This document discusses the causes of food price inflation in India. It identifies several major reasons for the rising food prices, including a 45% wastage of food due to lack of infrastructure, population growth reducing per capita availability of some foods, low agricultural productivity compared to other countries, and hoarding of goods driving up retail prices. While commodity futures are often blamed, the document argues that food price increases predate futures trading for some crops. It concludes that fragmented agricultural markets and price volatility in local markets, rather than futures trading, are the real culprits behind high food inflation in India.

1. MYSTERY BEHIND FOOD PRICE RISE KHEM SINGH

2. Contents Inflation Food Inflation in India Major reasons for Food price Inflation Initiatives to boost Agricultural growth Real culprit behind Food Inflation Commodity Futures Addressing the problem 2 G-6

4. Always better to have a moderate inflation

5. Inflation is calculated mainly by wholesale price index and consumer price index

6. Inflation can have positive and negative effects on an economyG-6

7. Food inflation in India Is exactly the rise in the price of food items Food inflation hit a more than decade high of 20.2% in the month of Jan 2011. The present inflationary rate is 11.49% In India food inflation is calculated on the basis of WPI, Base year being changed from 1993-1994 to 2004-2005. 4 G-6

8. FOOD INFLATION CONTINUE TO RISE… 5 G-6

9. 6 The FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4% from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990. G-6

10. 7 - Meat - 25% - Dairy – 12.5% - Cereals - 53% - Sugar – 13.5% - Oils & Fats - 64% G-6

11. Way the Indians spend 8 G-6

12. Major Reasons For Food Price Inflation 9 G-6

13. a UPTO 45% of Food Wastage Due to Lack Of Proper INFRASTRUCTURE

14. AUSTRALIA MALAYISIA BURMA MAJOR FOOD GRAINS IMPORTING COUNTRIES SUCH AS AUSTRALIA ,BURMA , MALAYSIA SUFFERING DUE TO NATURAL CALAMITIES . THUS CREATING GLOBAL SHORTAGES AND INCREASE IN PRICES……..

15. POPULATION PRODUCTION Results In Gradual Reduction In Per Capita Availability Of Some Of The Food Items. For Instance, Per Capita Net Availability Of Pulses Per Day Has Gone Down From Around 60 Grams During The 1950 To Around 37 Grams In 2010

16. OLD TECHNIQUE SMALL LAND RESULTING IN LOW Agriculture Productivity Compared To The Best In The World SUCH AS US,CHINA,AUSTRALIA. India's Spend On Agri-R&D Should Increase To Around 1% Of Agri-GDP From The Current 0.6 % Of Agri-GDP.

18. MINIMUM SUPPORT PRICE 15 RESULTS IN FIXED INFLATION G-6

19. INITIATIVES TO BOOSTAGRICULTURAL GROWTH Minimum Support Price Investment In Agriculture Credit Flow And Debt Waiver National Food Security Mission Rashtriya Krishi Vikas Yojna Eastern India Initiative Pulses and Oilseeds Villages National Horticulture Mission Extension Reforms Availability Of Seeds 16 G-6

20. Who is the culprit behind high Food Inflation – Commodity futures or something else ?? 17 G-6

21. Commodity Futures An agreement to buy or sell a set amount of a commodity at a predetermined price and date. Both the buyer and seller are obligated to buy/sell the agreed commodity. 18 G-6

22. How exactly it works Futures market platforms offer operations through the Internet. Some of them also provide warehousing facilities. Once after verifying the quality and grade of the produce, farmer store his produce in these warehouses. He can visually ascertain the prevailing spot price as also the futures prices in on the internet. The farmer can decide to sell at the current price, in which case he gets the full amount in cash. 19 G-6

23. How exactly it works Or, if he decides to sell at any convenient future date, he gets an advance of about 70-75 per cent of the current price as also a warehousing receipt, which is a negotiable instrument. On or before the contract date, the holder of the warehousing receipt(i.e. farmer) is assured of getting the contracted price. The farmers have no difficulty understanding the scenario and would rather transact through the futures market . 20 G-6

24. A variety of reasons has been cited for high food inflation and it is indeed an interplay of various factors Political constituencies have argued that food inflation is due to the role of futures markets. Yet, the movement of pulses prices show, the causality between prices and futures trading is only a myth. 21 G-6

25. 22 During the one-year period of December 2008 to December 2009, spot price of chana increased by 12% while that of tur and urad increased by 61% and 70% respectively G-6

26. So the question arises, If commodity futures are not at the root of inflation, what is ?? 23 G-6

27. 1. Price volatility In localized and fragmented physical markets, information flow remains poor and limited only to influential market manipulators Due to which market-related information is given too high a premium, leading to unwarranted price volatility The usual business reaction to price volatility is hoarding of the commodity Thus leading to high Inflation 24 G-6

28. 2. Fragmented nature of Indian Agricultural markets In the name of food security, the borders separating Indian states are as stringent in movement of agro-commodities as international borders. Trade in agro-commodities is subject to a plethora of regulations and taxation Builds up costs of intermediation leading to cost-push food inflation 25 G-6

29. Addressing the problem Steps to remove the excess of state level regulations binding agro-commodities trade, thus creating a pan- India market, leading to faster and efficient movement of goods Debottleneck the agriculture supply chain and bring down intermediation costs. Targeting futures markets is counter-productive as evidenced in commodities such as pulses 26 G-6

30. Contd. Strengthen the market institutions that transmit market information in an effective manner so that agri-commodities are passed on to consumers with minimal risks Effective use of various other tools such as strategic storage, transparent and flexible trade policy, strengthening of country’s agricultural marketing infrastructure 27 G-6

31. 28 Thank You G-6