Wednesday, 18 January 2012

Food Inflation a historical perspective

 Food inflation has been a major issue for quite some time. India, post-independence, has witnessed food prices spiking in almost every decade. Food inflation was high in 1970s and early 1980s.  Due to severe drought conditions in 1987, it lasted for a year and half. The issues were addressed and inflation was minimal in 90s and early 2000s.It was thought that food inflation is a thing of past. But of late, in 2007, food prices rose drastically. This was thought to be due to increase in food prices in the global markets. But in 2008, the food prices in India did not plummet even after a drop in food prices globally. In 2009 weak monsoons played a spoil sport. Though 2010 and 2011 were good monsoon years, there was no respite. “Is food inflation going to be persistent?” is the question that flashes in one’s mind.

     This graph shows food inflation trends in India from 1955 TO 2011.

One school of thought is that food inflation is a result of supply side shocks. There can be many reasons for these supply shocks like, decrease in investments in agriculture, decline in farm sizes and dependence of agriculture on monsoons. Investments in agriculture have decreased from 1950 to 2000. Further, area under farming has decreased. Though number of farms has increased it is again because of fractionalization of farms which resulted in further lowering of yields. All these have resulted in decreased food crop production. Besides, poor storage facilities and distribution system have made things worse. Apart from the above reasons, there is also stagnation in productivity of certain food crops, like pulses, due to which the increasing demand for those food items is not met.
 Unlike inflations before ,which were mainly due to less supply of cereals, this time around it is due to change in preferences of consumers. Economic growth has helped in rising individuals’ salaries. It is observed that when salaries of individuals increase, their food preferences also change. National sample Survey Organization’s 66th round survey has found that share of per capita expenditure on food items has decreased and preferences of consumers are more towards protein items.  Consumers have moved from cereals to more protein items, fruits and vegetables. This trend is seen in both urban and rural areas. The present inflation is due to this change in preferences of consumers which is not supplemented by enough production. This has supported the growing prices of protein items like egg, meat and milk. Also, the demand for processed food is growing and is expected to grow. Milk has a significant role to play food processing and so its demand is also expected to grow. But data show that growth in milk yields is slowing.

 The bar graphs above show total productivity of milk for a decade from 1960 to 2000-2007.The line graph shows decrease in growth of milk yields.
There is a thought that food inflation which is due to supply side shocks cannot be dampened by monetary policy i.e. by rising interest rates. Now, to bring down food inflation, it becomes imperative to increase the supply of protein items so that demand-supply gap can be bridged. Firstly, production of pulses should be increased. There are states which consume more pulses but contribute less than national average in production. The problem in these states could be checked by addressing issues which are causing bottlenecks. This may be done by increasing productivity which is hovering around 600kgs/hectare from 1990s.Secondly, as mentioned earlier demand for milk is expected to grow. So, India needs to concentrate more on livestock production. Also, distribution system has to be improvised to decrease the pilferage. India faced chronic food shortages in the past. This problem was addressed through programmes like green revolution, and through increased investments in agriculture. Looking at the current scenario, maybe it is the time for another GREEN and White revolutions.

The above bar graph shows productivity of total pulses in different states of India.

Research article by 
U Ravi Chandra
PGP 2011-2013
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1 comment:

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