what policy options exist for combating the issue of food inflation
Answers
The various explanations for high food inflation that unfolded and endured in the past year and a half, would suggest that the sudden decline in the rate of food inflation should be viewed merely as a respite. Although unfavourable weather conditions did play a role in food prices, structural factors were also significant.
The stubbornly high food prices have raised a number of questions about inefficient marketing systems, weak storage infrastructure and stagnant productivity. While solutions to these constraints were expected to take some time, something else seems to have led to the decline in food inflation rate. A relief in price scenario would not have come without either an increase in supplies or weakening of demand. We are perhaps looking at both these developments.
The arguments pointing to the rising demand for food to items beyond just the grains were particularly compelling; the high income elasticity of food and the rising income levels were a good explanation for the faster growth in demand than ever before. In this context, it comes as a pleasant surprise to consumers that supplies have caught up so soon.
If higher supplies have come from re-allocation of resources, particularly land, from other crops to those crops where price rise was sharper, then the supplies of the former will come under pressure. Therefore, unless unfavourable weather was the predominant cause of high food inflation, the watch on food prices will have to continue.