Thursday, August 31, 2023

Deep Dive: "Why India's soaring food inflation is a global problem"

From the BBC, August 30:

Erratic climate conditions - including the driest August in more than a century - have sent food prices spiralling above 11% in India, which is a major player in global agri-trade.

Just as tomato prices begin cooling down, onions have gotten dearer by a quarter since June in the domestic market. And pulses which go into making the humble dal (lentil soup) are now around 20% more expensive than at the beginning of the year.

India's got a "curry problem", some economists say, as the cost of a regular vegetarian meal jumped by a third in the month of July alone.

With some key state elections this year and a big general election looming next summer, the Indian government has swung into action, unleashing a number of measures to tame food inflation.

Following a ban on wheat exports in May 2022, India announced an abrupt stop to non-basmati white rice exports last month. More recently, the finance ministry imposed a duty of 40% on onions to discourage exports and improve domestic supplies.

With sugar production expected to be lower this year, "the likelihood of a ban on sugar exports has also increased", according to Rajni Sinha, chief economist at CareEdge Group.

The government could step up its response with further measures going ahead, analysts say. For instance, since the consecutive export restrictions on rice have not yet lowered domestic rice price inflation, "the government could seek a more comprehensive ban", global brokerage Nomura said in a recent note.

So does India, with its aggressive defence of domestic prices, run the risk of exporting food inflation to the world?

The International Food Policy Research Institute (IFPRI) believes it does, particularly with rice, sugar and onions. Over the past decade, India has emerged as the world's largest exporter of rice - it holds a 40% market share - and second largest exporter of sugar and onions.

The United Nation's Food and Agriculture Organization's (FAO) Rice Price Index jumped by 2.8% in July - its highest level since September 2011 - driven mostly by price increases in the Indica variety of rice whose exports India banned. This has amplified the "upward pressure" on the prices of rice from other regions, the FAO said.

"Since the ban was announced late last month, Thai rice prices have increased 20%," Joseph W Glauber, senior research fellow at IFPRI, told the BBC....