Food Inflation
(Relevant for Economics Section of General Studies Paper Prelims/Mains)
Food inflation
Food inflation refers to the increase in the prices of food items over time. It affects the purchasing power and welfare of consumers, especially the poor and vulnerable sections of the society. The main causes of food inflation in India can be classified into demand-side and supply-side factors. On the supply side, one of the factors is the disruption of the supply chain.
Main reasons behind Supply Chain disruptions in India
- Fragmented Supply Chain: The extended and fragmented supply chain leads to wastage and escalating prices. This situation arises due to the significant presence of unorganized players within the supply chain, resulting in operational challenges related to commercial viability.
- Inadequate Cold Storage and Warehousing Facilities: Warehousing plays a crucial role in the overall supply chain; however, it is predominantly under the purview of unorganized entities. Presently, merely 20% of warehousing falls under organized structures, with the government controlling about 70% of this segment.
- Insufficient cold storage capacity contributes to post-harvest losses for perishable commodities like fruits, vegetables, dairy, and meat.
- Climatic Factors: Extreme temperature fluctuations and irregular rainfall patterns can adversely impact food grain production and yield.
- Global Influences: The global scenario also affects food inflation, with instances such as supply chain disruptions resulting from the COVID-19 pandemic, conflicts like the Russia-Ukraine war, and surges in international commodity prices. These elements have raised input costs and restricted the availability of essentials like edible oils, cereals, and sugar.
- Logistical Challenges: Logistics in India confront persistent challenges in terms of quality and connectivity. Despite Indian national highways handling around 40% of cargo despite accounting for only 2% of the total road network, quality and connectivity remain problematic. While port capacity is growing, the absence of proper connectivity to these ports leads to elevated costs and delays in cargo transfers.
Ways to address supply chain constraints
- Infrastructure Enhancement: It is imperative to invest in bolstering infrastructure elements like road connectivity, rail networks, power supply, and irrigation systems. These improvements are vital for ensuring the seamless movement of food commodities across different regions.
- Cold Storage and Warehousing Expansion: There is an essential requirement to increase the capacity of cold storage and warehousing facilities while maintaining their quality standards.
- Addressing Structural Challenges: India must actively pursue pending legislation aimed at resolving the lingering structural challenges (often referred to as the 4Ls: Land, Labour, Law, Liquidity) that continue to hinder domestic competitiveness and growth.
- Market Integration Promotion: The reduction of intermediaries and inefficiencies within the food supply chain can be achieved by encouraging direct connections between farmers and consumers. Measures such as fostering farmer producer organisations (FPOs), contract farming, and implementing e-NAM (electronic National Agriculture Market) can facilitate this integration.
- Climate Change Resilience Enhancement: Adopting climate-smart agricultural practices is crucial to empower farmers to cope with varying weather conditions and minimize crop losses. Techniques like crop diversification, utilization of improved seeds, water conservation, and effective soil health management can be integral in achieving this goal.
- Food Basket Diversification: To enhance the nutritional security of the population, there’s a need to diversify the dietary habits of Indians. This can be achieved by promoting the consumption of protein-rich and micronutrient-rich foods like milk, pulses, eggs, fruits, and vegetables. Such diversification can lead to reduced reliance on cereals and edible oils
Addressing the supply chain constraints causing food inflation in India requires a comprehensive approach. This includes investing in rural infrastructure, reducing post-harvest losses through improved storage and processing facilities, upgrading transportation systems, and enhancing market access for farmers. By implementing these measures, India can significantly improve its supply chain efficiency, reduce food wastage, and mitigate the impact of inflation on food prices.
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