Your veggies, milk and meat to cost more this year

Food inflation hits 14.44 per cent and is set to climb in the new year, say economists

Your veggies, milk and meat to cost more this year

Food inflation hits 14.44 per cent and is set to climb in the new year, say economists

Food inflation has already hit the double digit mark of 14.44 per cent, barely a couple of days after the Associated Chamber of Commerce (Assocham) released its report saying that food inflation is set to climb even further in 2011. Like Assocham, other economists too have begun to debunk the government's previous optimism that food prices will go down.

Vegetable prices to shoot up further. File pic

In fact, a desperate government has already decided to defer the diesel price hike, in a frenetic bid to avoid the inflation multiplier effect of the move. But as the diesel price hike eventually goes through, the inevitable is expected to happen anyway. Abheek Barua, chief economist, HDFC Bank, says the government will try to hold the hike as much as possible. "A hike in diesel prices would have an immediate one-time effect, followed by a multiplier effect. There is no doubt that food inflation is unlikely to go down like the government claims. The real causes are declining agricultural productivity due to non-investment in the agricultural sector. There has to be investment in water resources, irrigation, and technology," Dr Dharmakirti Joshi, chief economist of credit rating agency CRISIL told SUNDAY MiD DAY.

He continues, "The present model of fertiliser subsidies won't help. Genetically modified seeds too are not a solution. We need to invest in huge chains of cold storages and storage logistics to prevent rotting and wastage of agricultural produce. Without this, we cannot prevent panic hoarding by traders at the retail level, resulting in higher prices. Right now, the retail level profit margins are too high. We also have to invest in seeds, which need less water to grow. All this cannot be done immediately. There has to be a sustained effort for at least a few years." He also mentioned that increasing middle class consumption of more meat and animal protein has resulted in 20 per cent price inflation for such products, due to supply side constraints.

"I am not worried about vegetables, because supply of these products can be corrected rather quickly. But the government should be worried about producing more grain, as well as animal protein. Even the price of milk may go up further, because we have neglected the production of animal fodder eaten by milk producing cattle. This has yet to beu00a0 noticed by the government," he added.

Interestingly, Assocham's report has traced the origins of the present inflationary pressure in food and fuel prices to the hike in the first half of 2009-2010. In a paper titled, 'Realising the Objective of Stabilised Inflation', Assocham said, "2011 may continue to pose a problem and aggravate the issue of food inflation and put pressure on the manufacturing sector due to hyperinflation. Besides domestic climatic conditions, external market conditions, logistics deficiency, unauthorised hoarding and ineffective agriculture policy have been the major causes of inflation".