Sunday, 9 October 2011
Why Are Food Prices So High In India?
Recently I happened to buy a one-litre bottle of sunflower oil from a mom & pop shop in Bandra. Usually I buy a number of items from this shop and the bill ranges from a few hundred rupees to a couple of thousand. This time I had nothing else to buy and so I noticed that I was paying one hundred and forty rupees for a litre of sunflower oil. I was on my way home after work and didn’t think much about it. However, something about the price kept nagging me.
Ever since I returned to India around nine months ago after over eight years in the UK, I have been trying to come to terms with the new India. There are so many more cars on the roads, shopping malls everywhere, new restaurants opening every month and of course, everything is a lot more expensive. However, one hundred and forty rupees for a litre of sunflower oil seemed excessive. On a lark, I went to Tesco’s website and checked the price of a litre of sunflower oil in the UK. For those who haven’t been to the UK, Tesco is the largest retail chain in the UK and commands over a 30% share of the UK retail market. It a middle-class chain, slightly cheaper than Sainsbury’s but not as dirt cheap as Lidl. Like other retail chains in the developed west, Tesco is good at sourcing supplies (mainly food, but also clothes and home appliances to a lesser extent) cheaply and selling them to its customers at wafer thin margins.
Well, as I expected, the price of a litre of sunflower oil at Tesco is less than what I had paid in Bandra! Tesco branded sunflower oil was the cheapest, but other brands too cost less than Rs. 140. Here, you can use this price-checker to find out how much any particular grocery item costs in Tesco’s UK outlets. And this website will give you the current rupee exchange rate for the British pound.
Almost everything sold in the UK is grown or manufactured elsewhere. Many countries in the European Union, like France produce sunflower oil. However, production within the EU does not meet local demand and Ukraine is the largest exporter of sunflower oil to the UK, followed by countries such as Argentina and South Africa. The sunflower oil sold at Tesco is sourced from outside the UK. Even after accounting for the fact that Tesco has great bargaining power and can source its supplies very cheaply, most probably directly from the farmer, one has to make allowance for the much higher establishment costs in the UK and the small margin Tesco pays itself.
There can be only one explanation for this high price consumers pay in India for staple items such as sunflower oil. Since Indian farmers are not obviously being paid a lot of money for their produce, middle-men, with political patronage must be hoarding sunflower oil stocks, driving up prices and taking a huge cut for themselves. I can afford to pay one hundred and forty rupees for a litre of sunflower oil. I wonder how many Indians can do the same without heartburn.