Recent data on inflation suggest a moderation in the rising inflationary trend in retail prices. Much of the inflation this year has been driven by rising food prices, especially edible oil and more recently cereals, mainly wheat. This followed a global trend in food prices, which softened last month, even though they were up 13% from the previous year. While overall household food inflation has moderated, prices of both rice and wheat are showing an upward trend. Retail wheat inflation touched an all-time high of 11.7% in July, while wholesale wheat inflation stood at 13.6 per cent, marking the ninth month with double-digit inflation in July. Rice inflation has remained low so far, but has shown an uptick in retail and wholesale. While these figures do not yet indicate any cause for concern, production figures domestically and globally suggest that the threat to food security is not over.
In India, wheat production has already declined due to an unseasonal heat wave this March. The situation in rice is also not encouraging. Till August 19, paddy sown is 3.1 million hectares less than the previous year and 5.3 million hectares less than normal paddy area. With reports of mysterious dwarf disease of standing paddy crop in major rice producing states, the net decline in paddy production could be anywhere from 15-20% to normal levels. This is likely to cause stress in the domestic food situation.
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Similar heat waves and droughts are also threatening global supplies of major cereals and other food crops. Unlike previous episodes where these were localised, the current heat wave and resultant drought have spread across continents. While Europe’s drought has been declared the worst in five centuries after last month’s heat wave, its impact on food production is worrying. The Global Drought Observatory has reported that 47% of European soils are likely to be affected by drought. The latest EU forecast suggests a drop of 16% for maize with 5% for wheat and 8-10% for edible oil. With sowing reduced in parts of Ukraine due to the war, the net effect of global food supply shocks will be felt everywhere.
A similar situation has emerged in the other two major food producers. While China has seen heat waves and drought in many parts of the country, the US is also experiencing dry weather with extreme heat and little rain. Similar conditions have affected Brazil, with its agricultural value output falling by 8% in the first quarter, leading to high food inflation. With most large food producers reporting a decline in production, there appears to be a strong possibility that global supplies for most agricultural commodities will shrink in the coming months. But it is the scarcity of food products that is likely to contribute to the food mark-up and thus to overall inflation.
Given the uncertain supply of food grains in our domestic economy, any negligence in ensuring food security to Indian citizens will have dire consequences. While the situation is still not alarming, there is an urgent need to build adequate stock and prepare for any contingencies. Wheat prices had an unintended consequence of global inflation and a domestic policy flip-flop: procurement this year has been the lowest in three years, with total consumption at less than 19 million tonnes, while average purchases stand at 39 million tonnes. in the last three years. The government’s track record in distribution is no better. Irrational attempts in states to cut and switch allocations between rice and wheat have led to a scenario where lifting of foodgrains as part of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) in the current phase is more than 95 per cent. has fallen to 42%. % in earlier stages. Wheat offtake as part of food schemes under the National Food Security Act and other welfare schemes is 43%, while for rice it is only 36%, as against 100% offtake for both rice and wheat last year. With the reported increase in the retail and wholesale prices of wheat and rice in recent months, the expansion of PMGKAY is an important step. However, this needs to be supplemented with adequate stock and restoration of the original allocation.
While ensuring adequate food supply and improving efficiency in distribution is likely to help the poor, who are suffering from the worst effects of inflation, proactive steps are also needed to increase the income of farmers in our drought and disease-hit states. The best way to do this would be to prepare for buying more during the Kharif season. Ensuring food security to the poor is essential not only to avert another imminent global food crisis, but also to mitigate the crisis in our rural economy.
Himanshu is Associate Professor at Jawaharlal Nehru University and Visiting Fellow at Center de Sciences Humanes, New Delhi.
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