Food Inflation rises, due to Unseasonal Rainfall in India

  • 20-Oct-2022
  • Food Inflation rises, due to Unseasonal Rainfall in India


Ibrahim Shaikh, a rice farmer in India, said that every day he looked to the sky and pleaded for the unseasonal rains to stop. He claims that he began harvesting the wet produce earlier this week despite his pleas going unanswered.

"Ten days ago, the crop was ready for harvest, but torrential rains have caused 20–30% of the grains to be destroyed. I won't receive anything if I don't harvest today "Shaikh said as he spread out a plastic sheet to dry the harvested paddy in Kadadhe hamlet, 110 kilometres (70 miles) east of Mumbai.

Food prices, already the highest in more than two years, may continue to rise rather than declining after the harvest as they often do as a result of crop losses for Shaikh and farmers throughout the nation. The bad crop and the high costs would have an especially negative impact on India's millions of rural impoverished people.

In addition to cereals, prices for vegetables, milk, legumes, and edible oils—which together make up more than 25% of the CPI—are also growing and are anticipated to stay high in the near future.

Because of a spike in the index in corresponding months last year, economists predict that annual headline inflation will start to decline from September's 7.41% peak, but price pressures on cereals, vegetables, and milk will continue.

Besides keeping inflation high, higher food prices will be more of a burden in the countryside, where wages have not kept pace with inflation. Meanwhile, rising incomes and a boom in consumption in the towns and cities are driving overall growth to a forecast 7% in the current April-March fiscal year, the highest among major world economies.

"Higher food inflation does tend to act as a regressive tax on the poor," said Yuvika Singhal, economist at QuantEco Research. "In a post pandemic world, it can stand to perpetuate the K-shaped economic recovery and widen income inequalities further."

Inflation for rural poor people, who are considered to be in the bottom 20% of the population in terms of consumption, was 8.1% in September, per a study by Crisil. Inflation among the richest 20% of people was only 7.2% in metropolitan regions.

FREE FOOD SCHEME MAY NOT LAST

The prospect of continuously rising inflation may compel the central bank to raise rates further, thereby slowing growth.The government will be pushed to address the rural unrest since important state elections are coming up later this year.

The world's largest free food programme for the poor, which India extended last month by three months to December, cannot be continued for much longer, according to dealers since food supplies are running low. As of October 1st, state-run agencies' wheat stocks were down to 22.7 million tonnes from 46.9 million tonnes a year earlier.

Officials from the government assert that the supply is sufficient. Wheat prices in the area have reached a record high due to limited supplies. Due to high international pricing following the Ukraine War, imports are not an option.

According to B.V. Mehta, executive director of the Solvent Extractors' Association, edible oil prices are also increasing after a recent decline as a result of heavy rains disrupting palm oil production in important producing nations and concerns growing over sunflower oil supplies from the Black Sea region.

Meanwhile, leading milk producers are raising prices as stocks of milk products are getting depleted because of robust exports of milk powder and butter, said B. B. Thombare, chairman of dairy company Natural Sugar and Allied Industries.

"Milk production is rising but prices are unlikely to come down because of thin stocks of milk products," he expressed.

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