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2023: A year of food-price and climate shocks

Dec 25, 2023 04:35 PM IST

The year was particularly challenging one, as the country was hit by intense heatwaves, erratic rains, floods, droughts, storms and cyclones

Food price shocks turned India protectionist this year, as the country went from being the largest exporter of rice and a big overseas seller of sugar and fresh vegetables to banning or restricting overseas shipments and trade of most commodities.

The country prohibited overseas shipments of wheat in March 2022, white rice in July this year and onions this month. (PTI)
The country prohibited overseas shipments of wheat in March 2022, white rice in July this year and onions this month. (PTI)

The country prohibited overseas shipments of wheat in March 2022, white rice in July this year and onions this month, after exporting a record 2.5 million tonnes in the financial year ended March 31, with 671,125 tonnes sold to Bangladesh, its biggest buyer. India has also fixed a rare export floor price of $950 a tonne on premium long-grain basmati rice.

With climate change raising the frequency and intensity of extreme weather events, India “remains vulnerable to food price shocks” from both domestic and global factors despite a recent moderation in prices, the Reserve Bank of India’s governor Shaktikanta Das warned last month.

This was his second warning in a month about the risks from food inflation that could stretch into 2024. In a speech delivered in Japan on November 8, Das said the central bank saw risks from “recurring and overlapping” food price shocks.

This year has been a particularly challenging one, as the country was hit by intense heatwaves, erratic rains, floods, droughts, storms and cyclones. Pre-monsoon heatwaves have become common, followed by uneven rainfall.

A key concern this year has been the El Nino global weather pattern, whose effects ripple around the globe, from floods in Latin America to drought in India and Pakistan. Over the past two years, India experienced five cyclones, four of which were severe in intensity.

Skewed rainfall distribution, deficiency in some parts and excess in others, impacted kharif sowing, especially of rice and pulses, and stoked food prices.

“Climate change is here and its impact is clear,” a November report by analysts at Crisil Ltd said.

Two points stood out when Crisil studied regional and temporal rain data for the past six fiscal years. First, the number of climatic regions receiving normal rainfall seemed to be declining, while those receiving excess have increased.

Second, a delayed catch-up followed by delayed withdrawal of rains has been the norm rather than exception in recent years. All this tends to roil crops, increase farming costs and changes in cropping patterns, resulting in higher food prices.

While core inflation, which strips out volatile food and energy costs, has been moderating, food prices have been entrenched. In July, consumer prices leapt to a 15-month high of 7.44% from a year ago, marking a new challenge. In September, sugar prices rose to a six-year high amid concerns over dry weather.

Trends in fresh summer harvests show that a patchy summer monsoon has crimped output, especially of vegetables, pulses and sugar. Onion output is estimated have dropped 3-5%, while production of sugar is estimated to be 32-33 million tonne this year from 36 million in the preceding 12 months.

Inflation picked up pace again in November to a three-month high of 5.55%. Prices of cereals rose 10.27% and vegetables 17.7% in November over same month last year. Pulses were up by 20.23%, spices went up 21.55% while fruit prices rose 10.95%. In May, prices of cumin (jeera), the second most widely consumed spice, shot up to a five-year high, as output has shrunk by a third. Average weighted price of cumin in wholesale markets has touched nearly 13,000 a quintal (100kg), up from 12,522 in 2021 and 12,333 in 2020, market reports showed.

The fight to control cereal inflation has been two-pronged. One, the government has stopped exports, and two, it has been releasing stocks from state granaries. On August 8, the Centre announced it would release 5 million tonnes of additional wheat and 2.5 million tonnes of rice through auctions.

In August and September, the government mounted a massive operation to release 300,000 tonne of onion from a government stockpile of 500,000. It also sold cheap tomatoes across 23 cities. The government can otherwise do little to boost the availability of perishables, whose supplies were disrupted by heavy rain and flooding several times this year.

Some of the measures have worked to lower prices. In June 2023, the Centre cut the basic import duty on refined soybean oil and refined sunflower oil from 17.5% to 12.5%, a move that cooled prices. Inflation in oil and fat category in July 2023 declined by 16.80%.

The food ministry has imposed strict limits on how much cereals traders can store, setting 1,000 tonne as the quantities that can be held, in a latest move.

“Both economic and political factors have necessitated the Modi government’s anti-inflation protectionist measures, mostly in the form of export curbs,” said Abhishek Agrawal, an economist with Comtrade, a trading firm.

The ruling National Democratic Alliance faces a national election next year, in which Prime Minister Narendra Modi will seek a rare third term.

Some economists have slammed the host of restrictions imposed on food trade, arguing the government ought to instead lower import duties on wheat to cool cereal prices. According to agriculture economist Ashok Gulati, India’s curbs on export would trigger a global food crisis while not helping much to lower prices at home because output of crops has been low. He, for one, prescribes lower import duties to boost domestic availability, thereby helping to cool prices.

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