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Why are Food Prices So High in India? Research Team | Posted On Monday, August 25,2014, 03:40 PM

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Why are Food Prices So High in India?



Soaring prices of onions bring tears to your eyes? No more red tomatoes in your curry? Costly potatoes mean no more French fries.  Eggs, milk and poultry prices are going through the roof. Has dining in restaurants become unaffordable? Why do you think food prices are going up?

Is it the failing monsoons? Rising food prices all over the World?  Shortfalls in the public distribution system?

Farming Costs are Going Up.....

  • Cost of seeds is going up.
  • Irrigation and manure costs are on the rise.
  • Prices of tractors and other machines used in farming are rising.
  • Fertilizers and pesticides use has increased and so has its cost.
  • If the farming land is taken on hire then there are costly rentals.
  • Transportation and storage costs have shot up.

What About Costly Labor?

In earlier decades there was no shortage of farm workers (people working as manual labor in fields).With better job opportunities available in cities these farm workers migrate to cities. This labor shortage in rural areas puts farm workers who continue to stay in villages in an excellent bargaining position .This pushes up labor costs.

Shortage of agricultural land.....

  • Agricultural land is being converted to non agricultural land and then used in construction of residential apartments.
  • Acquiring of agricultural land by Manufacturing Companies has resulted in a severe shortage of agricultural land pushing up their prices.

The Deadly MSP.....

In order to encourage farming and make sure that farmers get good rates for their produce (food grains such as rice and wheat) the States in India purchase food grains at a fixed minimum price which covers the cost of cultivation and ensures good profit to farmers.

This is the minimum support price (MSP) below which the farmer will not sell. (Think of this as a base price below which the farmer will not sell).This means that by the time food grains reach your table their costs would be soaring.

The Culture of Mandis

Farmers are allowed to sell their produce only to registered Mandis. These Mandis are dominated by traders and middlemen. Fruits and vegetables reach the hands of traders and middlemen and are governed by the Agricultural produce market committee act (APMC act). Farmers sell their produce to traders under the supervision of the APMC.

So What Do You Think Would Happen?

The middlemen would force farmers to sell vegetables and fruits at dirt cheap rates. This should help get vegetables and fruits at a cheap rate on your dinner plate right.....But it is not so.....Why? Middlemen and traders have been functioning in India since ancient times and follow only one practice.

Force farmers to sell low. Hoard the vegetables and fruits. (Think Onions, Tomatoes or Potatoes)…They have good storage facilities and can do this. They then sell the fruits and vegetables at sky high rates (Four or Six times higher). The middlemen control the rates of onions, tomatoes and potatoes as per their whims and fancy. Sometimes onions would be INR 25/Kg…In the following month INR 70/Kg…Maybe INR 80/Kg…seemingly without any reason.

By the time onions, potatoes and tomatoes reach your table their costs are so high you just cut these from your menu.

Modern curries can be cooked without these ingredients.....

Changing Food Habits

If you are affluent (neo rich) you no longer are interested in eating cereals (rice , wheat and food grains). If you are a rich vegetarian you would eat pulses (beans, chana, daal, green grams). Many Indians have shifted their eating habits to eggs and poultry. This pushes up prices of poultry.

Simple: Indians have shifted from eating carbohydrates rich foods to protein rich food.

Excess Buffer Stock of Food Grains

What is a Buffer Stock of Food Grains?

The Government maintains a buffer (emergency stocks of food grains) to cater to any emergency which might arise due to a shortage of grain. This grain would be purchased at a high price from the farmers. When food grain prices rise above a particular level (price above which the Government is not comfortable) they release this grain and bring down the prices. This is ideally how a buffer stock of grain must work.

What Actually Happens?

In spite of food grains being available in plenty (bumper crop) grain is purchased at high rates from the farmer. As there is no demand for these food grains the Government stores the grain. As storage facilities are inefficient there is pilferage and wastage and grain is left to rot. The loss is unimaginably high.

Wrong Policies?

  • These food grains are not exported in spite of a surplus.
  • There is no idea of the quantity of food grains required which leads to excess stock of food grains and wastage.

What Can Be Done?

  • The Government must purchase only food grains which are required rather than buy all food grains at high prices.
  • Improve storage facilities.

How Does This Loss of Food Grain Affect Us?

When food grains are in short supply the prices rise. The Government buffer stock of food grains has been destroyed due to pilferage and improper storage facilities. The food grains have to be imported to meet the demand and the price further rises. The high food inflation pushes up interest rates in the economy (banks) which pushes up interest rates on home and car loans which you would avail from banks.

Net result: Everything is so so expensive.

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