Increase in demand has been observed due to higher rural wages, rising agricultural cost of production, change in consumption pattern favouring imported items, increase in MSP and draught which has resulted inhigh food inflation.
The cost of food increased to 7.55% due to ballistic price rise of essential food items. (Price of Tomato skyrocketed to Rs. 85/kg from Rs. 15/kg in 5 days). It is a matter of concern because an inflation burst trend has been observed for past 3-4 years during months of May, June and July, yet hardly time-bound actions are taken beforehand inspite of prior information as well as food inflation tackling mechanism.
Contributions to present food inflation are
Environmental changes: Random changes in environment not only due to climate change but also others like unseasonal rainfall, draught conditions etc. affects the raw food market as well as manufacturing industries that use food products as raw materials.
Inadequate storage facilities: Lack of warehouses and godowns, cold storage infrastructure. Traditional working of FCI has resulted into unaccounted transmission losses, food spoilages etc. Mandis are also causing high prices.
Increased fuel prices: Recent OPEC have increased fuel prices by decreasing production to capture market. This has resulted in falling of rupee and impounding prices and has also a direct impact on food. (Food is transported interstate through railways and roadways and thus has effect of rising oil prices.)
Hoarding: Trend of increased food costs indulge traders and merchants to resort to hoarding, thereby creating artificial food scarcity. However, they also having lack of storage facilities and constant weather changes result in decrease in their perishable food stock. This further increases their demand which fuels further price rise.
Limited Mandis: They are less in number and controlled by few rich agricultural producers. They resort to monopolistic behaviour and thus rack up the prices. Also, mandis need large spaces, transport linkages which creates adversaries for their proliferation.
Rise in per capita income due to increased salaries in last decade (2005-2010) was supported by market availabilities of high-end products. This inflated the inflation more. Though income hikes have cooled down, the inflation persists.
High demand of organic food, especially in European countries. However, they have smaller shelf-life and lack of storage facilities which has raised their prices higher. This leads to costly domestic food production. Thus, imported inorganic food items have found market place in India.
Increased middlemen: The dominance of middlemen who eat away huge part of farmer’s income and also charge more from consumers has made essential food items and also other products costly.
A recent UNEP study presented that food inflation can sink entire economy. India and China are global leaders in food production accounting one-third market in cereals, oil, sugar and wheat. Thus, any rise in food prices threatens their domestic economy. Earlier in 1990s, UN and FAO expressed their concerns about food security due to food inflation because of USSR disintegration, many wars etc. Agrarian land found no takers in Europe due to less profitability which saw decrease in agricultural population to 3-5% from 25-30%. This was despite the 300% agricultural subsidies given for agricultural production.
Today, India houses 70% in agricultural producers. Shut down of MNCs in past 10-12 years, large agricultural farmland owners venturing into agro-food industry, recession redirected many back to India. Now, India produces organic as well as inorganic food due to technology, availability of funding and government support. Hence, what was a food security threat in 1960s has converted to food security assurance currently.
Improved infrastructure: Better transportation and storage, check on hoarding and use of technology can bring inflation down by 3 basis points to around 4.5% in a fortnight. The need of the hour is government’s ‘blinkered focus’ to utilise available resources to relieve pressure of the hard hit consumers.
Increase in agriculture markets: Encouraging increased cooperative farming and mechanisms such as credit cards to provide timely and adequate credit.
The international oil prices are expected to come down in future
India has sufficient foreign exchange which needs to be used during such distress times. The reserves are to cater to hurting poor consumers and not to be decorated in bank vaults during desperate times.
Bypassing middlemen through increased use of technology (E-mandis) where farmers bring produce to the market directly. Use of mobile as medium of information sharing and gateway to independent markets.
Pro-active government approach to identify and arrest hoarders who artificially distort market balance.
Changing cropping pattern: High time now to introduce farm friendly and consumer demanded food crops than export oriented crop production. Increased use of soil health cards