The Most Direct Route: Transportation Costs
The most obvious link between energy and food is transportation. In a country as vast as India, nearly everything you buy has been on a truck, train, or ship at some point. Road transport handles the majority of freight movement in the country. When crude
oil prices rise, the cost of diesel follows. Since fuel can account for up to 50% of the total transportation cost for Indian businesses, any sustained increase is quickly passed on. This affects every stage of the journey, from moving produce from the farm to the mandi, from the wholesaler to the food processor, and finally, to the retailer. These incremental costs accumulate along the supply chain, with the final increase ultimately reflected in the price the consumer pays at the checkout counter.
On the Farm: The Hidden Energy Inputs
Long before any food is transported, energy plays a critical role on the farm itself. Modern agriculture is heavily dependent on energy. Tractors for tilling, harvesters for reaping, and pumps for irrigation all run on diesel, the price of which is tied to crude oil. But a less visible and even more significant cost comes from fertilisers. The production of nitrogen-based fertilisers like urea is an energy-intensive process that uses natural gas as a primary raw material, or feedstock. Global prices for natural gas and crude oil are closely linked, so when one rises, the other often follows. As India imports a significant portion of its natural gas and fertilisers, rising global energy prices directly increase the cost of these vital agricultural inputs, putting pressure on farmers' expenses and, eventually, food prices.
From the Factory to the Shelf: Processing and Packaging
The journey from a raw agricultural commodity to a product on a supermarket shelf involves even more energy consumption. Food processing plants—whether for canning vegetables, milling grain, or pasteurising milk—require significant amounts of electricity and thermal energy, the costs of which can be influenced by overall energy market trends. Furthermore, the packaging that keeps food safe and fresh is often a petroleum byproduct. Plastics, which are used for everything from milk pouches and oil bottles to bags of chips, are derived from crude oil. When oil prices go up, the cost of producing these plastic materials also rises. This adds another layer of expense that manufacturers must account for, which is then factored into the final retail price.
The Broader Economic Ripple Effect
The impact of rising oil prices extends beyond direct costs into the wider economy. As a major importer of crude oil, higher prices strain India's finances and can weaken the rupee against the US dollar. A weaker rupee makes all imports, including crude oil and other commodities like edible oils, more expensive, creating a cycle of imported inflation. This overall inflationary pressure erodes the purchasing power of households, particularly affecting lower and middle-income families for whom food constitutes a large portion of their monthly budget. To cushion the blow, the government may increase subsidies, for instance on fertilisers, but this puts a strain on the fiscal deficit. Ultimately, a sustained rise in oil prices acts as a tax on the entire economy, slowing growth and making everyday essentials more expensive.
