Mint Primer: The pros and cons of govt moves to tame food inflation | Mint

The pros and cons of govt moves to tame food inflation

Retail onion prices have close to doubled—from  ₹28 per kg last year to  ₹55.4 now. (Hindustan Times)
Retail onion prices have close to doubled—from 28 per kg last year to 55.4 now. (Hindustan Times)

Summary

  • The latest decisions on sugar and onion mean energy security and farm incomes rank lower in priority, at least for now

With general elections due next year, the government is wielding every weapon in its arsenal to tame food prices. The latest decisions on sugar and onion mean energy security and farm incomes rank lower in priority, at least for now. Mint explains the consequences:

What are some of the recent decisions?

So far in December, the government has moved on multiple fronts. Sugar mills were asked not to use cane juice to make ethanol, to ramp up production of sugar due to a lower anticipated crop following poor rains. This means a temporary setback to India’s target of achieving 20% blending of petrol with ethanol by 2025. It also banned onion exports till March next year—at a cost to onion growers—after an earlier decision to impose a minimum export price failed to check consumer prices. Then it halved stock limits on wheat, pushing traders and retailers to release additional stocks in the market.

Was there a sharp uptick in retail prices?

Retail sugar prices have seen a moderate uptick, at 4.2% year-on-year, as of 10 December. But since sugarcane production is expected to drop by 9% in the 2023-24 sugar season (October 2023 to September 2024), it looks like the government did not want to take any chances. According to Crisil, the rating agency, the decision to bar use of cane juice to make ethanol is expected to boost sugar production by 2.5 million tonnes and put a lid on retail prices. For onions, however, the government had strong reasons to act. Retail onion prices have close to doubled—from 28 per kg last year to 55.4 now.

What is happening to the prices of other food items?

Data from the consumer affairs ministry shows retail prices of rice and some pulse varieties like tur are significantly higher, about 17% and 41% respectively on-year. Cooking oil prices are significantly lower compared with last year, as prices fell by 15-27%. But vegetable prices have been volatile. Other than onions, tomatoes are now 24% costlier than last year.

Why is the Centre firing on all cylinders?

In October, retail food inflation came at 6.6% due to higher prices of cereals and pulses. The Centre wants to keep food prices down ahead of the general elections in April-May next year. So, over the past year, it has restricted exports of wheat, rice, onion and sugar, cut import duties on edible oils, and made arrangements with other countries to import pulses. In November, it also announced that the free foodgrain scheme, which provides 5 kg of grains every month to over 810 million people, will be extended till 2029.

How will this impact farmers?

Over the past year, crops of wheat, rice, cane, soybeans, spices, pulses and vegetables have been hit by heat waves, rains, floods and pest attacks. The loss is worsened by export curbs—farmers could have partially recovered losses via exports and higher domestic prices. A hit to farm income also means tepid growth in non-farm wages and low rural demand. More importantly, it is a reminder that in the age of climate crisis, food security can never be taken for granted as production surpluses can quickly turn into deficits.

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