Global Food Prices trends behavior and Managing Food Inflation in India: Strategic policy options and key issues

Abstract

The rapid rise in food prices has been a burden on the poor in developing countries, including in India, who spend roughly half of their household incomes on food. In many countries and regions, food price inflation is higher than aggregate inflation and contributing to underlying inflationary pressures. Food grain prices have more than doubled between January 2006 and June 2008. More than 60 percent of this increase has occurred since January 2008 alone. Although the pass-through of rising global prices does not translate into an immediate and proportionate rise in domestic price levels, due to various factors such as a weakening dollar, domestic infrastructure, and price stabilization policies; increased food price volatility is expected even to continue for the presumable future and there is also possibility of further long run uncertainty due to climate change. With domestic prices rising, private consumption takes a plunge. Expectedly, global food price increases translate to higher prices in developing Asia, including in India particularly since food carries a large weight in the CPI of many of the region’s economies. In fact a number of factors have contributed to the rise in food prices in general; but the increase in energy prices and the related increases in prices of fertilizer and chemicals, which are either produced from energy or are heavy users of energy in their production process etc. are crucial. This has increased the cost of production, which ultimately gets reflected in higher food prices. Higher energy prices have also increased the cost of transportation, and increased the incentive to produce biofuels and encouraged policy support for bio-fuels production. The increase in bio fuels production has not only increased demand for food commodities, but also led to large land use changes which reduced supplies of wheat and crops that compete with food commodities used for biofuels in countries like India. Against these backdrops, this paper focus on the movements in global food price trends and its impact on management of food supply and security, the factors responsible for the rise in food prices in India and its impact on the issue of food security and sustainability of management of food economy of India. The paper concludes that in the short to medium run, the importance of safety nets to secure food for the needy is very much needed and in the long run, the notion of food security should move beyond a relatively static focus on food availability and access to one of higher productivity. Thus, as the majority of the poor in developing India live in rural areas and depend on agriculture, higher agricultural growth will provide food security by increasing supply, reducing prices, and raising incomes of poorer farm households in the near future