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News: Unfavourable and unreliable weather hurt agriculture resulted into pushing food prices our of reach across the world.
What is the situation of Indian economy?
India’s wholesale inflation rate in November 2021 was the highest in three decades i.e 14.23%. Although, it reduced marginally to 13.56% the next month, but still December 2021 was the ninth straight month of double-digit percentage increases in the WPI
Increase of Wholesale price inflation (WPI) is a cause of concern as it can raise retail inflation (RI). Rising prices of food items, particularly of vegetables, caused retail inflation to rise to a 68-month high of 7.59 per cent in January 2020.
|Read here: High food prices push retail inflation to eight-month high of 3.18% in June|
What are the reasons behind increase in inflation?
India’s wholesale price inflation peaked in November 2021 due to a surge in primary food inflation. Price of seasonal vegetables also emerge in many states. Similar trend is also visible in rest part of the world. According to FAO Food Price Index, food prices were at a decade-high, with an average rise of 28% over the previous year. Adjusting for inflation, the average food prices in the first 11 months of 2021 were at the highest in 46 years.
|Read here: What rising foodgrain output means for India|
Climate conditions: According to RBI, between 1956-2010, there were nine double-digit inflation. Of these, seven were caused by drought conditions. Globally also, inflation occured in 1970s, 2007-08 and 2010-14 because of factors like increase in oil prices, trade policy interventions and biofuel consumption. On the basis of year-on-year comparison, vegetable prices had gone up by 50.19% since January 2019. They increased by 45.56 % in rural areas and markets during this period and by 59.31% in urban areas.
|Read here: Explained: Will food become costlier?|
Impact of food inflation
The current global food inflation is driven predominantly by wheat, which reported price rise due to drought and high temperature in major producing countries. Non-profit Oxfam simulated the impact of adverse climatic conditions on food price. Its estimates in 2012 show the average world market export price for wheat would rise by 120 % by 2030 compared with 2010; the figures for processed rice is 107 % and for maize is 177 %. According to various trade reports in 2021:
USA: spring wheat production declined by 40%.
Russia: Instead of the world’s largest exporter of wheat, it has now imposed a tax on wheat export to ensure ample stock for domestic consumption. This is because of the less harvesting.
Brazil: There is a production dip of up to 10 % in coffee bean producing areas. According to International Coffee Organization, the climatic onslaught on the world’s top coffee producer can lead to price rise for the next two years.
Overthrow of government: Increase in food prices contributed to the overthrow of governments in Libya and Egypt.
Source: This post is based on the article “Climate and food price rise: Extreme weather events triggering unprecedented food inflation” published in the Down to Earth on 28th February 2022.