Post-Diwali Farm Challenge: From Consumer Inflation to Farmer Woes

After months of food inflation being a primary concern for policymakers, India now faces a reverse challenge — many crops are selling below Minimum Support Prices (MSPs) despite a strong monsoon and rising sowing, shifting the policy focus from consumer prices to farmer viability.

Key Highlights:

• Food Inflation Eased: Retail food inflation has been in negative territory for four consecutive months ending September 2025, compared to an average of 8.5% annual rise during July 2023–Dec 2024.
• Crop Glut & High Stocks:
  • Wheat stocks stood at 320.3 lakh tonnes on October 1, 2025 — highest in four years and about 1.5 times required buffer.
  • Rice stocks held by government agencies were 4.4 times the PDS plus strategic reserve requirement.
• Weak Crop Prices Despite Sub-optimal Output:
  • Example: Soyabean area and yield fell in 2025, yet market prices in places like Latur were around ₹4,100/quintal, well below MSP of ₹5,328.
  • Export prices for soyabean meal fell from ~$490/tonne (Sept 2024) to ~$398/tonne (Sept 2025), reflecting global oversupply.
• Policy Shift Required:
  • With crops such as maize, cotton, pulses and millets selling below MSP, the government may shift from a pro-consumer to a pro-farmer orientation — e.g., by restoring import duties on cotton and peas, or stepping up MSP procurement.

Food Inflation

Food inflation refers to the rise in the prices of food items such as cereals, pulses, vegetables, fruits, milk, meat, and edible oils over a period of time. It measures how much more consumers have to pay for food compared to previous months or years.

Measured By:

In India, food inflation is captured as part of the Consumer Price Index (CPI) — specifically under the CPI-Combined (CPI-C) and CPI-Rural/Urban categories. The National Statistical Office (NSO) compiles and publishes CPI data every month.

Formula:

Food Inflation (%)=Current Food Price Index−Previous Food Price Index​×100/Previous Food Price Index

Causes of Food Inflation:

1. Supply-Side Factors:
   • Poor monsoon or drought → lower crop yields.
   • Crop damage due to floods or heatwaves.
   • Higher input costs (fertilisers, fuel, electricity).
   • Disruption in logistics or storage losses.
2. Demand-Side Factors:
   • Rising household incomes → higher demand for protein-rich foods (milk, meat, pulses).
   • Festive season demand or export surges.
3. Government and Policy Factors:
   • Export bans, minimum support price (MSP) hikes.
   • Hoarding or stock limits on essential items.
   • Import restrictions or global supply shocks (e.g., due to wars or trade bans).

Implications

• Rural distress risk: Low crop prices may reduce farm incomes and dampen rural consumption, which has knock-on effects for the broader economy.
• Food inflation paradox: While easing food inflation is welcomed by consumers, persistently low crop prices create structural risks for agriculture.
• Need for calibrated policy: The twin goals of moderating consumer prices and ensuring farmer profitability are now in tension — requiring calibrated interventions such as targeted MSP support, export regulation and crop diversification.
• Global linkages matter: Indian crop prices are affected by global trends — e.g., soyabean price drop tied to large harvests in Brazil, USA, Argentina. Domestic policy must respond in sync with external dynamics.