Processed fruits and vegetables curb inflation
Once the new crop comes in, popular wisdom is, price of fruits and vegetables will start coming off and inflation levels will once again begin to get tolerable. While that may well be true, there is a more sure-shot solution. In overall terms, while WPI food inflation rose to 18.8% in September on a year-on-year (yoy) basis, that for manufactured food articles rose a much lower 1.6%. To be sure, the items in the two indices are largely different, so an immediate inflation comparison is difficult—like say between tomatoes and tomato puree or fresh onions versus dehydrated ones. But if you look at milk, inflation in this rose 5.8% yoy while that in powdered milk (a manufactured food product) fell 0.17% yoy; WPI inflation rose just 0.95% in ghee and 3.74% in butter, both of which are by-products of milk. Canned fish prices fell 6% while those of fresh fish rose 39%. Few would argue that canned milk is anything like the fresh one, but a large part of this also has to do with the level and quality of processing, even packaging—in any case, when prices of fresh produce are going through the roof, a cheaper alternative is important.
India, however, has the lowest level of processing in comparison with most countries—a little over 2% of all fruits and vegetables are processed in India compared to 23% in China and 65% in the US. The reason why processed fruits and vegetables have lower inflation have to do with the fact that processors often buy directly from the farm, there is a lot less waste and, most important, the sourcing is not done at the highest price or in retail markets—retail mark-ups in fruits and vegetables can often be more than 50-75%. The sooner the levels of processing rise, the better it will be for inflation-hit customers.`