India food inflation pressures build as weak monsoon threatens crop and protein supplies

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Highlights

Monsoon rainfall in Maharashtra's Jalna district is 48% below average, limiting winter crop sowing and increasing risks to wheat, chickpea, and staple supplies.
India's retail food inflation reached 7.74% in September, with protein and spice costs driving nearly half the 200-basis point increase between March and August.
Sugar output is set to fall short of domestic needs for the second year, pushing prices up nearly 30% over 12 months despite the government allowing duty-free imports of 1 million metric tons.

Weak rains squeeze winter sowing prospects

As reported by Reuters, below-average monsoon rainfall is limiting soil moisture in key farming regions, especially in southern and western India, just as growers move into the winter planting season. In Jalna district in Maharashtra, local weather data shows rainfall is about 48% below average this year, leaving farmers such as Amarsingh Gushinge unable to plant wheat and chickpeas despite attractive prices.

A weak monsoon means winter crops are being sown under less favourable conditions, increasing the risk of stunted growth and lower yields. That threatens supplies of staples already under pressure from El Niño, including sugar, pulses, wheat and rice, while onion prices are also rising.

India still holds surplus rice and wheat stocks, but consumer prices continue to climb because supplies of premium grades remain tight. Dry weather has also reduced availability of rice varieties preferred in southern India, while wheat has risen to a nearly two-year high on concern that warmer winter weather could curb output early next year.

Protein and import costs add to inflation risks

Food inflation could reach about 10% in the October-December quarter, according to Devendra Pant, chief economist at India Ratings and Research, who cites weak rains, higher global prices and rupee depreciation. In September, annual retail food inflation accelerated to 7.74%, pushing headline inflation to 5.54%, close to the Reserve Bank of India's 6% upper tolerance limit.

Pant says higher food prices are likely to push the central bank to raise interest rates by another 50-75 basis points, with a second consecutive increase expected at its December meeting after October's hike. The Reserve Bank of India's September Monetary Policy Report says animal protein and spices account for nearly half of the 200-basis point rise in food inflation between March and August, driven by higher feed, transport, packaging and energy costs, as well as bird mortality after a heat wave.

Protein inflation remains a particular concern for lower-income households because pulses, poultry and dairy are major sources of nutrition. Meat inflation eased to 8.7% in September from 12.0% in August, largely because of a high base, but inflation in milk, other dairy products and eggs rose to 5.1% from 4.8%.

Feed costs remain a major pressure point for poultry producers because corn and soybean account for 60%-70% of production costs, according to Uday Singh Bayas, president of IPEMA-Poultry India. Uddhav Ahire, chairman of Anand Agro Group, says producers have yet to fully pass through those costs and broiler prices could rise from January as tighter supplies and higher input expenses weigh on the market.

Sugar is facing a similar imbalance. Rahil Shaikh, managing director of MEIR Commodities India, says output is likely to fall short of domestic consumption for a second straight year and may recover only in late 2028 if rains are favourable in 2027. Prices have risen nearly 30% over the past year, prompting the government to allow duty-free imports of 1 million metric tons, but higher global prices are limiting the effect of overseas purchases.

India can use imports to offset shortfalls in sugar, vegetable oils and pulses, but that option is becoming more expensive because of a weaker rupee, higher freight costs and rising international prices. El Niño is affecting production in other countries as well, while the Russia-Ukraine war has disrupted grain and sunflower oil supplies from the Black Sea region, adding to broader food price pressures.

The government's October monthly economic report says policymakers in the second half of the financial year are focusing on sustaining economic activity while safeguarding price stability, amid elevated crude oil prices, higher food inflation and uncertainty over the crop outlook.

In our earlier article on the Reserve Bank of India’s defence of the rupee, we outlined how the RBI used an estimated $75–$80 billion in spot interventions and dollar-rupee swaps after its June 8 liquidity measures, contributing to a drawdown in forex reserves. We also noted that higher oil prices, rising U.S. yields and foreign outflows were intensifying pressure on the currency, prompting additional steps to curb dollar demand and limit spillovers to inflation and financial stability.

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