Context:
In 2023, while world food prices experienced a significant decrease from their 2022 highs, India’s food inflation remained stubbornly high at 9.5% in December 2023. This contrasts starkly with the global trend of deflation, which stood at -10.1%. According to the UN Food and Agriculture Organization (FAO), the food price index averaged 143.7 points in 2022 but plummeted to 124 points in 2023, marking a substantial decline of 13.7%.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Factors Contributing to the Drop in Global Food Prices
- Reasons for High Food Inflation in India Despite Falling Global Prices
- Calculation of Food Inflation in India
- Strategies to Address Food Inflation Effectively
Factors Contributing to the Drop in Global Food Prices:
- Bumper Harvests: Abundant harvests of major crops, such as wheat, in 2023 led to a surplus in the global market, easing supply concerns.
- Continued Exports from Ukraine and Russia: Despite initial worries about supply disruptions due to the war in Ukraine, both Ukraine and Russia have managed to maintain wheat exports, alleviating supply anxieties.
- Improved Vegetable Oil Supplies: The UN’s Food and Agriculture Organization Vegetable Price Index saw a significant drop in 2023, attributed to improved vegetable oil supplies and reduced use for biofuel production.
- Decreased Consumer Demand: High inflation and economic recession fears have dampened consumer demand in many regions, reducing import demand for certain food commodities and exerting downward pressure on global prices.
Reasons for High Food Inflation in India Despite Falling Global Prices:
- Limited Transmission of International Prices: India’s food prices remained elevated due to limited transmission of falling global prices to domestic markets.
- Import Dependence: While India is largely self-sufficient in most agri-commodities, it depends significantly on imports for edible oils (60% of consumption) and pulses.
- Government Interventions: The Indian government imposed bans on exports of certain food items and provided import duty waivers on others, reducing global market influences on domestic prices.
- Weather Conditions: Weather-related factors affecting crop yields, particularly for cereals, pulses, and sugar, contributed to supply shortages and higher prices domestically.
- Low Stock Levels: Low stock levels for commodities like wheat and sugar further exacerbated price pressures, contributing to high food inflation in India despite falling global prices.
Calculation of Food Inflation in India:
- Consumer Price Index (CPI) for Food and Beverages: Food inflation in India is primarily measured by the Consumer Price Index (CPI) for Food and Beverages. CPI tracks changes in the prices paid by typical consumers for a basket of goods and services over time.
- Weightage in CPI: Food has a weight of 45.9% in the consumer price index. However, its contribution to overall inflation has increased significantly, from 48% in April 2022 to 67% in November 2023.
- Household Consumption Survey: The government’s Household Consumption Survey revealed that food’s share of the rural consumption basket fell below 50% for the first time to 46% and to 39% for urban consumers.
- Factors Influencing Food Inflation: About 90% of food inflation is determined by non-cyclical factors such as weather conditions, supply conditions, international prices, and availability. However, demand factors also play a role, contributing to about 10% of food inflation with significant time variation.
Strategies to Address Food Inflation Effectively:
- Investment in Agricultural Infrastructure and Technology: Improving agricultural infrastructure, adopting advanced technology, and investing in research can enhance crop yields and reduce production costs, boosting supply and stabilizing prices.
- Enhancing Logistics and Storage Facilities: Improving logistics, storage facilities, and distribution networks can reduce wastage and ensure a steady supply of food items to the market, mitigating price fluctuations.
- Promoting Crop Diversification: Encouraging the cultivation of a variety of crops and supporting alternative farming practices can reduce reliance on a few commodities, thereby balancing market dynamics and reducing price volatility.
- Regular Monitoring and Price Regulation: Regular monitoring of food prices and implementing effective price regulation mechanisms can prevent price manipulation and ensure fair pricing for consumers and producers.
- Addressing Climate Change Challenges: Implementing sustainable farming practices, efficient water management strategies, and promoting crop diversification can help mitigate the impact of climate change on agriculture, reducing production risks and enhancing long-term food security.
-Source: Indian Express
