FOOD INFLATION

Ketan Chadha
XI comm A
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shopping bags getting
lighter

The culprit………………..price
hike…

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

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Causes for Inflation
 Speculation
 Bio fuel policies
 Stimulus packages
 External factors
 Rising crude oil prices
 Transportation costs

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Food inflation in India
 Is exactly rise in the price of food items
 Food inflation hit a more than decade high of
19.95% for the week ended December 5
 The present inflationary rate is 18.22%
 In India food inflation is calculated on the basis
of WPI
 In India CSO is calculating inflationary trends
 Inflation for primary articles which include
unprocessed food and non food items rose
by14.39%

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Cont…
 The profit margin in cultivation is less for the
farmer
 The farmers are going for flat culture
 The ration shop/supplyco markets are not
supplying the grains and sugar given by the
govt. to the common man

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Whole Price Index (WPI)
 The measure of price changes in the wholesale
market during the production processes before
goods get to the consumer
 WPI is calculated on a base year (1993-94)
 A sample set of 435 commodities are taken for
inflation calculation
 The price from whole sale market is taken for
calculation
 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)
 It is a measure estimating the average price of
consumer goods and services purchased by
households
 The percent change in the CPI is a measure
estimating inflation
 Movement of CPI after June 2009 has been
dramatic
 In January to March 2008-09 CPI was 2.7%

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Cont…
 Average for the first four months of 2009-10 was
9.6%
 CPI reported 12% to 13% for both July and August
2009
 In December 2009 it touched 19.95% which is the
highest of 11 years
 A high CPI based inflation poses a big threat for
overall economy

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

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Deficit monsoon
 Southwest monsoon has been deficit to the
extent of 22.7% in 2009
 Around 5.4 million hectares of acreage loss till
September 30th 2009
 Loss in kharif food grain production largely
contributed by rice

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

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Way the Indians spend

[Link]
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Corporate under pressure
 FMCG companies thinking about increasing
prices
 Input costs has gone up by 15-20%
 The FMCG companies in India are in a dilema
whether to increase price or to reduce the
quantity

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 GAS prices doubled …..
After a 5-year long deliberation, the Cabinet
on Wednesday more than doubled the price
of gas under the administered pricing
mechanism (APM) to USD 4.2 million British
thermal units (mmBtu), the price at which
Reliance Industries sells its gas at from KG-
D6. Initially, the price hike was to happen in
three equal instalments, but at the
insistence of the Finance Ministry, the APM
gas has been hiked in one go.
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Sugar
 India, the world's largest sugar consumer, is
importing sugar since April last year to meet
the production shortfall
 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
 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

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S
U
G The The demand for sugar may be curtailed on an individual level,

A
specifically keeping the health aspect in mind. But what about the
industrial demand? Ahead of summer, there is spurt in demand by the
ice cream and soft drinks industry. Prices are likely to shoot up further
as summer closes in. Certainly one cannot abstain from the pleasures of
life such as having an ice cream just to keep prices in check.

R
demand for sugar may be curtailed on an individual level, specifically
keeping the health aspect in mind. But what about the industrial
demand? Ahead of summer, there is spurt in demand by the ice cream
and soft drinks industry. Prices are likely to shoot up further as summer
closes in. Certainly one cannot abstain from the pleasures of life such as
having an ice cream just to keep prices in check.

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 Petrol prices killing common
people

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Fuel hike to impact food prices? Pawar
has no clue

New Delhi: Union Agriculture Minister Sharad

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Government steps
 Issued instructions to check any smuggling of
cane and sugar as there have been some
complaints of sugarcane being smuggled to
Nepal
 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…
 Sugar output is estimated at 16 million tones in
the current season, ending September 2010
 Duty-free imports of white sugar
 Government has relaxed central excise rules to
enable processing of this sugar by mills located
in other states

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

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

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R
I
C
E I n every zone of india prices rose tremendously
and in some cases they were more than a
doubled..

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Food grain
 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.
 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.
 The major food grains cultivated in India are
wheat ,rice etc

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F
O
O
D

G
R As usual when the Union Budget is presented, all eyes
A will be on the Finance Minister and his speech will be
thoroughly scanned for all the implications on the
I economy. But this time, there is one particular reason
N why ordinary citizens will be specially focussed on the
Budget: the hope that the Government is finally going to
S act decisively to contain food prices.
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Food price inflation in major
cities of India

[Link]
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Steps taken by government
 The increase in food prices could be tackled by
boosting supplies
 Encourage import of consumer goods like
wheat, pulses, crude edible oil
 To improve agricultural productivity
accompanied by a more efficient use of water
resources
 To lift more wheat and rice stocks
 Allowed open market sale of wheat at lower
prices

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

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 HAVE A LOOK!

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

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Cont…
 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
 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
 India relatively less affected by volatility in
global food prices, may face a crisis if
precautionary measures are not undertaken
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Current Scenario in India
 The food inflation in India will remain for
atleast the next 6 months
 This is mainly due to the fact that the output of
kharif and rabi crops are minimal due to
various seasonal imbalances
 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…
 Cultivation of wheat has decreased
 Soil condition
 Climatic changes
 Large stock of food grains with FCI

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Soon due to petrol hike people will
come out with solutions like this.

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

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Expenses are rising and savings
reducing…………

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[Link]

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