Retail food inflation in India has shown signs of easing recently. The year-on-year rate dropped to 9.04% in November 2024, down from 10.87% in October. This reduction is largely attributed to improved supplies of vegetables. However, inflation in wheat and edible oils remains concern.
Current Inflation Context
The inflation rate for vegetables decreased from 42.23% in October to 29.33% in November. Despite this, wheat and edible oils continue to face high inflation rates. For wheat, the consumer price inflation was recorded at 7.88%, while refined maida flour saw a rate of 7.72%. Edible oils faced an even steeper inflation of 13.28% during the same period.
Wheat Supply Issues
Wheat supply has been tight due to subpar harvests in the past three years. Current wholesale prices in Delhi range from Rs 2,900 to Rs 2,950 per quintal. This is increase from Rs 2,450 to Rs 2,500 last year. Public wheat stocks have dropped to their lowest levels since 2007-08. Nevertheless, farmers have increased wheat sowing this season, which may lead to a better harvest in 2024-25.
Government Intervention and Imports
The government has limited options for open market sales due to low wheat stocks. However, international wheat prices are currently low, making imports a viable option. Russian wheat prices are around $230 per tonne, while Australian wheat costs about $270 per tonne. Importing wheat could help stabilise domestic supplies, especially if customs duties are waived.
Edible Oils and Global Factors
The edible oil market is primarily affected by palm oil, which is the most produced vegetable oil globally. Recent price surges have occurred due to Indonesia’s decision to increase palm oil blending in diesel. This policy change is expected to reduce palm oil exports, impacting global prices. Currently, the landed price of imported crude palm oil in India stands at $1,280 per tonne, surpassing prices for soyabean and sunflower oils.
Substitution and Domestic Consumption
India’s annual edible oil consumption is approximately 25-26 million tonnes, with palm oil accounting for about 9-9.5 million tonnes. Although there are possibilities for increasing imports of soyabean and sunflower oils, palm oil’s unique properties make it difficult to fully substitute. Its usage is prevalent in various food industries, especially for frying and baking.
Government Policies and Future Outlook
The effective duty on crude palm oil imports is currently set at 27.5%. Whether the government will adjust this duty to mitigate rising prices remains uncertain. The upcoming months will be critical for monitoring wheat and edible oil prices as harvests and international market conditions evolve.
Questions for UPSC:
- Discuss the impact of inflation on the agricultural sector in India and its implications for food security.
- Critically examine the role of government policies in managing food inflation in India.
- What are the factors contributing to the rise in edible oil prices globally? Discuss with examples.
- Explain the significance of wheat in India’s economy and the challenges faced in its production and supply chain.
Answer Hints:
1. Discuss the impact of inflation on the agricultural sector in India and its implications for food security.
- High inflation affects farmers’ income, reducing their ability to invest in quality seeds and fertilizers.
- Increased prices can lead to higher production costs, impacting overall agricultural productivity.
- Food inflation can result in decreased access to affordable food for consumers, exacerbating food insecurity.
- Inflation may prompt government interventions, which can disrupt market dynamics and farmer incentives.
- Long-term inflation trends can lead to shifts in crop patterns, affecting biodiversity and sustainability.
2. Critically examine the role of government policies in managing food inflation in India.
- The government implements price controls and minimum support prices (MSP) to stabilize essential commodity prices.
- Import policies, including customs duties, influence market availability and pricing of food items.
- Public distribution systems (PDS) aim to provide subsidized food, impacting inflation dynamics.
- Government stock management helps regulate supply but is challenged by low reserves and high demand.
- Policies on subsidies and support for farmers can directly influence production costs and food prices.
3. What are the factors contributing to the rise in edible oil prices globally? Discuss with examples.
- Increased demand for biodiesel, particularly in Indonesia, has diverted palm oil from the food market.
- Supply chain disruptions and adverse weather conditions have affected oilseed production globally.
- Rising production costs, including labor and transportation, contribute to higher oil prices.
- Trade policies and tariffs impact the flow of edible oils, influencing market prices.
- Global competition among vegetable oils, with fluctuating prices, affects consumer choices and market dynamics.
4. Explain the significance of wheat in India’s economy and the challenges faced in its production and supply chain.
- Wheat is a staple food for a large segment of the Indian population, crucial for food security.
- It contributes to farmers’ incomes and rural employment, impacting economic stability.
- Challenges include erratic weather patterns, pest infestations, and declining soil health affecting yields.
- Government procurement policies face hurdles due to high market prices, affecting supply chain efficiency.
- Low public stock levels and reliance on imports can threaten domestic supply and price stability.
