A considerable part of the RBI’s statement accompanying its last week’s exceptional monetary tightening measures focused on the challenges arising from food inflation. That problem, till recently, was largely confined to edible oils (from soaring international prices even prior to the Russia-Ukraine war) and the likes of onion and tomato (due to unseasonal heavy rains). But now there is fear of food inflation getting “generalised”. The Food and Agriculture Organisation’s food price index has shown a 29.8 per cent year-on-year increase for April. Moreover, all commodity group price indices have posted huge jumps: Cereals (34.3 per cent), vegetable oils (46.5 per cent), dairy (23.5 per cent), sugar (21.8 per cent) and meat (16.8 per cent). Simply put, food inflation is already rising across-the-board globally — because of supply disruptions from the war, dry weather in South America, high crude prices inducing greater diversion of corn, sugar, palm and soyabean oil for bio-fuel, and so on.
The transmission of the above global inflation to domestic food prices basically depends on how much of a country’s consumption/production is imported/exported. Such transmission is evident in edible oils and cotton, where up to two-thirds of India’s consumption and a fifth of its production are imported and exported, respectively. The same is starting to happen in wheat. Till two months ago, the country seemed set to harvest a bumper crop and also surpass last year’s all-time-high exports. But with the heat wave from mid-March severely impacting yields, both public stocks and overall domestic availability are under pressure, even as open market prices have risen to export parity levels. Not surprisingly, the Centre has decided to slash wheat allocations and offer more rice under its flagship free-grains scheme. Export demand is, likewise, helping maize trade well above its minimum support price (MSP). But that, alongside higher oil meal prices, will also push up livestock feed costs and, in turn, translate into inflation in milk, egg and meat.
For now, though, the consolation is that there is little to no inflation in pulses, sugar, onion, potato and most summer vegetables. To that extent, food inflation isn’t yet “generalised” in India. Sugar is one commodity where retail prices haven’t gone up much, despite record exports by mills. The reason for it is production also hitting a historic high. In short, while global food inflation is a reality, the only way to contain the effects of it getting “imported” is to step up domestic production. That would call for early announcement of kharif MSPs with credible procurement plans for oilseeds and pulses; ensuring timely availability of seed, fertiliser, crop protection chemicals and credit by actively engaging the industry; and not resorting to knee-jerk export bans or stocking controls, which will only disincentivise producers.
This column first appeared in the print edition on May 9, 2022, under the title ‘Eye on the plate’.