Issue One – Food Inflation in India

For quite some time now Indian economy has been reeling under the pressure of high food articles price. Prices of essential food commodities, notably, pulses, vegetables & milk etc are registering exceptional growth; so much growth that food articles presently are around 30 percent higher than their 2008 levels. And there seem little signs of a let-off. The government attributes price rise to (1) poor production estimates due to late monsoons and drought like situations in several districts; (2) floods in Andhra Pradesh & Karnataka; and (3) poor Public Distribution System [PDS] off-take by states. While this is true, it does not present the complete story behind the food inflation scenario in India.

Several other reasons are having a play in current ongoings in the commodity sector; one among these is the rudimentary agriculture value chain in the country. Enough has been written about the shortcomings of  agri value chain in India. So much, that it does not come as a surprise to us that farmers in India, a nation where about 52 percent of workforce is engaged in agriculture, accrue just around 30 – 40 percent of what we as consumers pay for food commodities. Moreover, during past few months some independent estimates point that this margin has fallen further to around 20 percent for some commodities. While one hand, farmer returns are dismal, on the other hand, consumers are getting over-pinched by price hikes with every passsing day.

Another factor is the Inflationary tendencies, mind it, not inflation but the expectation that prices will rise, irrespective of any rationale. In recent times, since the advent of global commodity crisis in 2008, there exists a feeling that the prices are bound to rise; and further that growth story of India, which is getting reflected in rising per capita incomes, is putting enough pressure on supplies. Some people have gone to the extent of claiming that in long term the country would face severe shortage in several essential commodities. Such is the general feeling. The participants of the long agriculture value chain have been quick to monetize on this sentiment. There are indications that rise in price of several commodities is not in concurrence with their supplies to market. Most of us know that India had record food grains production during the last two years, our stocks of essential commodities like rice and wheat etc are more than optimum. These stocks could have at-least created some buffer for us, but alas, that did not happen, and even if it did, had insignificant influence on taming prices. We are facing exceptional, rather exponential price rise in several commodities.

In this issue, we are trying to gauge these nuances on the basis on factual data. We envisage to measure the reasons attributed to inflation in India, whether they hold completely, and if not what are the other ancillary factors behind such a scenario. In the end, we are putting forth some steps that, in our limited understanding, can help India as a nation overcome the problem, both in the short term as well as long. Essentially, we are looking at the Food inflation scenario in India followed by a deliberation on the attributed reasons, viz, the monsoon crisis & crop production estimates and whether it is only Inflation or is it Inflationary Expectations that needs more attention, the role of intermediaries in the agriculture value chain and consequently measures to tackle this situation.

We hope this issue proves valuable to you, and if you feel that we have faltered somewhere, please feel free to enlighten us with your views in the comments. If you would like to view the sources that we utilized in our analysis, please read the additional reading and references here.

Happy Reading!

Food Inflation in India

Figure this, if one had purchased pulses worth Rs 100 on February 06, 2008, it would cost about Rs 161 to purchase the same quantity today. Likewise, one would be shelling Rs 137 for vegetables and Rs 233 for onions. During this intervening period since 2008, while the economy has reeled under low growth conditions, [...]

Monsoon Crisis & Crop Production Estimates

Late monsoons, drought, and floods had an impact on food production in the country; policy makers are optimistically pinning hopes on superlative Rabi (winter harvest season) performance. But in effect, it is highly unlikely that Rabi production would be able to meet expectations. Shortages of commodity are inevitable, but do we really have commodity shortages?

Is it Inflation or Inflationary Expectations

Inflation, especially double digit inflation is being attributed to demand-supply mismatch in the current season, however double digit inflation was evident last year too when there was no commodity shortages. That means there is something else that that is having an effect on commodity prices and policy response to these challenges has been poor

Role of Agri Intermediaries in Food Inflation

Due to inflationary expectations, intermediaries in agriculture value chain are having a field day. Their role in price hikes is conspicuous. It has been documented that farmers only get around 30 – 40 percent of what the consumers pay. Large numbers of intermediary are creating a notional shortage of commodities to hike prices and earn profits

Tackling Food Inflation

Besides managing inflation it is pertinent that inflationary tendencies are also kept under a check. It is high time that the government starts a crackdown on commodity hoarders and enhances the open market sales. But these are only short-term measures, the government needs to actively focus on increasing production of several commodities in long term