FOOD INFLATION

1. Context

2. Food Price index

The Food Price Index (FPI) is a measure that tracks changes in the prices of a basket of food commodities over time. It is used to monitor food price trends globally and domestically and serves as an important indicator for policymakers, researchers, and businesses to understand market dynamics and food security concerns

The index is a weighted average of the international prices of a basket of food commodities over a base period value. Base period-2014-16

Components: Comprises five key food commodity groups:

• Cereals (e.g., wheat, rice, maize)
• Vegetable Oils
• Dairy Products
• Meat
• Sugar

The index is a weighted average of the international prices of a basket of food commodities over a base period value. Base period-2014-16

3. Twin Reasons for Optimism

1. Global Food Prices –both the FPI and its two key component indices cereals and vegetable oils, which had exhibited ever higher volatility (soared from a low of 91.1points in May 2020, when Covid lockdowns worldwide triggered a collapse of demand to an all-time high of 159.7 points in March 2022, following Russia's invasion of Ukraine, leading to disruptions and collapse of supply.

• The FPI has fallen every single month since March, to 135.7 points in November
• The effects of world prices easing are being felt most clearly in edible oils. India imports 60% of its edible oil.

2. Though the Kharif crops have not been good but cotton and soybean were the probable exceptions, high prices and their relative hardiness over, say pulses induced framers to expand acreages under both. Pulses haven't seen much inflation.

4. Why Pulses inflation abated

• Due to huge stocks of chana with government agencies
• The market is being well supplied by imports of masoor from Canada and Australia.
• Since masoor dal can replace arhar to some extent, more so in hotels and canteens, it is putting a lid on the latter’s prices.

5. Boosting Factors of Rabi Crops

• Wheat, mustard, maize chana, and masoor are boosting factors of Rabi Crops.
• Extended monsoon although bad for the harvest-ready Kharif crops has helped recharge aquifers and fill up reservoirs.
• The timely onset of winter and improved fertilizers availability

6. Present Scenario

• Open market prices of all these crops are ruling above MSPs.The need to make up for Kharif losses has added incentives for framers to sow more area this time.
• Most crops, seasonal vegetables included have seemingly escaped the ravages of a third La Nina in a row.
• The weakening rainfall activity since November should also be good for milk
• Waterlogged fields from incessant rains do not allow fodder to grow for animals to graze.
• Farmers have been suffering fodder shortages and increased feed costs, forcing diaries to pay more for milk and pass it on to consumers.
• That should ease somewhat with bumper crops of soybean, groundnut, cotton, and mustard (their oil cakes are protein ingredients in cattle and poultry feed) and also maize (a source of energy).

7. Concerns

• Indian Meteorological Department forecasted above-normal maximum temperatures during the winter season over most parts of northwest India, east and northeast India, and many parts of Central India.
• This is not happy augury either for wheat or mustard.
• Last year wheat was affected by a sudden spike in temperatures from mid-March when the crop had just entered the grain-filling stage.

For Prelims & Mains 

Source –Indian Express