India's food price surge forces government measures to improve supplies
India is facing a rise in food prices due to uneven and scanty rain, prompting the government to take measures to boost supplies and ease inflationary pressures.
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Posted 8/25/2023, 1:13:00 AM
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India is experiencing a contradictory trend in consumption, as middle-class consumers face the impact of food inflation while upper middle class consumers increase their spending on premium goods like cars and real estate.
Rice prices in Asia have surged to their highest level in almost 12 years due to India's rice export ban and adverse weather conditions, leading to concerns about food price volatility and potential shortages of other food commodities in the region. Factors such as extreme climate events, the onset of El Niño, trade restrictions, and protectionist food policies are contributing to the situation. While most Asian countries can withstand a supply shock in rice, there are concerns about the impact on overall farm output and consumer price inflation, particularly for vulnerable populations.
Pressure is mounting in Indian kitchens as food prices, including tomatoes, onions, and potatoes, soar ahead of upcoming state and national elections, prompting potential fiscal populism measures from Prime Minister Narendra Modi's ruling party to mitigate the situation.
Both rice and wheat supplies are facing alarming shortages, raising concerns about a potential world food crisis, and the Indian rice export ban, along with other factors, has implications for global rice markets and prices.
India is expected to ban the export of sugar for the upcoming season due to a lack of rain and reduced cane yields, which could increase prices and lead to further inflation on global food markets.
Sky-high food inflation in India, caused by erratic monsoon rains, is leading to low sales and steep discounts in the fashion retail sector, raising concerns about consumer spending.
The Indian government's efforts to control food prices, such as imposing taxes and export bans, may help contain inflation domestically but could lead to higher prices globally, particularly for rice, affecting countries that rely on food imports.
Erratic climate conditions in India, including a dry August, have led to a significant increase in food prices, with onions alone becoming 25% more expensive since June, causing concern about global food inflation as India is a major exporter of rice, sugar, and onions and is a key supplier to many Asian and African countries.
The government's budget cuts on subsidies could further worsen rural demand in India, which is already facing uncertainties due to inconsistent monsoons, food inflation, and lower income, according to a report by Care Edge.
The global food commodity prices decreased by 2.1 percent in August, driven by falling prices of essential food items, except for rice and sugar, according to the latest report from the Food and Agriculture Organization of the UN (FAO). The decrease was seen in the price indices for dairy products, vegetable oils, meat, and cereals, while the sugar price index saw moderate growth. The decline was attributed to factors such as reduced global prices for vegetable oils, surplus of dairy products, increased export availability of meat, and higher seasonal availabilities of wheat and maize. However, the sugar price index increased due to concerns about the impact of the El Niño phenomenon on sugarcane crops. Additionally, the rice price index surged to its highest level in 15 years due to disruptions in the rice trade resulting from India's ban on exporting Indica white rice.
India's retail inflation eased in August due to moderating food prices, but remained above the central bank's target range for a second consecutive month, prompting policymakers to remain vigilant.