06 JUNE 2024 – The Hindu

Food Inflation

• With the headline Consumer Price Index (CPI) inflation rate barely declining to 4.83%—the lowest level in 11 months—India’s retail inflation for April appeared to be improving at first. However, this modest decline was not enough to conceal the alarming increase in food costs.

What are the current trends in food prices and overall inflation?

Cost of food:

• Consumers in rural areas saw gains in food prices of 8.75%, 19 basis points more than those in urban areas.
• The heaviest food category, cereals, saw a rise to 8.63%.
• The average price of wheat and rice increased significantly year over year, according to data from the Department of Consumer Affairs.
• Due to high temperatures, vegetables saw double-digit inflation for the sixth straight month, reaching 27.8%.
• Long-term double-digit inflation in pulses continued into the eleventh month.

Customers in rural areas:

• At 5.43%, the rural CPI was substantially higher than the urban rate of 4.11%.
• The difference illustrates the effects of elements like a typical monsoon and hot weather, which are especially difficult for rural communities.
• What causes India’s high food inflation while the country’s general inflation rate is declining?
• Temperature and Weather Challenges: Since cereals, pulses, and sugar require a lot of water to grow, crop yields are particularly affected by weather-related problems. This year’s forecasted weak monsoon and heatwave has resulted in shortages and higher domestic prices.
• For instance, in April 2024, the inflation rate for grain and pulses hit double digits.
• Fuel Prices: Another essential input for agriculture, fuel has seen a significant increase in price in recent years.
• For instance, a 1% increase in fuel prices causes a 0.13% increase in food prices, and over the course of the following year, the effect gradually diminishes.
• Supply Chain Disruptions: When there are disruptions in the supply chain resulting from things like labour shortages, transportation limitations, and logistical difficulties, the availability of food goods decreases and prices go up.
• In addition, vegetables had double-digit inflation for the sixth straight month, rising to 27.8%, as perishable goods were wasted due to a lack of an effective storage facility.
• Global Impact: India’s food prices remained high despite a decline in global food prices due to limited transfer of international prices to domestic markets, the deterrent effect of the Russia-Ukraine war, and the country’s heavy reliance on imports for edible oils (which account for 60% of consumption) and pulses, while it is an exporter of the majority of other agricultural commodities such as cereals, sugar, dairy, fruits, and vegetables.

What Does Inflation Mean?

• The general rise in the cost of goods and services combined with a decline in people’s purchasing power is referred to as inflation.
• This implies that you can either buy less than you could before or you have to spend more money for the same things now when inflation increases (without corresponding increases in your income).
• A “rising” inflation rate suggests that the pace of price increases is also rising.
• An example of a continual acceleration in the rate of price increases would be if the inflation rate was, for instance, 1% in March, 2% in April, 4% in May, and 7% in June.

Reasons for Inflation:

Pull-Aside Inflation:

• It happens when there is a greater demand than there is supply of products and services. Prices generally rise because people are ready to pay more for accessible goods and services when there is a high level of overall demand in the market.

Push-Inflation at Cost:

• Cost-push inflation is caused by an increase in the cost of producing products and services; this can be brought on by causes including rising earnings, higher raw material costs, or supply chain disruptions.

Price-Wage Inflation:

• This type of inflation is frequently described as a feedback loop between wages and prices; as employees want higher pay, employers may respond by raising prices to cover the higher labour expenses. This cycle is then repeated as more workers seek higher salaries.

What Are the Various Indices Used in India to Calculate Food Inflation?

Index of Consumer Prices (CPI):

• The rate of growth in the prices of goods and services that consumers purchase for their own use over time is referred to as retail inflation or CPI inflation.
• It tracks changes in the price of a basket of household-typical purchases, such as food, clothes, housing, transportation, and healthcare.

Consumer Food Prices Inflation (CFPI):

• The Consumer Price Index (CFPI) is a part of the larger Consumer Price Index (CPI), which is calculated by the Reserve Bank of India (RBI) using the CPI-Combined (CPI-C).
• The cCFPI tracks changes in the prices of a specific range of foods that are often eaten in families, such as meat, dairy products, vegetables, fruits, cereals, and other basic foods.
• The Consumer Price Index (CFPI) is a part of the larger Consumer Price Index (CPI), which is calculated by the Reserve Bank of India (RBI) using the CPI-Combined (CPI-C).

The WPI, or wholesale price index:

• It focuses exclusively on products; services are not included. It examines changes in the prices of goods sold and traded in bulk by wholesale enterprises to other businesses.
• The manufacturing, construction, and other industries use the WPI to track changes in supply and demand.
• The Ministry of Commerce and Industry’s Economic Advisor releases the index every month. It is made up of many components and gauges the amount of wholesale inflation in the economy based on the WPI’s month-to-month growth.
• Food articles and non-food goods make up 22.62% of the Wholesale Price Index (WPI) of primary articles.
• Food Articles include things like Cereals, Fish, Eggs, Vegetables, Fruits, Paddy, and Wheat.
• Minerals, crude petroleum, and oil seeds are examples of non-food articles.

What Are the Different Government Programmes Aimed at Reducing Food Inflation?

• Subsidised Commodities: In order to keep prices stable, the government is expanding the distribution of subsidised vegetables like tomatoes and onions through its network and releasing supplies of sugar and wheat.
• Reduction of Import Duty: The government is encouraging farmers to cultivate pulses and lowering import charges on specific pulses to increase local availability in an effort to increase domestic production.
• Export Prohibitions: Since May 2022, exports of wheat and broken rice have been prohibited, with the goal of preserving a surplus of domestic rice supply and bringing down prices.
• Ban on Stockpiling: Regulations limit wheat stocks to 3,000 tonnes for traders, millers, wholesalers, and retail chains, and 10 tonnes for smaller retailers and shops to prevent excessive stockpiling.
• Operation Greens: This initiative aims to stabilize Tomato, Onion, and Potato (TOP) crop supplies throughout the year across the country to minimize price fluctuations.
• Floor Prices: To ensure sufficient domestic onion availability, the government imposed a minimum export price (MEP) of $800 per tonne (₹67 per kg) on onion exports from October 29 to December 31, 2023, amid rising onion prices due to delayed kharif onion arrivals.

What are the Strategies that Need to be Adopted to Tackle Food Inflation in India?

Improved Supply Chain Management:

• Strengthening logistics, storage facilities, and distribution networks can minimize wastage and ensure a consistent food supply, mitigating price fluctuations.
• For example, the use of refrigerated trucks for transporting perishable goods ensures that they reach markets in optimal condition, reducing spoilage and increasing the availability of fresh produce.

Agricultural Productivity Enhancement:

• Investments in agricultural infrastructure, technology, and research can boost crop yields, reducing production costs and stabilizing prices.
• For example, implementing drip irrigation techniques has shown significant water savings and increased crop productivity in regions facing water scarcity.

Price Monitoring and Regulation:

• Implementing mechanisms for regular monitoring of food prices and enforcing fair pricing practices can protect consumers from exploitation.
• Examples like, setting maximum retail prices for essential food items can prevent retailers from overcharging consumers during times of scarcity or high demand.

Agricultural Diversification:

• Encouraging farmers to cultivate a variety of crops can reduce the country’s dependence on specific commodities.
• Initiatives like promoting the cultivation of pulses alongside traditional crops like rice and wheat can enhance soil fertility, reduce pest infestations, and provide farmers with alternative income sources.

Climate Resilience:

• Adopting climate-smart agricultural practices, such as rainwater harvesting and crop rotation, can help mitigate the impact of climate change on food production.
• For example, promoting the cultivation of drought-resistant crop varieties can safeguard against crop failures during periods of water scarcity or extreme weather events.

Utilizing technology:

• Devices like AmbiTag can prove advantageous in mitigating food wastage during transit.
• It continuously records the temperature of its immediate surroundings from -40 to +80 degrees in any time zone for a full 90 days on a single charge.
• It generates an alert when the temperature goes beyond a pre-set limit.