Why are food prices increasing?

There is a sweeping rage in India due to a recent food price hike. But media is attributing this hike to the fuel price hike that preceded that.

“Wholesale price-based inflation inched higher to 10.55% in June, owing to the pass through effect of the June 25 hike in prices of petroleum products... Food inflation remained in double digits at 12.63% for the week ended June 19, having moderated from over 16% level in the preceding eight weeks... Among primary (raw) food items, urad turned costlier by 9%, meat by 7%, fish-marine (5%) and spices (3%).

Numbers like these make it seem plausible. But these arguments often ignore other causes, which may actually be bigger causes in the future considering India’s growth rate. Other reasons such as urban population, increase for instance.
” Net addition of population in urban areas was 70 million in 1991-2001 decade with decadal growth of 31.2 % [of the total population]. Share of urban population went up by 2.1% “

Migration from rural to urban areas is increasing the number of food consumers and decreasing the number of land tillers. This reduces the total food production. This reduced amount of food needs less fuel for transportation. Considering that there may be alternate fuels available to reduce this demand of fuel even further, the influence of fuel prices on food prices will be much less. But now this reduced amount of food needs to serve even a larger consuming population, decreasing the per capita food available. Any economist can tell you that as supply decreases & demand increases => Food Price Hike!

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I, clearly, do not have all the numbers to substantiate my above hypothesis. More data on growth of fuel price vs. growth of population in the years to come, or how much fuel consumption for food transportation per capita will decrease in those years, et al. will give more robust understanding of the real cause. But the point I’m trying to make here is that our policy makers must start asking for more relevant data before they start making policies about issues that affect almost all the citizens equally and tremendously, or we will risk allocating our-already-scarce resources for chasing the wild goose in the dark.


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