Indian sugar mills association

From sugar to eggs: what our food basket says about our income

Date:	28 Mar 2012

Source:	Mint

Reporter:	Monika Halan

News ID:	1018

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The house-help is on leave and I’m in the market for six eggs, making an infrequent visit to buy the EBE (everyone buys everyday) goods. How much? I ask. Paanch kam tees. 25 bucks? I need six and not a dozen, I correct; your numbers are wrong, you mean half that, right? The little boys on the makeshift wooden plank that doubles as a shop counter at the corner of the Mother Dairy booth break into giggles. Abhi bahar se aiye hai (she’s come from out of town), they joke. The joke is on me in more ways than they mean. The most obvious one is that the price of eggs has more than doubled in the last year and I’m oblivious of it. The deeper irony is that I forgot all that I learnt in postgraduate economics while living my everyday life. I know that per capita income in India is up about three times over the last 15 years, but I forgot that as incomes grow, two things happen. The proportion of food in the overall consumption basket shifts to non-food goods. And within the food basket, sugar and cereal get replaced by proteins in a low per-capita country such as India that is still grappling with mass poverty. We know that per capita income is up. And we know anecdotally that food prices are soaring, but can we say the two are linked? And if yes, what parts of the food basket are seeing the biggest price push? Using data from two papers written by deputy Reserve Bank of India (RBI) governor Subir Gokarn, (these are available here:http://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/06S_BL100112.pdf andhttp://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/TPRIPR261010.pdf) we see two trends. One, in both rural and urban areas, the proportion of household consumer spending on food is down by more than 10 percentage points over the last 15 years. Food spending now makes up about half the rural consumption spending and two-fifths of the urban, down from three-fifths and about half. Two, within the food basket, as incomes rise, the consumption of milk, eggs, meat, fish and pulses (or proteins) begins to overtake that of sugar and cereals. In fact, as incomes rise, the incremental spending on proteins is more than double that on cereals. This increased protein consumption is pushing prices because of a severe supply bottleneck. It is fascinating to trace the journey of India’s rising per capita income (and falling poverty) by following the constituents of food price inflation over the years. Cereal and sugar (the biggest calorie bang for every rupee spent) prices were the biggest contributors to overall food inflation in the four decades beginning 1960. Protein and fruit and vegetable price inflation made a small debut in 1981-82, but the bulk of price rise was in the sugar and cereal basket. The turn of the century has seen roles getting swapped—sugar and cereal price inflation has subsided and the main drivers of prices are proteins, fruits and vegetables. For a country like India, with more than 350 million poor, the impact of rising incomes and reducing poverty will be felt for the next few decades on protein prices, unless there is a sustained policy push to increase supply. What does this mean for our money? We should prepare to keep paying more for proteins in the near future and not expect food inflation to come down anytime soon. In fact, as poverty numbers decrease further and the average incomes rise, the pressure on protein prices will increase, unless there is a protein-targeting revolution, the way the green and white revolutions worked on cereal and milk supply. The worst hit from this price rise in the urban middle class will be the retired, whose spending on food will see an increase that was not planned for and those whose incomes do not keep pace with inflation. For investors the shift in household spending and the food basket is both an opportunity and a threat. The threat comes from a supply-side inflation that the RBI is not able to target by running a tight money policy. The opportunity comes from identifying companies or funds that are poised to take advantage of this shift in food choices on the Indianthali. Endnote: A special thanks to Sumita Kale, chief economist at Indicus Analytics, for helping with data and links to papers and a small note to all those south Delhi brats who used raw eggs instead of water balloons to chuck at each other and passers-by on Holi this year—I hope your parents are reading and know that they deprived some newly protein consuming families of their daily dose of protein. Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, and Yale World Fellow 2011. She can be reached at expenseaccount@livemint.com

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