Explained: Why food prices remain high in India Reuters

Rajendra Jadhav

(Reuters) – Food inflation in India has been hovering around 8% year-on-year since November 2023 due to supply-side factors, including poor weather conditions on crops, and is unlikely to ease anytime soon despite forecasts of early monsoon rains and above-normal rainfall.

Rising food prices, which account for almost half of total consumer prices, have pushed headline inflation above the central bank’s 4% target, preventing interest rate cuts.

What is driving food inflation?

Last year’s drought and the ongoing heatwave have significantly reduced supplies of food such as pulses, vegetables and grains.

Restricting food exports and lowering import tariffs have had little effect.

Vegetable supplies usually fall in the summer, but the decline this year has been more pronounced: Temperatures in almost half of the country have been 4 to 9 degrees Celsius higher than normal, causing harvested and stored vegetables to rot and preventing planting of onions, tomatoes, eggplants, spinach and other crops.

Farmers usually prepare vegetable seedlings before the monsoon rains from June to September, then transplant them into the main fields, but this year the extreme heat and lack of water have halted planting and replanting, exacerbating the vegetable shortage.

Why doesn’t the monsoon help?

The annual monsoon rains that depend on India’s agricultural production arrived early in the country’s south and blanketed the western state of Maharashtra ahead of schedule, but their initial strength quickly faded, leaving the country 18% shortfall this season.

The weakening monsoon not only triggered heatwaves but also delayed planting of summer crops, which cannot go ahead at full speed without sufficient rainfall.

Despite scattered rains in June, the Indian Meteorological Department is forecasting above-normal rainfall for the rest of the monsoon season.

When will prices come down?

Vegetable prices are expected to fall from August onwards if the monsoon returns and sweeps the country as usual. However, floods in July and August or prolonged drought could disrupt the production cycle.

With supplies tight, milk, cereal and pulse prices are unlikely to come down anytime soon. Wheat supplies are dwindling and the government has announced no plans to import grains, which could push wheat prices up further.

Rice prices are likely to rise after the government on Wednesday raised the minimum support price, or purchasing price, for paddy by 5.4 percent. Supplies of pulses such as pigeon pea, black pea and chickpea were severely affected by last year’s drought and are not likely to improve until the new season’s crop is harvested.

Sugar prices are likely to remain high as production is expected to fall next season due to reduced plantings.

Would government intervention help?

Certainly, government interventions such as export restrictions and import easing can help bring down the prices of some food items. But when it comes to the prices of vegetables, which are highly perishable and difficult to import, there is little the government can do.

© Reuters. A worker unloads bags full of rice at a wholesale grain market in the northern Indian city of Chandigarh on July 29, 2014. REUTERS/Ajay Verma/File Photo

The government has taken various measures to bring down food prices, including restricting exports of sugar, rice, onions and wheat, but these measures have been unpopular among farmers and led to the ruling Bharatiya Janata Party’s defeat in rural elections.

With state elections looming in Maharashtra and Haryana where a sizable number of farmers will decide the outcome, the central government is trying to win back farmer support and may allow prices to rise for some crops in exchange for taking aggressive steps ahead of the elections due in October.

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