Social Economic

The Problem of Food Inflation

It has been said- “half knowledge is dangerous”.  But now there is an increasing need to change this notion to – “misinformation is even more dangerous”. When the society of a nation is misinformed, democracy can be the worse form of government. Increasing role of media & information technology in our lives had suffocated us with information, without bothering about its relevance.

Every month, at least, one news includes the topic of increasing food prices in India. They force us to believe that price of some vegetable or other food item had sky rocketed. After this, political tussle start between political parties over increased food prices. They will mostly blame each other; media channels will cover all this from all possible perfect angles. After some days, news will lose its rank on TRP rating and everyone will forget it. During all this process, no one will try to explain or understand the reality, or the possible solution for these frequent price rises.

Some Global Facts about Food Shortage & Price rise

According to OECD-FAO estimates, the world population will touch 9 billion by 2050. To meet this increased demand, agricultural production has to be increased by 60% over the coming years. Given the limited stock of farmland, decreasing soil fertility, land degradation issues, the environmental impact of fertilizers and pesticides; it is very difficult to meet this demand. Secondly, with the rise in income levels, peoples are more and more concerned with the quality of dietary. Demand for organic food is on the rise both in the developed & developing nation. But organic food has lower productivity. All this will further push up the prices of protein rich and healthy beneficiary items in food basket. Thereby, leading us to one conclusion that there will be a consistent rise in food prices and it is inevitable.

Coming to India, we are a net exporter of food products, thus the impact of rising of food inflation across the globe will not be affecting us directly, but we will not be untouched of it. Higher global prices will push up the domestic prices. Food inflation in India is mainly due to domestic factors & not global. India’s food market is highly mismanaged and sensitive, mere a slight signal of import/export to or from India; affects domestic prices significantly. We will come to market distortions a bit later.

Impact of Food Inflation

In India, food inflation is particularly more important because its impact in India is higher than in the west. Per capita income in India is very low and more than half of our population leaves at subsistence level. The unemployment level in India is already very high on the top of that it has a demographic structure in which 60% population is in working age. This huge availability of manpower somewhat alters the economic relation of inflation with unemployment and wages.  Higher inflation in India raises the cost of living but unemployment and wages remain more or less same because of already present higher unemployment. Also, since a rise in prices of food and specifically perishable food items are periodic, wages don’t respond to these changes. All this further worsens the situation of poor who were already at subsistence level.

Reasons for food inflation

As mentioned earlier, we neither have a competitive market for agricultural products nor do we have an efficient system for distribution. We have witnessed repeatedly, farmers to throw their farm products on road or cultivating their finished crops into the field only because, prices are too low even to recover production & transportation costs. While at some time later we found rising prices for these commodities. This is completely true for perishable food items on the factual basis. This is because we have a complex structure of –

Producer-Commission agent-Wholesaler-Retailer-Consumer

This results in farmer selling for 1 rupee and consumer buying in 4 rupees. The difference of 3 rupees is kept by some handful peoples. They utilize part these 3 rupees to keep this system intact. They exercise their full power to control the supply and manipulate the prices in the market.

Ways to Control Food Inflation

Now coming to point of controlling and regulating food inflation; Apart from stipulating production food inflation can be controlled by efficient supply chain management. The government has to ensure for a competitive and efficient market which controls and remove middle-men. Efficient functioning of markets adds to the welfare of both the producers and consumers. Food inflation is a supply chain issue and should be controlled and watched by the government.

It’s the governance which should take the center stage for regulating and developing efficient agriculture market. Its center government task to regulate the policies in timely and efficient ways so that volatility in the market remains at the minimum level. For a sustainable growth, Center government should accept the lack of governance and supposed to works on improving the supply side issues

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