Column: Taking the bite out of food prices

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SummaryManaging the grains market and streamlining policy on high-value food commodities are key to fighting food inflation

Rising food prices have dominated discussions not only in the corridors of the power but also in every household in the last few years. Food inflation, hovering around 4% during FY01–FY08, jumped to double-digit figures during FY09–FY13, and is continuing at this high pace. In 2013,on a year-on-year basis, food price inflation, which was 10% in the month of June jumped to more than 18% in October. Inflation for most vegetables was very severe and seemed beyond all control. The case of onions was the worst, affecting all households. It became a political agenda during the recent assembly elections in five states. Onion prices set an all-time high in November. However, suddenly in mid-December, onion prices dropped leading the government to reduce the minimum export prices to promote exports to stabilise prices. The government is also trying to control hike in prices of food commodities through monetary policies. Though monetary policy is important in taming inflation, the question whether food inflation can be controlled through such policies arises, as food commodity prices are not very sensitive to interest rates.

The pattern emerging from the past shows that it is unlikely that food prices rise because of any single factor; rather the hike is often due to many factors operating in a systematic manner. Almost half the expenditure of an average household in India is on food. So, with increase in spending due to rise in income, the upward push on prices intensifies. With rising incomes and unfolding globalisation, consumption patterns are also diversifying; the per capita consumption of rice and wheat is slowly declining and this is moving towards high-value food commodities, especially pulses, milk, fruits, vegetables, eggs and meat.

Also, the expansive reach of the MGNREGA has substantially increased the wage rates of agricultural labourers, and has been widely cited as one of the drivers for increasing demand for food commodities and raising their prices. The lack of proper infrastructure and cold-storage facilities results in huge post-harvest losses of perishable commodities and adversely affects their supplies. Contrastingly, the government has been stocking foodgrains in amount way higher than required, even after taking into account the requirement under the National Food Security Act. This restricts foodgrain movement in the open market and adds additional pressure due to glitches in the supply, thereby pushing the prices north.

To control inflation of foodgrains, especially rice and wheat, the government

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