On india’s plate rise in food prices predates the ukraine conflict but it can be controlled

On india’s plate rise in food prices predates the ukraine conflict but it can be controlled

Punjab is expected to contribute about 13 million tons of wheat in the ongoing procurement exercise of GoI. However, a report in this paper said crop arrivals in the market are tapering. Right now, it appears procurement is unlikely to exceed 10 million tons. Separately, Haryana has banned inter-district movement of dry fodder made of wheat straw and other materials. All these developments are early signs that the agricultural market is tightening as all the stakeholders adapt to both local and international forces.

The FAO cereal and vegetable oil price indices hit record highs in March. It may partly explain why some links of Punjab’s agricultural chain are reportedly holding back stocks. India’s wheat and edible oil markets are influenced by international events through the trade channel. The Russia-Ukraine war may have undermined global food security because of the region’s criticality in the supply of wheat, sunflower oil, maize and fertiliser. The upward trend in agricultural prices, however, predates the conflict. Drought in parts of both North America and South America have constrained supply of important grains and soya bean. India’s food inflation trajectory too hit an inflection point before the conflict.

Food inflation declined between May and September 2021. Since then, it has seen a steady increase. The consumer food price index was 7.68% in March, higher by seven percentage points than the September 2021 reading. Rising food prices have pushed up the headline inflation as core inflation has been sticky around 6% for a year. The combined pressure on prices led to headline inflation of 6.95% in March, above RBI’s inflation target’s upper limit of 6%. India macroeconomic challenges now include elevated inflation. Within it, food price inflation is worrisome as it has adverse consequences on a large section of the population which does not appear to have fully recovered its purchasing power from the economic shock of 2020-21.

Unlike oil, the level of domestic control over most items of the food basket is significant. GoI and states are in a position to mitigate the impact of food inflation. India’s stock of food grains needs to be released regularly to control cereal prices. GoI also needs to persuade states to refrain from bans on movement of agricultural products as these worsen the impact of international trade disruptions as producers prioritise protecting their domestic markets. Controlling food inflation will also ease RBI’s task and make for a smoother transition to a tighter monetary policy.