, More Rs. 79.98/-, Fresh – Rs. 88.45, Nadar Kadais – vary between 68 to 85. How can there be so much variation in a KVI like Tur Dal? Do people cross check amongst stores?”

When I spoke to him he was visiting wholesale markets in places like Gulbarga where Tur Dal was being sold for Rs. 38 per kilo. Smaller farmers who sell locally at villages might realize even less at Rs. 32 or so per Kilo. The talk in the wholesale markets was that the prices of Tur Dal had actually come down over the past few weeks. But at the retail end in an urban market, it was soaring!

First is that, this reflects rather poorly on chain stores who are supposed to aggregate volumes and therefore be able to influence the supply chain in order to create value for the consumers. This does not seem to be happening. These chains are at best sourcing from the millers. So, the question is that what or who is driving up the prices? And who is going to bring in changes and advancement of the supply chain if not Retail?

At least Tur Dal can be stored and inventories managed as a buffer to commodity price fluctuations. Now, take the case of a perishable like Tomato. A decade ago the farm gate price used to be Rs. 2 as compared to the Retail price of Rs. 8, while for Potato it used to be Rs.6.5 and Rs. 12. Nowadays, with the retail price being in the range of Rs. 20 odd, do you think there would have been a significant increase in the farm gate prices? Not at all.

Today the price of Hybrid Tomato was Rs. 18 and Potato was Rs. 23 and the sourcing price was only Rs. 3.50 and Rs.9. respectively. Again the point of whether the farmer is benefiting from the increase in prices is there. The Retail price rise is not even proportionately matched by the farm gate price. Today evening, the prices of Tomato and Potato had dropped to Rs. 16 and 11. Does the farmer get such low prices to buffer such huge price variations, by the others?

Why does this happen?

Consumer habit, dependence on the retailers and even some amount of apathy, leads consumers to overlook prices of items purchased from their regular store. Trust drives their habit and the same trust also ensures that they do not check the prices or the bill.

As a consumer, when was the last time you checked the price or the bill of some of these basic items?

P.S. – The Retail prices of tomato and potato have been averaged out across a few stores.


Anonymous said...

really a nice article to understand

Sripriya Kesavan said...

It is important for the consumers to check the prices before buying.

Wondering who is responsible for controlling this and bringing up a system which is beneficial for all.

Anonymous said...

Is it because the cost of retail operations is loaded into the pricing?

VR said...

@ Anonymous - This price gap can hardly be loaded into the Retail end. If that be the case someone will play a deep discounting game. This is an issue of fragmented supply chain.

radharetail said...

RAjesh. why does life never change. Today it is focus bcos of the inflation. earlier the differential was the same but small. There are too many dynamics that cause this disparity. In the next 5 years this will change, and for very specific reasons. Radha

VR said...

@ Radha - Guess being a spiritual country we are caught up in the Karmic cycle! Other than that cant think of any reason why we dont learn from mistakes and change. The farmers still get Rs. 2 - 3 for tomato while urban consumers fork out out 8 to 10 times that. Karma perhaps!!!! :-)

A.Hari said...

Thanks for this thought provoking article.

Very often I find consumers are not bothered to check expiry date, price etc. Probably they have no time or lack the awareness.. I was shocked to find addition of few items in a bill which was not bought/supplied. A popular retail chain stores many products after expiry date. There is a total failure of administrative machinery to check such practices. What to do?

VR said...

The consumer awareness is definitely growing. I see many shoppers checking the packaging for information and details which was not the case a few years back. Increased consumer awareness is the only solution for this.

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