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Politics 25-Jan, 2024

India Immune from Soaring Global Food Prices?

By: Damini Mehta

India Immune from Soaring Global Food Prices?

Photo Credit: Wikimedia Commons

According to a 2021 study by Fitch Solutions, by 2025 the average Indian household will spend 35.3 per cent of total household budget on food. This marks a jump of 2.1 percentage points from 33.2 per cent in 2005.

In March 2022, global food prices, tracked by the Food and Agriculture Organisation (FAO)’s food price index reached an all-time-high of 159.7 points driven largely by the Russia-Ukraine conflict. Both countries export wheat in large quantities apart from other food items. In December 2023, the figure dropped 25.8% to 118.5 points. According to a 2021 study by Fitch Solutions, by 2025, the average Indian household will spend 35.3 per cent of total household budget on food. This marks a jump of 2.1 percentage points from 33.2 per cent in 2005.

Owing to food being a large component of the household budget, food inflation in India has always been a talking point. However, numbers show that compared to the global food prices tracked by FAO, food inflation in India has taken a different trajectory. According to FAO’s food index, global food inflation has remained in the negative territory since November 2022. In December 2023, food inflation in India reached 9.5 per cent compared to a minus 10.1 per cent globally. In the last three years, global food inflation has come down from a high of 40.6 per cent to minus 21.5 per cent. During the same period, domestic food inflation ranged between 0.7 per cent to 11.5 per cent.

Food inflation at the global level translates to domestic inflation in any country through two main factors- exports and imports. India has self sufficiency in most food items but is dependent on imports for more than 60 per cent of its edible oil needs and imports pulses too. Moreover, the country is an exporter of cereals such as wheat and rice, which often leads to reduced quantities in the domestic market and thereby price rise. Post the COVID pandemic, supply disruptions pushed domestic retail edible oil price rise into the double digit territory from June 2020 onwards. Russia-Ukraine conflict in early 2022 kept the prices high till mid-2022. Post the conflict, a disruption in wheat supply led to a push in domestic prices of wheat as exports became more lucrative. Interestingly, India’s self-sufficiency in most food items limits this transferability of global food prices to the domestic market to mainly edible oil and pulses. Measures taken by the government such as reduced import duty on edible oil and a ban on shipment of wheat and non-basmati rice have helped curtailed jump in prices in the domestic market to the extent at which prices have jumped in the global marketplace.

In December 2023, retail inflation in cereal and pulses was higher than the overall food inflation of 9.5%. Retail cereal saw prices jump by 9.9 per cent, whereas pulses saw a 20.7 per cent jump in prices. Given agriculture is sensitive to the weather conditions, a bad harvest can adversely impact prices such as last year when unseasonal rains impacted yield in several states. In December 2023, food inflation contributed to the four-month high of 6.5 per cent in retail inflation from 5.5 per cent the month before. Inflation in vegetables (27.6 per cent), fruits (11.14 per cent), and sugar (7.14 per cent), apart from pulses (20.73 per cent) kept the overall inflation high.

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