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How rising prices affect you

April 14, 2008

A cite the following reasons for the spurt in prices of various commodities:

  • Impact of high oil prices: High crude oil prices affect agricultural costs directly because of the significance of energy as an input in the cultivation process as well as in the transportation of food.

  • Increase use of bio-fuels: Many Western countries have promoted bio-fuels as an alternative to petroleum. This has led to significant shifts in acreage as well as use of certain foodgrains. For example, Brazil uses sugarcane to make bio-fuel and the European Union uses imported vegetable oils to make bio-fuel. This has reduced the available land for producing food the world over. As global food and commodity prices rise, the impact is felt by India too.

  • Neglect of agriculture: The prolonged agrarian crisis in many parts of the developing world; excessive use of groundwater and inadequate attention to preserving or regenerating land and soil quality; lack of attention to relevant agricultural research and extension; overuse of chemical inputs that have long-run implications for both safety and productivity have cumulatively led to inflation.

    Reversing these processes will take time and substantial public investment. Until then, global supply conditions will remain problematic.

  • A change in market structure: This allows for greater international speculation in commodities. It is often assumed that rising food prices automatically benefit farmers, but this is far from the case, especially as the global food trade has become more concentrated and vertically integrated.

    Image: A female Indian labourer sorts onions at a vegetable wholesale market in Siliguri. | Photograph: STRDEL/AFP/Getty Images

    Also read: Inflation, the silent killer
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