FOOD INFLATION

Name

Roll No 01 20 27 32 33 61

Project done by -

Payal Ahuja Rahul Jha Charvi Khanna Urmi Mehta Shweta Mohan Monica Chugh

INTRODUCTION
Definition : The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling is known as Inflation. Inflation's effects on an economy are various and can be simultaneously positive and negative. Most countries' central banks will try to sustain an inflation rate of 2-3%. Today, most economists favor a low and steady rate of inflation

TYPES
There are four main types of inflation 1. Demand-pull or excess demand Inflation (too much money chasing too few goods) 2. Cost-push inflation 3. Pricing power inflation 4. Sectoral inflation Other types 1. Creeping Inflation (also known as mild inflation or moderate inflation) - the price level persistently rises over a period of time at a mild rate 2. Galloping Inflation - Many Latin American countries such as Argentina, Brazil had inflation rates of 50 to 700 percent per year in the 1970s and 1980s 3. Hyperinflation - prices are rising a million or even a trillion percent per year , Germany had witnessed hyperinflation in 1920s. 4. Stagflation - inflation and recession occur simultaneously and remain unchecked for a period of time. Stagflation was witnessed by developed countries in 1970s, when world oil prices rose dramatically.

MEASURES
1. Monetary Measures Credit Control. Demonetization of Currency. Issue of New Currency 2. Fiscal Measures Reduction in Unnecessary Expenditure Increase in Taxes Increase in Savings. Surplus Budgets Public Debt

MEASURES(cond.)
3. Other Measures
To Increase Production Rational Wage Policy Price Control. Rationing

Price Indexes
Wholesale Price Index (WPI) Consumer Price Index (CPI)

FOOD INFLATION
Meaning: Food inflation can be defined as a consistent rise in the price level of all agricultural food items and it can happen because of decrease in the production of food and increase in the demand of food.

Trend of Global Food Inflation

Food price inflation caused food riots in 2008, when prices rose a whopping 6.8% Global Financial Crisis Oil price rises Subprime mortgage crisis This asset bubble spread to wheat, gold and other related futures markets, droving up global food prices dramatically around the world
In 2011, prices rose 4.8% which eventually led to Arab Spring Wheat prices in 2011 more than doubled, and corn, sugar and cooking oil prices also soared. wildfires in Russia Drought condition in Southern US

Forecast for 2013 2012

Food prices are expected to rise three to four percent this year Midwest drought in 2012 that withered crop Higher feed prices will directly affect the cost of meat and any other animalbased product

2011

2008

Food prices increased by only 0.5% Prices actually fell for pork, eggs, and vegetables The USDA expected prices to rise between 2.53.5%

FAO (Food and Agriculture Organization of US) Food Price Index

The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices 1. FAO Cereal Price Index 2. FAO Oils/Fats Price Index 3. FAO Dairy Price Index 4. FAO Meat Price Index 5. FAO Sugar Price Index

Variation in the price levels between developed countries, developing countries and low income countries

CAUSES OF RISE IN FOOD PRICES

1. Import Dependency: Import dependency for a nation is defined
as Imports/(Production + Imports Exports) that is imports as a fraction of the total amount consumed In the economy. The more import dependent a country is, the higher the chances of being affected by global prices Africa have a very high rate of import dependency

CAUSES OF RISE IN FOOD PRICES (COND.)

2. Depreciation of the dollar
In 2008, the dollar depreciated heavily due to the Global Financial Crisis. This led to an increase in the value of other currencies. Since most of the trade around the world takes place using the dollar, this depreciation was like a sudden fall in value. Hence, suppliers reduced their supply and people began to demand more. The supply and demand forces together led to a sudden upsurge in global prices.

CAUSES OF RISE IN FOOD PRICES (COND.)

3. Fuel Prices
This was probably the factor that affected Indian food prices the most Fuels are used in the production processes, are a part of fertilizer costs and lead to an increase in transportation costs

CAUSES OF RISE IN FOOD PRICES (COND.)

4. Trade Policies Restrictive trade policies followed by many nations Rice Example

VARIATION IN PRICES (2000-2011)

Developed countries have better infrastructure in terms of storage to keep buffer stocks They are also more capable of buying in excess as their national accounts are much deeper than those of developing or low income countries The following graph shows the differences in the variations of the prices of different countries

THE EFFECT OF GLOBAL PRICES ON INDIAN PRICES

Indian prices seem to be more stable as compared to global prices

Current State of Inflation in India

2006 2007

2007 2008

2008 2009

2009 2010

All Commodities
Food

6.51
7.99

4.82
5.97

8.03
9.07

3.57
14.52

Source: Office of the Economic Adviser, Ministry of Commerce and Industry, GoI

Reasons underlying Food Inflation in India

Hoarding Trader cartels, encouraged by an inept Government, are mainly responsible for this. Assured of inaction, hoarders are creating artificial shortages and fleecing people from time to time The Government has manipulated trade policies to allow big traders to make huge profits through export and import of essential food items like wheat, sugar and onions. On the other hand, the PDS has been weakened considerably through targeting. In most states, the role of the ration shops, state agencies like the NAFED etc. and consumer cooperatives in food distribution, has been whittled down. Therefore, the profit margins of private traders have also increased, reflected in growing gaps between wholesale and retail prices as well as farmgate and wholesale prices.

Growing penetration of big corporates -

Reasons underlying Food Inflation in India

Agriculture Crisis We are not producing enough to meet the needs of a growing population. The peasantry continues to be in distress, with 2.5 lakh farmers committing suicide over the past 15 years. State intervention in raising agricultural productivity has been weakened. The Government is more interested in handing over this role to big agribusinesses and retail giants like Wal-Mart and Monsanto in the name of a second green revolution. That will further marginalize the small peasants

Cut in Subsidies & Price hike of inputs like diesel and fertilizer The deregulation of petrol prices has led to very steep
hikes in the recent weeks

COMMODITIES THAT DRIVE FOOD INFLATION

ANIMAL SOURCE FOOD MILK

SUGAR

CEREALS

Edible Oil

Fruits & Vegetables

POLITICS INVOLVED IN THE RISE IN PRICES OF ONIONS

Imperfections in the Onion market Congress Minister happy with Food Inflation Brought down governments Transportation said to be the reason for rise in prices of Onion

Impact of Food Inflation

Farmers, middlemen & consumers Food Industry GDP Stocks Different income groups Malnutrition Indian economic growth Force the common man to borrow from banks

WAYS TO CURB INFLATION

Logistics
Model with no middlemen Evergreen Revolution

POLICY MEASURES TO EASE FOOD INFLATION

1. Revised monetary policies- bank rate, CRR, SLR, Repo, Reverse Repo etc. 2. Increase in supply of agricultural commodities by increasing productivityHybrid rice and better crop management 3. Crackdown on hoarders and black marketers 4. Permission to import primary agricultural commodities with zero import duty 5. Release buffer food grain stock 6. Export restrictions, or price controls and consumer subsidies 7. Ban of commodities from commodity exchange

POLICY MEASURES TO EASE FOOD INFLATION (cond.)

8. P M advised on the overhauling of the food distribution system- make the public distribution system effective 9. Regulate the functioning of the agriculture markets-creating transport and storage infrastructure to reduce the gap between farm price and retail price 10. Social protection programmes like cash transfers, employment guarantee scheme in India, also in Bangladesh. Strengthening public distribution systems 11. Increase in Agricultural productivity- investment in water management and Agriculture infrastructure: irrigation, roads, communications, research and extension etc. 12. Subsidies to farmers

CONCLUSION
Food price volatility is not new but we have to take measures to mitigate the risks of adverse effects and reduce price volatility it self. In South Asia all three components of food secutity : availability, access and nutrition have to be improved. Apart from short term measures, long term solution is increase in agricultural productivity and rising incomes of farmers Rural non-farm sector development is also important for shifting people from agriculture Strengthening social protection measures Region level cooperation. Also Global cooperation particularly in reducing speculative activities

CONCLUSION (cond.)
India is a food deficient country. Under this circumstance the survival of common man is becoming tougher and tougher. In order to keep pace with population growth, food production also needs to grow. It is very important for the Government to control the inflation and ensure that these circumstances do not arise again in the future. The passing of food security act will help to a great extend. So lets join our hands together for a happy nation.

Thank YOU!!!