India’s structural food inflation problem

by Manshu on November 2, 2010

in Opinion

In August I wondered how many bad monsoons it’ll take for us to realize that we have to tackle food inflation by dealing with issues like irrigation, food storage, distribution, cold storage etc., and not tinkering with interest rates, but it seems that all we needed was a good monsoon to drive home the point.

As I read through the Second Quarter Review of Monetary Policy 2010 – 2011 by Dr. D Subbarao – the concern about inflation, specifically food inflation, and more specifically structural food inflation was quite apparent to me.

The primary food inflation itself has lowered from 21.4% in May 2010 to 15.7% in September 2010 (from very high to still quite high), but what is interesting about this is that the year on year rate in protein based food items such as pulses, milk, eggs, fish and meat still remained at 23.9% in September 2010. These items were at 34% in May 2010.

The report goes on to state that the inflation rate for the protein rich items has not moderated as much as you’d expect with a normal monsoon, and this is partly due to the changing consumption patterns, and “inadequate supply response”.

From the report:

Further, notwithstanding some moderation, food price inflation has remained persistently elevated for over a year now, reflecting in part the structural demand-supply mismatches in several commodities – besides protein sources, oilseeds and vegetables also show this pattern. Given the changing consumption patterns and as yet inadequate supply response, food price inflation is becoming increasingly structural in nature. Further, even as non-food manufacturing inflation has indeed moderated, it still remains above its medium-term trend.

This is quite serious coming from the RBI governor, and coupled with all the noises about opening up FDI in multi – brand retail, – I feel that Indians are finally going to get a glimpse of what shopping in Walmart feels like.

Opening up multi brand retail has always been a tricky issue because of the fear that hundreds of thousands of mom and pop stores will go out of business, and while I personally don’t subscribe to that view –  I can certainly understand where the apprehension is coming from.

A long time ago – as part of my summer training I worked for IFB – the washing machine company, and my boss there told me that when they first heard that the likes of LG and Samsung are coming to India – they were really worried that these giants will drive them out of business, and they’ll be on the roads, but they soon found out that they can compete and even outdo these businesses.

I am sure some of you will also remember the massive scare that computerization brought to the Indian public sector and how everyone was worried that the computer will replace them and they’ll lose their jobs.

India has done well in cautiously opening up it’s economy, and assimilating with the global economy better, and in a world where Venkateshwara Hatcheries buys a European football team – we should be more confident about our abilities, — all the more so when we desperately need the cold storage infrastructure and other expertise that will help us prevent the wastage of lakhs of tons of foodgrains and help us move up from a pathetic rank of 67 out of 85 countries in the Global Hunger Index

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