Food prices to soften from July-end on expectations of better crops: Khare

New Delhi: Food prices which have been skyrocketing for over a year will ease after July as farm output is expected to be good amid normal monsoon, consumer affairs secretary Nidhi Khare said.

“Prices of food commodities have been soaring since June-July 2023. The effect of El Nino has been there on all food commodities. Not only India but also Brazil, Philippines, Vietnam and Indonesia are bearing the brunt of it. The positive thing is that El Nino has passed. We have forecast of good monsoon, and I am sure by July-end, we will see softening in prices of food commodities because Karnataka has already received its first showers and sowing of Kharif crops has begun,” Khare told Mint.

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“In fact, I interacted with people from IMD (India Meteorological Department) and have also asked them to join us in our weekly meetings so that they also understand what our concerns are and then they can come up with suitable prediction models. They are already doing it; every seven days they are disseminating the weather forecast to farmers.

Food Inflation-Control

“When I talk about prices getting softened, I mean all food commodities, including rice, wheat and vegetables."

Uncontrolled food inflation led the government to take several preventative measures in the year past, including export curbs on rice and sugar, duty free imports of pulses, stock disclosure of cereals and pulses, open market operations and retail interventions such as sale of discounted atta, rice and dal.

The Wholesale Price Index (WPI)-based inflation surged to 2.61% in May, marking the highest rate in 15 months since February 2023, when it was 3.85%. Food prices surged 7.4% in May compared with 5.52% in April. Vegetable prices saw a sharp rise, up 32.42% year-on-year, compared with a 27.94% increase in the previous month.

Also read | Retail inflation eases slightly in April, food inflation rises

This also assumes significance as the southwest monsoon brings nearly 70% of the rain India needs for its farms and for refilling reservoirs and aquifers.

Timely arrival of the monsoon is crucial for India's agricultural sector, as 56% of the net cultivated area and 44% of food production depend on monsoon rains. Normal precipitation is crucial for robust crop production, maintaining stable food prices, especially for vegetables, and boosting growth.

Agriculture contributes 14% to India's gross domestic product.

Though the headline inflation fell to 4.75% in May from 4.83% in April, the lowest in a year, food inflation, which accounts for nearly 40% of the overall consumer price basket, remained unchanged. It was 8.69% in May and 8.70% in April. By comparison, it was 3% a year ago.

Food Price Trends

Food prices have remained firm for over a year now and stayed above 8% since November primarily due to last year's uneven and below-normal monsoon rains caused by El Nino.

On Friday, all-India average retail prices of rice and sugar were as high as ₹41.4 and ₹43.8 per kg, an increase of 4% and 2.5% on year, respectively. In the case of pulses, chana (Bengal gram) dal, tur or arhar (pigeon pea) dal, urad (black gram) dal, masur (lentil) dal and moong (green gram) dal retail prices were at ₹85.2, ₹154.5, ₹122.5, ₹93.1 and ₹115.6 per kg, a rise of nearly 14%, 25%, 10%, 0.6% and 5.5% year-on-year, respectively. 

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As far as vegetable prices are concerned, potato was nearly 28% higher on year at ₹27.8 a kg, onion was 43.2% higher at ₹32.8 per kg and tomato was 7.3% dearer at ₹31.2 a kg, as per the data from the consumer affairs ministry.

Retail inflation, while above the central bank's target of 4%, has remained within the tolerance range of 2-6% for nine consecutive months.

Production Goals

Last week, the Reserve Bank of India (RBI) left the benchmark repo rate unchanged at 6.5%, signalling that interest rate cuts may take more time. RBI governor Shaktikanta Das had noted the "last mile journey towards a 4% inflation target remains sticky," indicating that the central bank would wait for inflation to stabilize around 4% before taking policy action.

In her remarks, the consumer affairs secretary was optimistic about the production of pulses, especially tur and urad. 

Also read | February inflation remains steady at 5.1% but food inflation up

Tur crop failed in the past two consecutive crop years due to bad weather. In the 2022-23 (July-June) crop year, production was lower due to unseasonal rainfall in October 2022 in key growing states such as Karnataka and Maharashtra which together contribute about 56-57% to India’s total tur output.

In 2023-24, deficit rainfall during the monsoon season and prolonged dry spells caused by El Nino weighed on the 9-month long Kharif crop.

“We are trying to increase production of pulses, especially tur and urad, and reduce dependence on imports by 2027. Farmers in Maharashtra are very enthusiastic because they want to realise the high price. Tur price has never shot up to this level. Concerns have been flagged to the agriculture ministry and it has started engaging with farmers. They are providing the right and good set of agricultural practices to farmers and making better seeds available to them. This year tur and urad are the government’s major focus and we are trying to do it collaboratively with all the stakeholders to succeed. So, I am quite hopeful that we will have a good crop next season, and this is not just tur but all food commodities,” Khare said.

Imports to Meet Demand

India, which relies on imports to meet its domestic demand of about 28mt, primarily purchases these three pulses from Australia, Canada, Russia, Myanmar, Mozambique, Tanzania, Sudan and Malawi. Despite some improvement since 2011, the gap between demand and supply of pulses is widening and has necessitated annual import of 2.5-3mt of pulses in the past few years.

India imported 371,334 tonnes of pulses (tur, urad and masur) in the first two months of the current financial year against 308,619 tonnes in the corresponding period of the last financial year. In the last financial year, India’s pulses imports were 84% higher year-on-year at 4.65mt, the highest in six years, compared with 2.53 mt in FY23. 

Also read | Pulses import up 20% to 371,334 tonnes in April-May to meet domestic demand

In value terms, imports in the year jumped 93% to $3.75 billion.

India's urad output is estimated to be 1.8 million tonnes (mt) this year, as compared with 2.6 mt in the 2022-23 (July-June) crop year. Tur is estimated to be at par with the previous season’s 3.3 mt but the industry expects production to be 2.7-2.85 mt, falling short of the domestic consumption of around 4.5 mt.

India’s overall foodgrain production is estimated to be almost on par with the last year at 328.8 mt for the 2023-24 (July-June) crop year, according to the third advance estimates of crop production released by the agriculture ministry earlier this month.

The southwest monsoon rainfall over the country during June-September is likely to be 106% of the long period average with a model error of +/-4%. The forecast probability is 32% and climatological probability is 16%, according to the forecast by IMD.