What is Inflation?
Inflation is an economical scenario when there is a sustained increase in prices of goods and services over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money and it might vary geographically and sometimes with respect to time. Inflation is generally thought to be a negative impact on the economy, which is partially true because of the increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings. But on the other hand it can also ensure that central banks can adjust real interest rates, and encourage investment in non-monetary capital projects. Inflation may occur due to increased demand and limited supply, or due to increase in prices of raw materials.
Food inflation can be defined as a consistent rise in the price level of all agricultural food items. This rise in price level is neither seasonal nor sudden, it keeps on increasing over a period of time. Food inflation is generally volatile because of the nature of food and its dependence on external factors like climate and soil. Despite this inflation in food prices is a very worrying phenomenon, and one which tends to increase every year because of lower production of agricultural products and higher consumption rate due to increase in population. Agricultural lands have become real estate mines, and this has come back to haunt the economy. In India a booming economy has GDP expanding at 9% a year. Official inflation is around 7%, but, headline food inflation is more than double at 17.8% according to a survey in 2011. Food inflation is a headache to any economy, but more so in developing economy because it can be a matter of life and death for certain sections of the society.
Causes of Food Inflation
Food inflation has two major causes,
- Cost-Push Inflation
- Demand Pull Inflation
Food Inflation can increase because of natural causes like bad weather and destruction of crops due to natural calamities. For example, Sugarcane is in high demand in Tamil Nadu during the months of January and February and if there is a situation when the main sugarcane producing areas are affected by rain, and there is a decline in production the cost of Sugarcane is bound to increase because of excess demand and limited supply.
Another major reason for food inflation is the increase in demand for bio fuels, which results in agricultural lands being used for producing energy crops and cash crops. The fertile agricultural lands are often not used properly and are wasted. There is also the problem of insufficient utilization of available lands due to unskilled labor and lack of proper education.
Rise in food prices cannot be put under these general issues always. There is a broader reason, which is the aversion the newer generation has towards agriculture which is mainly due to the migration to cities in search of better jobs, education and facilities. There is also lack of proper irrigation facilities and over 60% of India’s fertile land is not irrigated. There also black marketers and hoarders, who buy products at a lesser rate and sell it in the black market for much higher prices when demand increases.
Food inflation has adverse effects on the economy and prevents the Government to concentrate on other key issues. Food inflation makes certain basic commodities like fruits a luxury. People would rather spend the money on an evening meal rather than a banana or papaya. People will have to cut back their spending on other amenities as food is the basic necessity. Industries take a hit due to these cut backs. If the mere basic necessity of people, food and water are not provided adequately it is impossible for a nation to thrive successfully and prosper in various fields.
Ways to tackle Inflation
The most important thing is to avoid wasting food. According to UN, India wastes more food than any other country in the world. While the prices of onions are steeply increasing due demand supply mismatch hundreds and thousands tons of onions are being wasted due to lack of proper refrigeration and storage facilities. It is a fact that over the 30% of the onions produced every year are wasted. No wonder Onion prices are increasing! We are already living in high demand less supply environment and wastage due to improper storage should be avoided and controlled immediately. Storage does not refer to just dumping these vegetables onto bamboo stacks but actually providing proper ventilation and sunlight to these storage facilities.
We can also tackle inflation by increasing the production according to increase in demand by providing a more constructive environment and convenient environment for farmers and encouraging them concessions and perks. They should also be educated about modern farming techniques and importance of proper storage.
We have seen Governments tumble due to increase in vegetable prices and it is a very real and serious issue every citizen must be made aware of. Food inflation is a natural phenomenon but it is up to us to keep it under check and manageable. Sending space shuttles and moon missions might all turn out to be useless if people are still struggling for food and water.