Surging Food Costs Lead to Immediate Halt on Key Exports.
The consumer price index rose to 7.44% in July at its 15-month high while last month's food inflation touched 11.5%, the highest since October 2020. The Ministry of Statistics and Programme Implementation released the data on August 14. Food inflation is measured by the Consumer Food Price Index, which accounts for nearly half of the overall consumer price basket, rose to 4.49% in June 2023 against 2.96% (revised) in May 2023.
The retail inflation was 4.81% in June, Some food items like vegetables, grains, and dairy tend to have relatively inelastic demand which means a change in their price leads to a larger change in overall spending, as people cannot easily reduce consumption even if prices increase which leads to an increase in food inflation and decrease in purchasing power.
As food prices surge, Russia's unexpected exit from the Black Sea agreement throws a wrench into the mix. This decision comes at a time when the nation is gearing up for festive celebrations and crucial elections. Simplified, this means that due to Russia's move and the inflation, there might be a shortage of rice just as festivals and elections are around the corner.
Food prices usually go up in monsoon due to heavy rainfall or floods in a few states like Punjab, Haryana, and Himachal Pradesh. Conversely, low rainfall in states like Maharashtra, Karnataka, Tamil Nadu, and Uttar Pradesh has an effect on the sowing of paddy and pulses.
Sugar
Keeping in view the strong demand for the upcoming festive in October, the government of India has imposed an export ban on sugar. This ban comes due to a lack of rainfall which would impact output majorly. Maharashtra and Karnataka alone witnessed a 50% decrease in rainfall so far this year, and half of the country's sugar production is seen from these states alone.
The Indian sugar mill sold 11.1 million tonnes in the last season compared to 6.1 million tonnes in the current season, which is a 45% decline. Sugar prices in the domestic market reached the highest in the past two years due to which the government is pushing the mills to sell 200,000 tonnes of sugar alone.
It is believed that this ban could potentially increase the benchmark price for sugar in New York and London. The global prices are multi-year high, further push in prices might lead to inflation in global food markets.
Vegetables
The Kharif crop output was reduced due to heavy monsoon rainfall in the country, which has raised the price of onions and tomatoes. The government has increased the export duties on onions by 40% so that domestic market demand is met. Besides imposing an export ban the government increased the buffer stock of onions to 5 lakh tonnes from 3 lakh tonnes which has already been procured.
To reduce the impact of rising prices on consumers, the government has released buffer stocks of onion in the retail market at a subsidiary rate. Finally, due to the imposition of an export ban and buffer stock expansion, it is expected that prices will be under control.
Rice
India is the world's biggest exporter of rice accounting for 40% of the global rice trade, exporting 22 million tonnes worth $9.66bn to 140 countries. The export ban has pushed rice prices internationally by 15-25% worst affected countries are Bangladesh and Nepal which depend on India for white rice and other African countries like Benin, Senegal, Togo, and Mali, which import broken rice which is the cheapest variant
The ongoing war between Russia and Ukraine has already shot up international prices for grains since Russia walked out of Black Sea Grain initiatives, which would have allowed grains from Ukraine to reach world markets.