Food Price Inflation – Reasons and Mitigation Measures

Context

The Retail Inflation in India for the month of April, looked good in the beginning as the headline Consumer Price Index (CPI) inflation rate dropped to 4.83% which was lowest in the 11 months prior. However, this small decrease could not hide the alarming rise in food prices.

About Food Inflation

• 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. For example, if the inflation rate was 1% in March, 2% in April, 4% in May, and 7% in June, it shows a continuous acceleration in the rate of price increases.

Indices of Food Inflation

• Consumer Price Index (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 variety of household-typical items and services, such as food, clothes, housing, transportation, and healthcare. 
• Consumer Food Price 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 CFPI tracks changes in the prices of a specific range of foods that are often eaten in homes, such as meat, dairy products, vegetables, fruits, cereals, and other basic foods.
• Wholesale Price Index (WPI) – 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.

Trends in Inflation and Food Prices

• Food Prices – 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%. 
• Rural Consumers – 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.

Reasons behind rising Food Inflation

• Temperature and Weather Challenges – Issues like unfavorable weather, like the forecast of a weak monsoon and heatwave for this year, which affected crop yields, especially for grains, pulses, and sugar (as these things need a lot of water to thrive), led to shortages in supplies and increased prices at home. 
• Fuel Prices – The price of fuel, another key input in agriculture, has witnessed a considerable increase in recent years. 
• Supply Chain Disruptions – A reduction in the supply of food goods can result in higher pricing due to supply chain disruptions brought on by issues such as labor shortages, transportation limitations, and logistical difficulties. 
• Global Effect – India’s food prices remained high despite a decline in global food prices due to limited transmission 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.

Govt. Initiatives to control Food Inflation

• Subsidized Commodities – To keep prices stable, the government is releasing supplies of wheat and sugar and expanding the distribution of subsidized vegetables like tomatoes and onions through its network. 
• Reduction in Import Duty – The government is encouraging farmers to cultivate pulses and lowering import taxes on specific types of pulses to increase local availability in an effort to increase domestic production. 
• Export Bans – The goal of the export bans on broken rice (from September 2022) and wheat (effective May 2022) is to keep domestic supplies plentiful and costs low. 
• Ban on Stockpiling – In order to prevent excessive stockpiling, regulations set a maximum on wheat stocks of 3,000 tonnes for dealers, millers, wholesalers, and retail chains, and 10 tonnes for smaller retailers and shops. 
• Operation Greens – In order to reduce price volatility, this program seeks to stabilize the nation’s supply of tomatoes, onions, and potatoes (TOP) crops throughout the growing season.

Mitigation Measures to control Food Inflation

• Improved Supply Chain Management – In order to reduce waste and guarantee a steady supply of food, distribution networks, storage facilities, and logistics can all be strengthened. This will help to stabilize prices.

• Agricultural Productivity Enhancement – Agricultural infrastructure, technology, and research investments have the potential to increase crop yields while lowering production costs and stabilizing prices.

• Price Monitoring and Regulations – Customers can be shielded from exploitation by putting in place procedures for routinely checking food costs and implementing reasonable pricing policies.

• Agricultural Diversification – Reducing the nation’s reliance on particular commodities can be accomplished by encouraging farmers to grow a diversity of crops. Promoting the growth of pulses alongside more conventional crops like wheat and rice can improve soil fertility, lessen pest infestations, and give farmers another source of income. 
• Climate Resilience – Crop rotation and other climate-smart agricultural techniques, such rainwater collection, can help lessen the negative effects of climate change on food production.

Conclusion

India’s April retail inflation figures reveal a concerning escalation in food prices, overshadowing a slight dip in the overall CPI. This inflationary trend, exacerbated by climatic adversities, fuel costs, supply chain issues, and global dynamics, has disproportionately impacted rural consumers. Government interventions and mitigation strategies are in place to stabilize the market, yet a holistic approach encompassing improved supply chains, agricultural productivity, price regulation, crop diversification, and climate resilience is imperative for sustainable management of food inflation.

SOURCE: The Hindu

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