• The latest value for the month of April shows that agriculture input cost inflation was a negative -0.25%, marginally higher than -0.71% in March. Click here for details on Bloomberg Economics agriculture input cost index.
• The average agriculture input cost inflation over the past year has been -1.4%. This has helped bring down food inflation. Food inflation that has a 46% weight in the CPI basket averaged 2.4% over the last year.
India’s agricultural produce is divided into two main seasons -- the winter crop known as “rabi” and the summer one known as “kharif.”
• Among summer crops, procurement at government announced support prices is mainly restricted to rice and pulses. Last year, the average support price for pulses already had a 50%+ mark-up over cost. The support price for rice was 39% over cost. We estimate that a roughly 8% increase in the support price for rice this summer will raise the mark-up to 50% over cost.
• The support price for almost all winter crops already enjoys a greater than 50% mark up. For wheat -- an Indian staple and the key winter crop procured by government agencies -- support price is 112% over cost.
Barring rice, we expect the increase in support prices for all other crops to be muted. Additionally, a forecast for good rains this year suggests another year of a bumper harvest. That should put a downward pressure on the market price of crops. We expect good rains, lower agriculture input cost inflation and a muted increase in support prices for crops to keep average food inflation in the 2-3% range in the year ahead.
Disclaimer: Abhishek Gupta covers India for Bloomberg Economics in Mumbai. He previously worked as an economist at DSP Merrill Lynch and as a research analyst at the National Institute of Public Finance and Policy, India's premier macro/finance think tank. Views expressed are his own
 "Lower agriculture input costs to contain food inflation")
