Food Price Index

Since wastage is equivalent to India's total Pulse import for a year, we estimate that the country could easily manage the shortage of pulses through efficient warehousing infrastructure

With normal rainfall, agriculture sector in India is expected to witness healthy growth in FY17. This will remove the food grain shortages in domestic market caused by two consecutive droughts in previous years. Moreover, improvement in food supply management will also assist in maintaining a stable food price. Demand for certain protein based items such as meats/ fish, egg and milk based products however shored up the otherwise falling index.

Since wastage is equivalent to India’s total Pulse import for a year, we estimate that the country could easily manage the shortage of pulses through efficient warehousing infrastructure

Similarly, in the global market, price of agriculture commodities is expected to remain stable. Acuité finds a highly positive correlation between global food price index and crude price. As fossil fuels become expensive, the demand for bio fuels, a close substitute, also increases. Since Crude prices are unlikely to rebound in the near term, demand for food article for energy production will be low as well.

Therefore, energy sector is unlikely to mount pressure on agriculture commodities to move up. Acuité believes that food inflation will likely average 3.5% in FY17.

Principal factors influencing the category  

Monsoon/Irrigation

Fertilizer Usage

Demand Supply Equilibrium

Consumer Sentiment/ Inflationary Situation

Economic Growth & Outlook

Government Policy & Support

Supply chain management and Food inflation:

In India, as per government estimates, around 3-10% food grain gets wasted due to poor warehousing facility. However, investment in food parks have been increasing significantly. Cumulative investment in food parks were pegged at Rs. 92 billion until 2014 and this has been raised to Rs. 143 billion in 2016. This development will further increase the storage capacity and minimize the crop wastages, adding more value to the agro economy.

It is understood that healthy output growth alone will not solve the spike in food prices. Robust supply chain management will also be requiredto keeping the food prices under control. For instance, poor transportation facilities increase cost and time in supplying food grains from surplus to scarcity areas. Similarly, lack of storage facilities increases the food wastage. Acuité estimates, India has warehousing gap of around 28 MT. On the other hand, Central Institute for Post-Harvest Engineering and Technology’s (CIPHET) estimates that average post-harvest food grain wastage in a year is Rs. 926.5 billion, which is around 4.6% of agricultural GDP.

Considering the volatile Pulses as an example, Post-harvest wastage is estimated at 4.6%-6% of annual production. On the other hand, we understand that the shortage of this commodity in FY16 was around 6.8% (Acuité Press Release; 22 August 2016). Since this also equivalent to India’s total Pulse import for a year, we estimate that the country could manage the shortage of pulses through efficient warehousing infrastructure; this could have helped reduce India’s import dependency as well. 

Crops	Cumulative wastage (%)
Cereals	4.65-6.0
Pulses	6.4-8.4
Oil seeds	3.1-10.0
Fruits & Vegetables	4.6-15.9
Milk	0.9
Fisheries (Marine)	10.5
Meat	2.7
Poultry	6.7

Source: CIPHET, 2015, Ministry of Agriculture, Government of India
Heat map of food price index

DeflationInflation

(Updated as on March 15, 2017)