A Presentation of Food Inflation. This is based on the time value of money.

1. Gurukrushna Patnaik
AIMIT, Bangalore
Food Inflation
Price Hike In Food Commodities
© Gurukrushna Patnaik

2. Topics to Discuss
• Price rise: An economist's view.
• Grocery Bill.
• Money Vs. Goods.
• Positive effect of Hoarding.
• Onion price rise – A critical issue.
– Way back in 2010 and history
– Situation at present
– What is causing the price rise of onions in India?
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3. Price rise: An economist's view
• Rising prices are like a fire feeding on itself.
• In turn, it brings down productivity leading to
further inflation.
•
In any discussion of food price rise, we take
drought, as a reason for it.
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4. Tighten Your Purse Strings
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5. Grocery Bill
• High inflation has been pinching you for more than
a year now. Now, the weakening rupee has made
crude oil, fertilizers, medicines and iron ore, which
India imports in large quantities, costlier. Though
these items are not for your daily consumption, they
impact your finances indirectly.
• For instance, since India depends on imports for a
large part of crude oil it consumes, a weak rupee
will influence petrol and diesel prices. "Fuel being
directly connected with the cost of transportation,
prices of goods that are transported from one part of
the country to another, such as food, are bound to
rise. This will have a direct impact on the household
budget.
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6. 1 Year Crude Oil Prices
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7. Money Vs. Goods
• In economists' parlance, the main culprit happens to be
inflation.
• If money exceeds the value of commodities available in
the market, the prices are bound to go up.
• Inflation
– Faulty planning with wrong order of priorities.
– Inadequate production of goods in demand.
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8. Cont..
•
Inflationary situation is further aggravated by
unimaginative import and export policies.
• Improper imports and exports to domestic market,
further increase in prices.
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9. Positive effect of Hoarding
• Monsoon is always the big issue.
• Observing less production, hoarders became overactive,
thereby leading to further price rise.
• Hoarders strike a balance between the current price and
future price.
• In late monsoon or less production, food prices rise
drastically.
• It is the hoarders who actually help maintain some sort
of an equilibrium.
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10. A critical issue
ONION PRICE RISE
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11. Onion Price Rise
• An onion, today being compared with
diamonds.
• India is the second largest producer of onion
having 19% share of the global onion
production.
• The price of onion has shot up from Rs 20
per kg to Rs 70 per kg in some parts of the
country.
• 245% rise in the wholesale price of onion
this year, has given an unpredicted turmoil in
inflation.
© Gurukrushna Patnaik

12. Way Back in 2010
• India had seen a dramatic increase in onion price
across all the markets in 2010.
• The cause of price hike was the delay in reaching
onions to the markets.
•
Unpredictable rainfall that led to the shortage in the
production .
• Political stress was created.
• Hoarding and price increased by traders were also
blamed for the same.
© Gurukrushna Patnaik

13. Situations at Present
• Due to speculations, traders might have increased
the price to earn profit.
• Traders exploiting and taking advantage of the
seasonal shortage in supplies.
• The supply of onion falls to 3,000 quintals on
Monday as compared to 6,000 quintals on
September 6.
© Gurukrushna Patnaik

14. Cont..
• Wholesale price of onion increased per quintal from
Rs 4,140 to Rs 5,300.
•
In Mumbai and Delhi the Wholesale Price increased
by Rs 1,000 per quintal.
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15. Cause for Price Rise
• Hoarding – Trader-intermediaries who operate in
groups encourage hoarding to keep the prices high.
• Mismanagement – Improper supply chain and needs
to be managed for a regular supply.
• Inflation
– Recent fuel price increase has pressurized the
common man to by household things.
– increasing the minimum export price (MEP) would
help in lowering down the price of onion.
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16. FAO food price index
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17. © Gurukrushna Patnaik