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Inflation in fact a serious deflation of Indian economy: Food processing industry
Thursday, 26 December, 2013, 08 : 00 AM [IST]
Nandita Vijay, Bengaluru
On one hand, the Indian food processing sector is of the opinion that the rising food inflation is a major impediment to the growth of the sector, and by extension, the country’s economy, and on the other, it would open up opportunities in the food sector, with a visible shift from fresh produce to processed foods, as stated by Arbind Das, chief operating officer, Godrej Tyson Foods.

The rate at which inflation accelerated in November 2013 was 11.24 per cent, and the previous month, it was 10.17 per cent. This could be attributed to the skyrocketing prices of vegetables, which have affected the growth of the domestic demand. According to the Institute of Economic and Social Change (ISEC), no vegetable has been spared, be it onions, tomatoes, or even green chillies.

“The theory has been that a good monsoon would convert the Indian agricultural landscape. But despite a normal rainfall, installation does not seem to have reduced. This, perceptibly, is a matter of apprehension, because it impacts the lower-income groups. High food inflation is because of high inflation in cereals and a short-term spike in vegetable prices,” a panel of experts from  IESC stated.

This will drive steady acceleration in economic activity, although the upturn would be patchy, citing weak demand. The fall in consumer demand and the decline in investment have resulted in tardy growth. Indicating optimism that growth is bouncing back, Dr Narayan Gowda, vice-chancellor, University of Agricultural Sciences, Bangalore (UAS-B), pointed out that only by controlling expenditure, it was possible to ensure fall in process of food inflations.

The persistent inflationary trend in India is a serious concern. From a household’s perspective, it is taking a sombre turn. The rising costs of fruit and vegetables see housewives making a drastic shift to cheaper food products that are expected to impact the health of the family members. The growing cost of milk, meat and poultry will see households opt for cheaper food variations which could also be health hazards.

“When the family income increases by one per cent, the consumption of vegetables increases by 0.55 per cent, fruit by 0.59%, milk and milk products by 0.57%, edible oil by 0.68%, sugar by 0.26% and fish, eggs and meat by 0.38%. However, cereal consumption falls by 0.05%. Now the increase in the price of milk sees growing consumption of pulses by 0.62%, vegetables by 0.45%, and fruit decrease by 0.20%,” Das stated.

Sanjay Sharma, chief executive officer, MTR Foods, said the last five years have seen a 12% rise in inflation in the food industry. “We are now seeing a visible impact in the form of a slowdown in category growth, and consumers opting for cheaper me-too brands. However, we believe that consumers are seeking value in this new economic scenario, and we are realigning our business model to become more competitive and create higher value for consumers,” he added.

“Rising inflation, coupled with a new packaging legislation, will make price hikes of packaged foods inevitable,” said Chitranjan Dar, divisional chief executive, ITC`s foods division. “On one hand, the costs of inputs, such as raw material, furnace oil and packaging material, and even logistics have gone up, and on the other, the new packaging law that bans producers from reducing the quantity,” he added.

Chetan L Hanchate, expert committee member, agro-food processing, Bangalore Chamber of Industry and Commerce (BCIC); consultant, food processing, and chief executive officer, Centre for Processed Foods (CPF), said, “Food is nutrition and a basic necessity. But the current raging inflation has now disturbed the access to balanced diets. What we see is that the purchase pattern of foods is becoming very erratic, leading to confusion among fresh and processed foods driven by the manufacturers with their alluring marketing strategies to woo consumers.”

“The rampant inflation of foods across the categories is influencing the migration of food purchase habits to cheaper foods and smaller portion sizes, making the cost of production and  marketing incurred by the companies higher for smaller packs. Many a times, consumers are fighting it across buying knowingly or unknowingly cheaper nutritive foods, resulting into malnutrition finally leading to health defects. Such a phenomenon has hit the lower- and middle-class segments, who make the bulk of food market purchases,” he added.

“It will be a Herculean task for the government to fight inflation. On the one hand, farmers who are engaged in food production are seen to be on the decline because of the deterioration in soil productivity due to mismanagement of farm lands, and on the other hand, the demand for safe and healthy foods is growing sharply due to immense awareness about safe and nutritive foods,” Hanchate said.

“Now what the assumption could be is that very soon a situation would arise where food would not be sold on the basis of quantity, but purely by the value of nutrition it offers if the inflation rate on foods goes uncontrolled,” he added.

“The government is working on ways to offload substantial volumes of stocks of foodgrains which would soften the cereal prices. Onion prices have already started coming down as the new crop arrives,” said the experts at IESC.

UAS-B’s department of economics indicated that some factors result in causing inflation. These are related to the supply shocks, supply bottlenecks and supply inelasticity. “The rise in food prices, that has become a constant refrain, is a reflection of the exponential rise in the cost of production that farmers grapple with,” Krishna Byre Gowda, Karnataka’s minister of state for agriculture, pointed out.

“Nearly each aspect of farming has become expensive. This covers from labour cost, manure or diesel. This is where agricultural universities played a vital role, in educating farmers about efficient practices.This is where University Agricultural Sciences, Bengaluru and Dharwad, could also play a key role. This dilemma has to be tackled  to increase production and to improve the quality of life,” he added.
“If the government is finding it difficult to control the rising inflation influenced by factors like increase in money supply, disposable incomes and expansion of credit, the government would need to closely monitor the inflation,” the ISEC experts stated.

“Now the government has been strictly keeping an eye on the inflation situation with a view to protecting the serious situations arising from  abnormal price rise. Our experience in the recent past has been that while prices of most manufactured goods and services have been reasonably stable, food prices have frequently risen at unacceptable rates,” Gowda added.

Giving suggestions to control inflation, Das pointed out that the first was the need to improve infrastructure of warehouses and distribution chain.

“The only permanent solution to control food inflation lies in increasing agricultural productivity. Now the government has taken up important new schemes, with a view to boosting agricultural production, not merely in cereals but also in pulses, oilseeds, vegetables and fruit, milk and milk products, and poultry, etc.,” said K C Raghu, managing director, Pristine Organics.

“As incomes rise, the demand shifts towards horticultural crops and dairy products. These are perishable and need sustained development of market facilities, cold storage, etc,. Which are quite different from what is needed for foodgrain,” pointed out A S Premnath, managing director, Karnataka Milk Federation (KMF).

“In order to provide a remedy for inflation control, the government went on to review the status  and has associated with the National Agricultural Cooperative Marketing Federation of India (NAFED) to  undertake sale of onions at Rs 35 per kg from their retail outlets in various locations. Further, the government has contracted import of onions from Pakistan, and banned its total exports,” Gowda added.
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