Growing income is leading to increased demand for protein in India’s hinterland, but a shortage of supply is resulting in higher food inflation.
According to a report by ratings firm Crisil Research, overall spending by Indians on milk, eggs, fish and meat doubled in the five years up to 2009-10 to US$38bn, and two-thirds of this came from rural households.
More money, more meat
This took the proportion of rural households purchasing milk and milk products to 80% in 2009-10, almost five percentage points higher than 2004-05. The proportion of rural households purchasing eggs, fish and meat increased to 62% from 58% over the same period.
But rural per-capita consumption of milk, eggs and proteins continues to remain lower than it is in urban areas, reflecting a potential for significant further growth in rural demand for proteins.
Rural per capita consumption of milk in 2009-10 was 49.4 litres versus 64.3 litres in urban areas; for meat and eggs it stood at 5.7 kg and 20.8 eggs in 2009-10 as against per capita urban consumption of 6.7 kg and 32.1 eggs.
According to the report, even if the share of rural households purchasing milk remains at the 2009-10 level, another 17 million more rural households will purchase milk and milk products by 2014-15.
Opportunity is also the challenge
Given the room for rural demand to increase for proteins, the report predicted that unless the supply of milk, meat and eggs for direct consumption is increased to meet growing demand, protein-food inflation is likely to remain high.
Crisil estimates that in 2009-10, 11-16% of demand for milk, 15-21% for eggs and 18-25% for meat went unmet due to a shortfall in supply, which has subsequently led to high prices.
“If high protein-inflation persists, it could eventually adversely impact protein-food affordability, particularly in rural areas,” said Mukesh Agarwal, president of Crisil Research.
“Given the high nutritional value of proteins, this could be detrimental to the welfare of the rural population. It is therefore imperative that relevant measures be taken to increase production of protein-food to address the unmet demand and rein in food inflation,” said Agarwal.
Pointing to how the lack of effective cold storage infrastructure has contributed to the supply shortfall, Dharmakirti Joshi, chief economist at Crisil, said that the recent measures to allow foreign direct investment should help change things.
“The recent decision by the government to allow foreign direct investment in the retail sector would help develop a more effective cold-storage chain, thus reducing wastage and increasing supply of highly perishable protein-foods,” he said.