Make farmers better informed about risk

Food inflation is on another episodic spike. Which makes targeting inflation overall a more complicated exercise. Manufacturing and agriculture are diverging in price trends, in which the weather plays a crucial role. Food inflation is likely to remain elevated due to heatwave conditions till monsoon arrives. Then it’s expected to trend down sharply because of the high base during last year’s scattered and inadequate monsoon. Dependence of retail inflation on the weather is becoming more volatile with the rising frequency of extreme events. Supply responses like export bans and stocking limits don’t address rising volatility, and with it headline inflation that serves as a key macro target.

A more holistic food supply response would look at price signalling, marketing and logistics support, and expanded irrigation and stockholding. These are longer-term solutions by derisking food production from weather. Then there are climate mitigation efforts to reduce extreme weather phenomena, an even broader approach to keeping a lid on food prices. None of these will, of course, yield the outcome policymakers seek: an immediate reversal of food inflation. This tends to slow down progress on the policy that’ll actually make a difference.

Food production is more a victim of state intervention than market imperfection. GoI adds to these imperfections by trying to control input and output prices in farming without having adequate control over the former and insufficient capacity for the latter. India needs to craft policy that makes agriculture less risky. Instead, what we get is state responses that heighten price volatility. Food availability, GoI’s overriding concern, will be better served by farmers making better informed decisions about risk.