Q. Food inflation in India has been rising due to various factors, including supply chain constraints. What are the main causes of these constraints and how can they be addressed? Discuss. (250 words)05 Jul, 2023 GS Paper 3 Economy
- Introduction: Start your answer with a brief overview of Food inflation and its causes.
- Body: Discuss main reasons behind supply chain constraints and ways to address them.
- Conclusion: Conclude the answer with a way forward approach.
Food inflation refers to the increase in the prices of food items over time. It affects the purchasing power and welfare of consumers, especially the poor and vulnerable sections of the society. Food inflation in India has been on the rise, with consumer food price inflation increasing from 0.68% to 8.38% between September 2021 and April 2022. The main causes of food inflation in India can be classified into demand-side and supply-side factors. On the supply side, one of the factors is the disruption of the supply chain.
Main reasons behind Supply Chain disruptions in India:
- Fragmented supply chain: The long and fragmented supply chain results in the wastage and price escalations. This is because of the large share of unorganised players in the supply chain and operating commercial viability challenges.
- Inadequate cold storage and warehousing facilities: Warehousing is a key requirement in the overall supply chain it is mostly dominated by unorganised players. 20% of warehousing is organized currently with 70% of the organised market controlled by the Government.
- Lack of adequate cold storage facilities leads to post-harvest losses of perishable commodities such as fruits, vegetables, dairy, meat, etc.
- Climatic factors: Extremes in temperature and rainfall can adversely affect the production and yield of food grains.
- Global Factors: food inflation is also influenced by global factors such as the COVID-19 pandemic-induced supply chain disruptions, the Russia-Ukraine war, and the surge in international commodity prices.
- These factors have increased the input costs and reduced the availability of food items such as edible oils, cereals and sugar.
- Logistics issues: Logistics in India still face challenges related to quality and connectivity. Indian national highways account for only about 2% of the total road network but carry 40% of all cargo. Port capacity may be increasing, but lack of connectivity to these ports leads to cost escalations and delays in the goods transferred.
Ways to address supply chain constraints:
- Strengthening the infrastructure: There is a need to invest in improving the road connectivity, rail network, power supply, irrigation facilities, etc. that facilitate the smooth movement of food products across regions.
- There is also a need to augment the cold storage and warehousing capacity and ensure their quality standards.
- Addressing structural bottlenecks: India needs to push through long-pending legislation that aims to address the structural bottlenecks (4Ls: Land, Labour, Law, Liquidity) that continue to plague and hinder domestic competitiveness.
- Promoting market integration: There is a need to reduce the intermediaries and inefficiencies in the food supply chain by promoting direct linkages between farmers and consumers.
- This can be done by encouraging farmer producer organisations (FPOs), contract farming, e-NAM (electronic National Agriculture Market), etc.
- Enhancing resilience to climate change: There is a need to adopt climate-smart agriculture practices that can help farmers cope with weather variability and reduce crop losses.
- This can include crop diversification, improved seeds, water conservation, soil health management, etc.
- Diversifying food basket: There is a need to diversify the food consumption pattern of Indians by increasing the intake of protein-rich and micronutrient-rich foods such as milk, pulses, eggs, fruits and vegetables.
- This can help reduce the dependence on cereals and edible oils and improve the nutritional security of the population.
Addressing the supply chain constraints causing food inflation in India requires a comprehensive approach. This includes investing in rural infrastructure, reducing post-harvest losses through improved storage and processing facilities, upgrading transportation systems, and enhancing market access for farmers. By implementing these measures, India can significantly improve its supply chain efficiency, reduce food wastage, and mitigate the impact of inflation on food prices.
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