Economy
Mint Primer | Will your grocery bills pinch less?
Summary
Food prices have moderated recently, falling from 11% to 6% inflation. Despite some items seeing price drops, others remain high. The upcoming winter harvest faces challenges from heat stress, while soaring edible oil prices reflect global market changes and India's import reliance.Food price inflation has moderated over the past few months, descending from a high of 11% last October to 6% in January. As the winter harvest begins later this month, will food prices continue to soften going forward? Mint explores.
How have food prices moved in recent months?
Food prices rose sharply in October last year (11% year-on-year) due to a spike in vegetable prices following heavy rains. Since then, it has moderated to 8.4% in December and 6% in January. Daily price trends from the consumer affairs ministry show that current prices (as on 2 March) are steep for cooking oils while easing for tomatoes, potatoes and onions. Mustard and sunflower oil prices are 26% and 29% higher year-on-year, respectively. For some items where prices have cooled, consumers may still feel the pinch. For instance, tur dal is 10% cheaper year-on-year, but consumers are still paying 21% more when compared to 2023 prices.
Also read: Mint Primer | All about the inflation spike: how, why & when
What is the outlook for the winter harvest?
Rabi (winter) crops are harvested between March and May. As per the agriculture ministry, farmers have increased area under wheat and gram (chickpeas) by 2% and 3% year-on-year, respectively, but cut mustard plantings by nearly 3%. For wheat, rising temperatures ahead of harvest is a concern because terminal heat stress during grain formation negatively impacts yields. The met department has forecast above normal temperatures in March with higher-than-usual number of heat wave days. As of now wholesale wheat prices are 10% higher compared to last year. After three consecutive years of poor wheat harvest any significant loss may push India to ease imports.
Why are edible oil prices soaring?
Currently, India meets 65% of its annual cooking oil requirements via imports, about half of it is palm oil from Southeast Asia. Retail prices have increased after international palm oil prices firmed up, following higher diversion of the oil to make biofuels in Indonesia. After India raised import duties by 22% last September (to push domestic farmers to plant more oilseeds), cooking oils turned dearer.
Also read | What’s cooking? Another surge in edible oil imports
Can food inflation be managed better?
The government took several measures in the past few years to tame food prices. These include restriction on exports (rice, wheat, sugar, onions etc), easing imports (by lowering duties, getting into production contracts for pulses), and raising domestic food production. But uneven rains, heatwaves and droughts have impacted production of grains, pulses and vegetables repeatedly. After a severe heatwave crippled the wheat harvest in 2022, prices have stayed elevated since. Due to recurrent climate-induced supply shocks, food inflation has turned endemic (averaging 6.4% between June 2020 and 2024), the central bank warned last August.
Also read | Debate over excluding food inflation from monetary policy reaches MPC
What about farmgate prices?
Weather induced production shocks are a double-edged sword. While consumers pay higher prices for food, only a few lucky growers whose crops survive make any profits. During large-scale damage to crops, both farmers and consumers lose out. Indian farmers are also at a disadvantage as yields for most crops, from cotton to oilseeds are significantly lower compared to global averages. Currently, price of several crops like mustard, soybean, groundnut, chana and tur dal are lower than minimum support prices (MSP). To aid farmers, the centre has promised to expand MSP-based purchases (from rice and wheat) to oilseeds and pulses.
