For those residing in developed nations, a rise in food prices might be a slight inconvenience, but for those in developing countries, it could mean the difference between having enough to eat and going hungry. Food prices are notoriously unstable, fluctuating due to various factors, including weather conditions and other supply-demand elements. Despite this instability, there seems to be a rising trend in food prices, with recent highs being recorded.
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What Causes Food Inflation?
Short-term supply disruptions due to adverse weather conditions are one factor. However, there is emerging evidence of long-term supply issues, such as loss of agricultural land due to global warming.
The increased use of biofuels is another reason. Instead of growing crops for food, they are being used for energy production.
Rising demand, particularly in rapidly growing economies like China and India, is also driving up prices. As incomes increase, people tend to spend more on meat and dairy products, which require more intensive farming practices and reduce the supply of food crops.
Supply chain disruptions caused by the pandemic and subsequent lockdowns have also had an impact on food prices globally and in India.
The ongoing Russia-Ukraine conflict is a significant recent contributor to food inflation.
The formation of regional trading blocs also affects food commodity prices for countries outside these groups.
Cost-push inflation refers to inflation caused by an increase in the price of inputs such as labor and raw materials. As the cost of these production factors rises, the supply of goods decreases. If demand remains stable, the prices of goods increase, leading to a rise in the overall price level. This type of inflation occurs when supply decreases, while demand-pull inflation happens when increasing demand causes inflation. Food inflation can cause both types of inflation.
The Impact of Food Inflation
Food inflation can have significant consequences, some of which are mentioned below:
Food inflation can jeopardize a country's food security. Rising prices can exacerbate inequality in food distribution. Despite having policies like the
National Food Security Act. 2013
, which provide relief to families below the poverty line, food inflation can still pose a significant challenge.
Food inflation can also cause cost-push inflation, which can lead to an increase in the prices of other goods and services.
Short-term food inflation is often caused by cost-push inflation due to limited yield or poor supply chain management. This is difficult to predict and control.
Long-term food inflation is often caused by demand-pull inflation, leading to increased strain on the environment as more land is used for intensive agriculture, which often involves the use of chemical fertilizers and pesticides.
Possible Solutions to Food Inflation
Encouraging people to consume less meat and dairy could significantly increase grain supplies, as a substantial portion of the world's grain is used to feed livestock. This could also free up land for growing food crops instead of fodder crops.
Improving grain storage, particularly in countries that heavily rely on imports, and helping such countries to grow more staple foods at home could also be beneficial. This could replace the cultivation of cash crops for export, which often supplants staple foods.
Growing a wider range of crops could reduce reliance on a few commodities and improve food security. This could also reduce market dominance by a few exporters.
Adopting climate-smart agriculture could help to maintain crop yields even as global temperatures rise. This, combined with debt relief, could give poorer countries more financial leeway to cope with food price volatility.
Stabilizing population numbers could also help to control food inflation in the long term.
Introducing and promoting alternatives to a few select food commodities, such as wheat and rice, could help manage the demand-side factors that control their price. This could also enhance food crop diversity, benefiting both the environment and food security.
Current Food Inflation Rate in India
In India, the food inflation rate is a component of the
Consumer Price Index
(CPI), which is released by the Reserve Bank of India (RBI) monthly. The most recent statistics related to food inflation in India are provided below:
Most food items, namely, cereals, pulses, milk, fruits and vegetables, meat-fish eggs (MFE) and sugar etc. are included in it.
What is CPI food inflation?
The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption. To measure inflation, we estimate how much CPI has increased in terms of percentage change over the same period the previous year. If prices have fallen, it is known as deflation (negative inflation).
What causes food price inflation in India?
Rise in cost of production and MSP are the main drivers of cereal inflation, while inflation in milk, vegetables, and meat and fish are driven by input cost inflation and positive demand supply gap. These two factors along with MSP inflation mainly drive pulses inflation.