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Tuesday, May 26, 2020

Food prices surge since lockdown: IGIDR study

The spike in retail food prices after lockdown reverses the trend since early 2020.

Written by Udit Misra | New Delhi | Updated: April 29, 2020 11:46:39 am
Crowd at Galla Mandi in Lucknow on Tuesday. (Express photo: Vishal Srivastava)

Retail and wholesale food prices surged by as much as 20 per cent in the first four weeks – 28 days — since the nationwide lockdown was announced on March 24, a study by researchers of the Indira Gandhi Institute of Development Research (IGIDR), Mumbai, has found.

The study, titled “Urban food markets and the lockdown in India” by Sudha Narayanan and Shree Saha (associate professor and research associate at IGIDR, respectively), mapped publicly available data for wholesale and retail prices for 22 commodities from 114 cities across the country. It found that average price increased as much as 28 per cent for tomatoes, 15 per cent for potatoes, more than 6 per cent for several varieties of pulses, and more than 3.5 per cent for most edible oils.

“Despite guidelines that allow the movement and transactions in essential commodities, it appears that law enforcement and the bureaucracy have privileged maintaining the lockdown over maintaining food security…” the paper states.

The spike in retail food prices after lockdown reverses the trend since early 2020. Many macroeconomists have pointed out that recessionary trends will lead to lower prices but the IGIDR study states, “It may well be that food prices will increase first before they go down.”

Narayanan said, “The main reason for this increase in prices is the thinning of supply and the transportation bottlenecks.”

On the demand side, there was a dip because demand from restaurants would have come down, and an increase due to panic buying and hoarding by households. But net-net, demand rise did not cause this spike, rather it was due to supply disruptions, Narayanan said. “To corroborate, we asked retailers, and they pointed toward thinning supplies and transport disruptions as the main worries,” she said. The spike was most in commodities such as perishables like tomatoes, for which retailers did not have as much stock. Increases were marginal for rice and atta, while wheat prices actually fell.

Another key finding was that smaller cities were affected worse, as they saw higher price inflation. “Bigger cities are more established markets and provide better prices and as such are better served than smaller cities or semi-urban markets,” Narayanan said. She also pointed out that due to sealing of state boundaries many horticulture (fruit and vegetables) farmers made heavy losses and are likely to stay away from growing these commodities in the next cycle, thus pushing up their prices in future.

“For instance, a lot of areas on Tamil Nadu border used to sell their horticulture produce to Bengaluru. But they could not (over the last few weeks), due to the sealing,” she said.

Going forward, prices will be determined by both the area under cultivation for different crops as well as the easing of supply bottlenecks. The study also cautions against price controls and favours relaxing of production and distribution processes including in the informal sector.

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