India’s Soaring Food Inflation May Affect the Global Market

Erratic climate conditions – including the driest August in more than a century – have sent food prices spiraling above 11% in India, which is a major player in global agri-trade.

Just as tomato prices begin cooling down, onions have gotten more expensive by a quarter since June in the domestic market.

With some key state elections this year and a big general election looming next summer, the Indian government has swung into action, unleashing a number of measures to tame food inflation.

Following a ban on wheat in May 2022, India announced an abrupt stop to non-basmati white rice exports last month.

More recently, the finance ministry imposed a duty of 40% on onions to discourage exports and improve domestic supplies.

Organizational chief economist, Rajni Sinha noted that with sugar production expected to be lower this year, “the likelihood of a ban on sugar exports has also increased”.

Other analysts say the government could step up its response with further measures going ahead.

There are questions if India, with its aggressive defense of domestic prices, runs the risk of exporting food inflation to the world.

In response, the International Food Policy Research Institute, IFPRI believes it does, particularly with rice, sugar and onions.

Over the past decade, India has emerged as the world’s largest exporter of rice, holding a 40% market share – and the second largest exporter of sugar and onions.

The United Nations Food and Agriculture Organization’s Rice Price Index jumped by 2.8% in July – its highest level since September 2011 – driven mostly by price increases in the Indica variety of rice whose exports India has banned.

Forty-two countries in Asia and Sub-Saharan Africa get 50% of their total imports from India, going up to 80% in some countries according to IFPRI, and its share cannot be “easily substituted with imports from other large exporting countries such as Vietnam, Thailand or Pakistan”.

Elevated global food prices could also have other implications in these countries such as keeping food import bills high, leading to the use of precious foreign exchange, “thus worsening balance of payment problems and contributing to inflation”, says Upali Galketi, senior economist at the markets and trade division of the FAO.

The termination of the Black Sea Grain Initiative after Russia’s invasion of Ukraine and extreme climate conditions across the world are other major contributing factors to the increase in global food prices