Higher Food Inflation | 24 Jul 2024

Source: TH 

Why in News?

Recently, the Reserve Bank of India (RBI) in its monthly bulletin titled “ State of Economy” reported that a sharp rise in vegetable prices in June 2024 has halted the disinflation process towards the 4% target. 

• The report emphasised the need for monetary policy to remain focused on aligning inflation with the 4% target. 

What are the Causes of the Rise in Food Inflation? 

• Temperature and Weather Challenges: Issues like adverse weather conditions, such as the prediction of a weak monsoon and heatwave for this year affecting crop yields, particularly for cereals, pulses, and sugar, contributed to supply shortages and higher prices domestically. 
  • For example, cereal and pulse inflation showed double-digit inflation in April 2024. 
• Fuel Prices: The price of fuel, key input in agriculture, has witnessed a considerable increase in recent years. 
  • For example, an increase in fuel inflation by 1% leads to a 0.13% rise in food inflation, and the effect slowly declines through the next 12 months. 
• Transportation Issues: Disruptions in the supply chain due to factors like transportation constraints, labour shortages, and logistical challenges can lead to a decrease in the availability of food products, causing prices to rise. 
• Production Costs: Rising production costs for farmers can lead to higher food prices. This includes expenses such as fuel, fertiliser, and labour costs. 
• Global Causes: The ongoing Russia-Ukraine war has a global impact, particularly affecting developing countries. Energy and commodity prices have risen, and global logistical supply chains have been disrupted.  
  • Ukraine and Russia account for up to 30% of global wheat exports, leading to an increase in food prices. 

What Measures Government Has Taken to Curb Food Inflation? 

• Subsidised Commodities: The government is increasing the distribution of subsidised vegetables like onions and tomatoes through its network and releasing stocks of wheat and sugar to stabilise prices. 
• Buffer Stock Management: The Government maintains a buffer stock of essential food commodities like wheat, rice, and pulses to release into the market during periods of scarcity or price spikes. 
• Procurement and PDS: The Public Distribution System (PDS) ensures food security for the poor by providing subsidised grains. Increasing procurement and expanding PDS coverage can help stabilise prices. 
• Minimum Support Price (MSP): Guaranteeing remunerative prices to farmers for their produce incentivises production, leading to increased supply and potentially lower prices. 
• Import-Export Policies: The government can regulate imports and exports of food items to manage domestic supply and prices. For instance, import duties can be reduced to augment supply, while export bans can be imposed to control domestic prices. 
• Infrastructure Development: Investments in cold storage, warehousing, and transportation facilities reduce post-harvest losses and improve supply chain efficiency, leading to lower prices. 
• Technology Adoption: Promoting the use of technology in agriculture, such as precision farming and weather forecasting, can enhance productivity and reduce production costs. 

Way Forward 

• Supply Chain Improvement: Investing in infrastructure, such as storage facilities, cold chains, and transportation, can reduce post-harvest losses and ensure food reaches consumers faster and in better condition, stabilizing prices.  
  • Direct procurement initiatives, like the Direct Benefit Transfer (DBT) and expanding schemes like Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), can help farmers receive fair prices without intermediaries, reducing price volatility. 
• Regulatory Measures: Price controls and monitoring can provide immediate relief during inflationary spikes by implementing temporary price controls on essential commodities. 
  • Strengthening the Essential Commodities Act can help regulate storage and movement, preventing hoarding and ensuring availability at reasonable prices. 
• Investment in Technology: Encouraging the use of modern agricultural techniques and technologies (e.g., precision farming, and genetically modified crops) can increase yields. 
  • According to the Economic Survey 2022-23, adopting new technologies can potentially increase productivity by 20-30%. 
• Encouraging Crop Rotation: Promoting crop diversification can help stabilise prices. For instance, shifting from traditional crops to pulses and oilseeds can reduce dependency on imports and stabilise local markets. 
• Market Reforms: Strengthening Agricultural Produce Market Committees (APMCs) and establishing more regulated markets can ensure better price discovery and reduce middlemen's influence.  
  • Additionally, digital platforms like e-NAM (National Agriculture Market) can connect farmers directly with buyers, helping them secure better prices.