Tighten your belts, food inflation is here to stay for a while

Written by Banikinkar Pattanayak | New Delhi | Updated: Oct 30 2013, 06:04am hrs
Food inflationIndia's food inflation has remained at elevated levels over the last four years. (AP)
The countrys food inflation, which has remained at elevated levels over the last four years, is likely to stay high and volatile for some more time, thanks to a persisting mismatch between demand and supplies of horticulture crops, soaring income levels, poor infrastructure and delayed market reforms.

Average food inflation hit 12.24% in the first half of the current fiscal, mainly due to a whopping 38% spike in vegetable prices. Although inflation in fruit remained somewhat muted at 3.2% in the first half of the fiscal, analysts said their prices too are expected to rise in the coming months as stocks are depleting and output hasnt kept pace with demand, driven by higher incomes.

While vegetable and fruit production rose at an annual 4.5% and 3.5%, respectively, in the last five years, a conservative estimate pegged the rise in demand at 5.9% and 6.9% during the period. A near-70% surge in income levels since 2008-09 has driven demand for horticulture and protein-based items such as eggs, fish and meat, leading to production trailing demand even further. Inflation in eggs, fish and meat rose 13.1% in the April-September period, outpacing overall food inflation.

What compounded concerns of sticky inflation is the 40% wastages of fruit and vegetable a year in India, according to a report by UK-based Institution of Mechanical Engineers released this week. Consequently, while prices tend to drop sharply during the peak harvesting season, they shoot up off-season.

The wastages, if contained, will have the most salutary effect on food inflation in the country apart from ensuring better returns to farmers, analysts said. However, in the absence of a significant leg-up to food processing, cold storages and other infrastructural facilities and the existence of the archaic APMC Act in some states that negates the concept of a free market, analysts feel food inflation will continue to haunt policymakers for some more time.

According to Ashok Gulati, the chairman of the Commission for Agriculural Costs and Prices (CACP), Building efficient supply lines for agri-products, especially perishable ones like fruits and vegetables, milk and milk products, eggs, meat and fish, etc, where the pressure of food inflation is much more than on cereals, deserves priority.

This requires massive investments in logistics, agro-processing and organised retailing, all of which can be leveraged through the private sector. Viewed from this perspective, a special mission on food processing and FDI in organised retailing are steps in the right direction, he said.

Some other analysts, including DH Pai Panandikar, president of RPG Foundation, reckon that food processing needs to be promoted to reduce wastages and make farming more remunerative for farmers.

Scientific storage capacity is only 30% of the required capacity and cold storage facility is limited to only 9% of fruits and vegetables produced, according to Global AgriSystem, a noted consultancy firm specialising in agricultural market systems. Consequently, farmers get only 25-40% of the price paid by consumers for a commodity as the mark-up in the supply chain adds up to 60% and can even go up to 75%, while wastages in multiple handling by different intermediaries result in an erosion of value by 15-25%, it said.