FOOD INFLATION

Group G10

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Inflation
v Inflation is a rise in the general
level of prices of goods and services
in an economy over a period of time
v Inflation can have positive and
negative effects on an economy
v Always better to have a moderate
inflation
v Inflation is calculated mainly by
wholesale price index and consumer
price index

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Causes for Inflation
vSpeculation
v Bio fuel policies
v Stimulus packages
v External factors
§ Rising crude oil prices
§ Transportation costs

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Food inflation in India
v Is exactly rise in the price of food
items
v Food inflation hit a more than decade
high of 19 . 95 % for the week ended
December 5
v The present inflationary rate is
18 . 22 %
v In India food inflation is calculated
on the basis of WPI
v In India CSO is calculating
inflationary trends
v Inflation for primary articles which
include unprocessed food and non food
items rose by14 . 39 %
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Cont…
v The profit margin in cultivation is
less for the farmer
v The farmers are going for flat culture
v The ration shop / supplycomarkets are
not supplying the grains and sugar
given by the govt . to the common man

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Whole Price Index (WPI)
v The measure of price changes in the
wholesale market during the
production processes before goods get
to the consumer
v WPI is calculated on a base year ( 1993 -
94 )
v A sample set of 435 commodities are
taken for inflation calculation
v The price from whole sale market is
taken for calculation
v WPI is available for every week

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 Weightage given to
different items for
calculation of Whole
Price Index (WPI)

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Consumer Price Index (CPI)
v It is a measure estimating the average
price of consumer goods and services
purchased by households
v The percent change in the CPI is a
measure estimating inflation
v Movement of CPI after June 2009 has
been dramatic
v In January to March 2008 - 09 CPI was
2.7%

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Cont…
v Average for the first four months of
2009 - 10 was 9 . 6 %
v CPI reported 12 % to 13 % for both July
and August 2009
v In December 2009 it touched 19 . 95 %
which is the highest of 11 years
v A high CPI based inflation poses a big
threat for overall economy
v

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Reasons for food inflation in India
v The weakest monsoon
v Inadequate supply
v Biofuel policies of developed countries
v Higher minimum support prices
v Present monetary policy
v High demand
v The extremely high proportion of food
reserves in the Government ’ s
possession ( more than 5 % of which is
wasted every year )
v Speculation in commodity market

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Deficit monsoon
v Southwest monsoon has been deficit to
the extent of 22 . 7 % in 2009
v Around 5 . 4 million hectares of acreage
loss till September 30th 2009
v Loss in kharif food grain production
largely contributed by rice
v
v
v

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Effects of food inflation
v High inflation will mar India's
economic recovery prospects
v Liquidity tightening policies
v A large section of the population are
losing out on their purchasing power .
v It is worrisome not only for consumers
and policy makers but even for
manufacturers .
v Higher CPI inflation will lead to a
deceleration in industrial growth

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Way the Indians spend

http://seekingalpha.com/article/179191-food-inflation-in-india-causes-solutions
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Corporate under pressure
v FMCG companies thinking about
increasing prices
v Input costs has gone up by 15 - 20 %
v The FMCG companies in India are in a
dilema whether to increase price or
to reduce the quantity

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Sugar
v India , the world's largest sugar
consumer , is importing sugar since
April last year to meet the
production shortfall
v India's sugar output in the first three
months of the season from October is
expected at 5 . 5 million tonnes , 8 . 3 per
cent lower than a year ago
v Sugar output has also been hit by a
decision of Uttar Pradesh state , a
key producer , to forbid processing of
raw sugar under pressure from cane
farmers
v
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Government steps
v Issued instructions to check any
smuggling of cane and sugar as there
have been some complaints of
sugarcane being smuggled to Nepal
v Asked States to remove VAT and other
taxes on food items for a year and
play their part in controlling prices

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Cont…
v Sugar output is estimated at 16 million
tones in the current season , ending
September 2010
v Duty - free imports of white sugar
v Government has relaxed central excise
rules to enable processing of this
sugar by mills located in other
states

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Vegetables
v Prices of vegetables increased by 30 %
v The prices of potatoes and onions have
increased over the last few years
v Prices of staples like potatoes have
surged 136 %
v The price of tomatoes has similarly
shot up to almost Rs . 40 per kilo
v The price of carrots , rose to a high of
Rs . 35 per kilo

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Pulses
v Pulses cost 40 % more than a year
before
v Pulses which traded at Rs . 22 - 24 per kg
a week back , now cost Rs . 35
v A kilo of dal ( pulses ) costs as much as
Rs . 40

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Food grain
v The country's food grain production is
likely to fall short by 14 to 15
million tone this kharif season due
to weak monsoon in several parts of
the country .
v The government has set a food grain
production target of 238 . 12 million
MT for the current year , which
includes production of 100 . 5 million
MT of rice and 79 million MT of
wheat .
v The major food grains cultivated in
India are wheat , rice etc

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Food price inflation in major
cities of India

http://seekingalpha.com/article/179191-food-inflation-in-india-causes-solutions
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Steps taken by government
v The increase in food prices could be
tackled by boosting supplies
v Encourage import of consumer goods like
wheat , pulses , crude edible oil
v To improve agricultural productivity
accompanied by a more efficient use
of water resources
v To lift more wheat and rice stocks
v Allowed open market sale of wheat at
lower prices

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CONT…..
v Strengthening PDS
v Steps against hoarding and speculative
market

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The Global food crisis
v The first and most obvious demographic
dimension to the food crisis is
global population growth
v The second demographic dimension is the
population growth rate of the
countries that are most vulnerable to
food inflation
v The third demographic trend is a
rapidly growing middle class
v The forth demographic dimension is
growing urbanization

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Cont…
v The years 2007 - 08 saw dramatic
increases in world food prices ,
creating a global crisis and causing
political and economical instability
and social unrest in both poor and
developed nations
v WTO had by and large failed to provide
free flow of goods and services and
also had been unsuccessful in
bringing down the prices instead
there has been a surge in food prices
globally
v India relatively less affected by
volatility in global food prices , may
face a crisis if precautionary
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Current Scenario in India
v The food inflation in India will remain
for atleast the next 6 months
v This is mainly due to the fact that the
output of kharif and rabi crops are
minimal due to various seasonal
imbalances
v Average levels of output , tight
supplies of wheat and other cereals
from the side of the govt . etc . has
led to a price hike leading further
to food inflation

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Cont…
v Cultivation of wheat has decreased
v Soil condition
v Climatic changes
v Large stock of food grains with FCI

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So…
v New tools are needed instead of old
tools
v Timely actions needed
v Encourage direct buying
v More investment is needed instead of
subsidies
v Import duties to be reduced

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Bibliography
v http://economictimes.indiatimes.com/news/economy/indicators/Food-inflation-at-11-yr-
v http://timesofindia.indiatimes.com/biz/india-business/High-food-inflation-worries-Centre
v http://www.thehindu.com/2010/01/01/stories/2010010155871400.htm
v http://in.biz.yahoo.com/100107/137/bauv6o.html
v http://www.blonnet.com/2010/01/08/stories/2010010852870700.htm
v http://news.in.msn.com/business/article.aspx?cp-documentid=3517920
v http://www.indianexpress.com/news/high-food-inflation-worries-centre/566933/
v http://www.business-standard.com/india/news/food-inflation-softens-to-1822/82460/o
v http://www.deccanchronicle.com/dc-comment/give-top-priority-food-inflation-569
v http://www.thehindubusinessline.com/2010/01/01/stories/2010010150260700.htm
v http://www.moneycontrol.com/news/economy/govt-moves-to-boost-food-supplies-to-ta
v http://business.rediff.com/interview/2010/jan/15/budget-2010-interview-with-montek-
v http://beta.thehindu.com/business/Economy/article80345.ece
v http://www.kolkatamirror.com/index.aspx?page=article&sectid=48&contentid=20100107
=
v http://business.rediff.com/slide-show/2009/jul/31/slide-show-1-infla-food-inflation-up-

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Cont…
v http://www.worldjute.com/wj_vat.html
v http://www.greenfaucet.com/commodities/food-inflation-whats-the-story
v http://news.indiamart.com/news-analysis/inflation-sustained--21068.html
v http://www.blonnet.com/2009/02/10/stories/2009021051311600.htm
v http://economictimes.indiatimes.com/news/economy/indicators/Cos-may-feel-the-heat-o
v http://seekingalpha.com/article/179191-food-inflation-in-india-causes-solutions
v http://www.thefinblog.com/2008/04/how-wpi-inflation-rate-calculated-india.html
v http://www.prcdc.org/blog/archives/48-Population-Trends-and-the-Food-Crisis.html
v

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