Agri-commodity prices surge

Barring rice and wheat, prices of almost all agricultural commodities and allied semi-processed food items have shot up over 20 per cent in the last one month on lower production estimates for the current kharif season and uncertainty over the ensuing rabi season.

Kharif cereals, pulses and oilseeds contribute around 20 per cent to the total agricultural output, while the rabi crop accounts for another 20 per cent. The remaining 60 per cent comes from the allied sector comprising horticulture, livestock and fisheries.

Although Planning Commission Deputy Chairman Montek Singh Ahluwalia said in New Delhi today that food prices should moderate by the end of this year with the government's pro-active approach, few are convinced. The country's wholesale price index rose 1.51 per cent in the 12 months to October 17 but the food price index was up 12.85 per cent, latest data showed.

Madan Sabanavis, chief economist & head-knowledge management at the National Commodity & Derivatives Exchange (NCDEX), the country's largest agri-commodity futures trading platform, said given the fact that the consumption pattern varied from region to region, Indian consumers were unlikely to change their food habits.

"Tur cannot replace chana just because of additional availability, while wheat cannot replace rice for consumers in certain Indian regions. Therefore, despite the government's efforts to compensate for the grain deficit of the kharif season, inflationary pressures cannot be ruled out," he said.

Owing to erratic monsoons this year, the kharif grain output is projected to fall 18 per cent to a seven-year low of 96.63 million tonnes against last year's 117.70 million tonnes.

Although the government has been working overtime to provide subsidised seeds for the rabi season, wheat output has been projected lower at 76 million tonnes from a bumper 78.6 million tonnes last year. In recent years, the share of the rabi output in total foodgrain production has been increasing and during 2008-09, rabi accounted for almost half overall foodgrains production. The staple foodgrains —rice and wheat — remained under check amid fears that the government may intervene with the buffer stocks it has built during the last rabi and the current kharif seasons.

But the absence of such stock holding, lower production during last year and poor output estimate for the current season have escalated the prices of agri-commodities including pulses, spices, sugar etc. Sabnavis said the government cannot import raw sugar because prices overseas were unaffordable and commodities like turmeric neither have any buffer stock nor import possibilities so their prices are moving solely on domestic developments.

The Reserve Bank of India in its recent "Macroeconomic and Monetary Developments Q2 Review" hinted that the changing inflation environment was being driven by the strong escalation in prices of food articles which has increased 14.4 per cent so far this year. Amol Tilak, an analyst with Kotak Commodity Services, said the depletion of buffer stocks owing to higher offtake surprised the government and pressure was mounting to build inventory to ensure food safety. The government's plan to import two million tonnes of rice is more of a sentiment-booster and will have little impact on the supply of foodgrains, he added.