Factors affecting food production and its price outlook

Source: The post factors affecting food production and its price outlook has been created, based on the article “The stubborn food inflation problem” published in “Indian express” on 11th July 2024

UPSC Syllabus Topic: GS Paper3-Indian Economy-Inflation

Context: The article discusses how India’s high food prices keep overall inflation high, making it hard for the Reserve Bank of India to lower inflation to their target of 4%. It explains that weather changes, like poor monsoon rains and climate-related events, increase food prices, which needs addressing through better farming methods and infrastructure.

For detailed information on India’s food inflation read this article here

What is the current economic situation in India?

1. Inflation Dynamics: The overall inflation target by the Reserve Bank of India (RBI) is 4%, but the actual rate is currently at 4.8%.
2. Persistent Food Inflation: Food inflation remains high, averaging 6.4% between 2020-21 and 2023-24, which significantly influences overall inflation.
3. Recent Trends: In 2023-24, while the overall Consumer Price Index (CPI) fell to 5.4%, food inflation increased to 7.5% and further to 8.7% in the early months of the current fiscal year, highlighting the ongoing challenge of controlling food prices.

How significant is food inflation?

1. High Weight in CPI: Food accounts for nearly 40% of the Consumer Price Index (CPI) basket, making it a significant factor in overall inflation.
2. Historical Data: In years when CPI was close to the 4% target, food inflation was also low. For example, during 2000-2006, CPI averaged 3.9% with food inflation at 2.5%.
3. Recent Spike: After the pandemic, food inflation surged to an average of 6.4%, with food prices exceeding 6% for 28 out of 50 months, highlighting its persistent impact on overall inflation levels.

What are the factors affecting food production and its price outlook?

1. Monsoon Reliability: Traditionally a key determinant of agricultural success, the monsoon’s unpredictability, exacerbated by climate change, affects crop yields.
2. Water Resources: Heatwaves have depleted groundwater levels, essential for irrigation, affecting crops like wheat and impacting dairy and poultry outputs.
3. Crop Damage: Unseasonal rains have damaged crops during critical harvesting and transportation stages, leading to increased food prices.
4. Global Warming Effects: Events like El Niño, intensified by global warming, have resulted in significant weather anomalies, influencing food production negatively.

What should be done to control climate change’s impact on food?

1. Enhance Agricultural Infrastructure: Upgrade facilities from production to storage and transportation to better withstand climate impacts.
2. Develop Climate-Resistant Crops: Promote and expand the use of heat-resistant and drought-tolerant crop varieties to maintain productivity under changing climate conditions.
3. Increase Irrigation Coverage: Expand irrigation infrastructure to ensure water availability even during adverse weather conditions, with only 57% of agriculture currently covered.
4. Boost Research and Development: Increase investment in agricultural R&D, currently at just 0.5% of agriculture GDP, to innovate better farming practices and technologies.
5. Improve Food Processing and Storage: Encourage development in food processing and cold storage to reduce wastage and stabilize supply chains.

Question for practice:

Discuss how the increasing severity of climate change impacts food inflation in India.