Climate chaos: Rising heatwaves, unpredictable weather are fueling persistent food inflation and straining consumer budgets

Scientists have been warning for long that the earth’s surface temperature is rising, but it appears to be increasing at a faster pace now. Consider the evidence: according to official data, average mean surface temperature in India has risen from 25.61° C in 2012 to 26.15° C in 2023. The mercury in the last few summers has touched and even crossed the 50° C mark in several Indian cities. The annual average global temperature in 2023 was about

1.5° C above the pre-industrial levels (1850–1900). According to the India Meteorological Department’s (IMD) annual report 2023, the annual mean land surface air temperature averaged over India during 2023 was +0.65° C above the long-term average (1981-2010 period). “The year 2023 was the second warmest year on record since nationwide records commenced in 1901,” it noted.

Scientists and economists agree that rising surface temperatures have impacted yields—from vegetables and durable crops to even animal sources of protein—leading to a sustained increase in food inflation. And if this isn’t enough, unseasonal rains, seen as another sign of climate change, have added to the woes, further fuelling inflationary pressures.

“Food production is dependent on rains and temperature. The weather patterns have changed in the past few years, and there is more volatility in both temperature and rainfall,” notes D.K. Joshi, Chief Economist at rating agency CRISIL.

The year 2023 was the hottest globally, and August was the driest on record in India, he notes. Joshi says vegetable prices have been rising and skipped the decline usually seen in winter. Besides, higher temperatures can also lead to more frequent pest attacks, he adds.

Siraj Hussain, former Agriculture Secretary and Advisor on food processing at industry body FICCI, highlights that extreme weather events have already been having an adverse impact on crop production. “This was quite visible when, due to an unusually high temperature in February 2022, wheat production was affected and India had to ban its export. Simulation studies of the Indian Council of Agricultural Research (ICAR) show that the yield of rice, wheat, maize, and other crops can go down by up to 25%,” he says.

Even where government data has not captured the impact, clues can be found in the government’s actions. For instance, rice production, too, has been affected by erratic rains, and for confirmation, one need only look at the government’s decision to restrict export of non-basmati rice. A minimum export price was imposed on basmati rice, too, Hussain points out.

A recent report by HSBC Global Research—authored by Pranjul Bhandari, Chief Economist of India and Indonesia, and Maitreyi Das, Global Economist—points out that the heatwave of March 2022 lowered sugarcane yield by 30% while hurting the production of vegetables and oilseeds. In the heatwave of March 2024, temperatures rose to 50.5° C in some areas, leading to heat stress. The sharp rise in vegetable prices was a reflection of the resultant crop damage, it adds.

Fanning Price Rise

It’s not surprising then that food prices have risen sharply in the past few years.

Ramesh Chand, Member of the NITI Aayog and an agriculture economist, notes that food inflation depends on demand and supply. “In the past, inflation was cyclical, but now it has been prolonged because of several reasons. One, of course, is climate shocks. Second was the disruption in global supply,” he tells BT. Global wheat prices jumped after the Russia-Ukraine war began. (See Chand’s Q&A)

Government data shows that the consumer price index (CPI)-based retail inflation has been rising steadily since January 2019, when it was at 1.97%, barring a few months of decline. Retail inflation crossed the Reserve Bank of India’s Monetary Policy Committee’s (MPC) target of 4% in October 2019, touching a high of 7.8% in April 2022. To be fair, it has eased in recent months and was at a 59-month low of 3.54% in July, but this was partly due to a higher base in the previous year. Food prices have been the most volatile in the index and the consumer food price index has remained stubbornly high, touching 5.42% in July.

An article in RBI’s monthly bulletin for August noted that food inflation averaging 6% during the 2020s is a stark contrast to the 2016-20 period, when it averaged just 2.9%. “A key distinguishing factor in this sharp divergence has been the incidence of multiple overlapping supply shocks due to climate events in the more recent period that impacted the spatial and temporal distribution of monsoons, induced sharp increases in surface temperatures, and caused unseasonal rainfall,” the article, titled ‘Are Food Prices Spilling Over?’, written by RBI Deputy Governor Michael Debabrata Patra, Joice John, and Asish Thomas George, noted. Global climate systems, including triple-dip La Niña events and El Niño conditions seen since 2020, also played a role, it added.

An analysis by the authors reveals that in 57% of the months between June 2020 and June 2024, food inflation was at or above 6%, with around 6 of 12 food sub-groups experiencing 6% and above inflation for 50% or more of these months.

Vegetable price spikes are generally assumed to be transitory, but double-digit inflation was experienced in this category in 22 out of the 49 months, due to multiple and overlapping shocks, they noted. Double-digit inflation has occurred for 24 months in respect of pulses, oils, and fats and for 30 months in respect of the prices of spices. Other key food sub-groups like cereals and eggs also experienced double-digit inflation for about 15 months.

“As pointed out earlier, adverse supply shocks to both kharif and rabi crops contributed to the high incidence of double-digit inflation seen in these sub-groups. Extreme inflation pressures of 20% or above have been observed in vegetables, oils and fats, and spices food sub-groups,” the article noted.

Among vegetables, consumers have been shelling out more, not just for tomatoes and onions but even potatoes and other kitchen staples such as ginger and garlic.

The food and beverage basket has a weight of 45.86% in the overall CPI basket, meaning the central bank cannot ignore it. Consequently, the high food inflation has meant that the RBI’s MPC has kept the policy repo rates unchanged at 6.5% since April 2023 as it tries to align inflation to its target of 4% with a margin of 2% either side on a durable basis. Policymakers and economists worry that food inflation could become structural and even spill over to other sectors.

Interestingly, the Economic Survey suggested excluding the food component from RBI’s inflation target, but that proposal failed to pass muster as expenditure on food remains a significant cost for most households.

Experts note that even rebalancing the CPI based on the results of the new Household Consumer Expenditure Survey, which shows that food accounts for 46% of household expenditure, is unlikely to remove the high weight of food from the CPI basket.

Joshi says, but for food inflation, RBI would have cut the repo rate. He expects food inflation to ease this year because of a good monsoon and the high base effect. “A rate cut is also expected if food inflation eases significantly, allowing the headline inflation to fall,” he says.

The HSBC economists expect two 25-basis point repo rate cuts, taking the policy repo rate to 6% by March 2025. “Headline inflation has averaged about 5% so far in 2024. By end-2024, headline, core, and food inflation are all likely to converge towards the 4% target, opening up space for rate easing,” they said in the report.

Not a short-term problem

But while food inflation may ease in the short run, experts warn that climate change will continue to impact food production and inflation management will become tougher as surface temperatures rise further.

A study by the Indian Council of Agricultural Research (ICAR) using computer simulation modelling revealed that, in the absence of adoption of adaptation measures, climate change is likely to reduce rain-fed rice yields by 20% in 2050 and 47% in 2080 scenarios and wheat yields by 19.3% in 2050 and 40% in 2080 scenarios.

“If the weather continues to be erratic and rainfall patterns change, production will remain impacted. But it is difficult to estimate the long-term impact on inflation,” says Hussain. The ICAR has prepared detailed plans to help mitigate the impact, and the government needs to act fast. “The most critical thing is to save water during the monsoon season. Very little has been done in urban areas to do this,” warns Hussain. The stakes are high since rain-fed agriculture occupies about 51% of the country’s net sown area and accounts for nearly 40% of food production.

Joshi of CRISIL notes that India is among the most climatically vulnerable countries, and the risks are only increasing. “We need to accelerate food processing, transportation, storage, and weather resilient crops to adapt to changing climates,” he says.

ICAR has developed sustainable technologies and climate-resilient varieties tolerant to one or more biotic and abiotic stresses. In fact, during the last 10 years, out of 2,593 varieties of wheat, rice, millets, and other crops that have been released by ICAR, 2,177 varieties are climate resilient to encounter adverse impacts of climate change, Minister of State for Agriculture & Farmers’ Welfare Ram Nath Thakur told Rajya Sabha recently. Prime Minister Narendra Modi also recently released 109 high-yielding, climate-resilient, and biofortified seed varieties of agricultural and horticultural crops with the aim to enhance farm productivity and farmers’ incomes. The government has also launched a National Mission for Sustainable Agriculture to support agricultural activities hit by climate change.

The government has several other weapons at its disposal to cool food prices in case of sudden shocks by improving supplies, including releasing buffer stock and imposing export curbs.

It has also tried to enhance investments in food processing, transport, and storage of perishables. The Budget announced that large-scale clusters for vegetable production will be developed closer to major consumption centres. But experts caution that these will see results slowly.

Chand warns that while science and technology are helping mitigate the impact of climate change in the short term, this will not be possible beyond a point.

His warning must be heeded, especially in a year like this, when the monsoon is good despite the sweltering summer, boosting hopes of a bumper harvest. That should not cloud the country’s vision of finding a durable and long-lasting solution to protect against climate change.

@surabhi_prasad