Soaring global food prices 'no good sign'
Wednesday, 26 December 2007
LONDON, Dec 25(Internet): The world is witnessing a strident march in food-price inflation, in terms of the geographical spread and speed of ascent, as well as the number of commodities involved.
The food price index, published by the Food and Agriculture Organisation, had hardened by 37% in September 2007, year on year.
In contrast, the rise was mild during 2006 - though high by the conventional yard stick of inflation - at 9%.Apparently, there has been no let-up in the subsequent weeks, for the Reuters-CRB composite index for grains and oilseeds shows a spurt of 40% by end-November.
The FAO's observation deserves a mention: "What distinguishes the current state of agricultural markets is rather the concurrence of the hike in world prices of not just a selected few, but of nearly all the major food and feed commodities….Rarely has the world felt such a widespread and commonly shared concern about food-price inflation."
In Europe, food prices leaped by 4.3% in November and in the United States by 4.8%. China had to contend with a food-price inflation of 18% in that month. As for India, the picture is rather confusing due to the multiplicity of index numbers, none of which help gauge the underlying trends satisfactorily.
All of them do suggest, however, that food prices are ruling above the general price level. And judging by the behaviour of commodity futures, food prices are poised to jump by heftier margins in the coming months. The RBI might swear by the efficacy of its monetary policy measures to tame the beast of inflation, but such an approach ay not be very effective in tackling food-price-driven inflation.
Rather, it is the demand-supply chasm that should be bridged urgently. Indeed, the tempo of agricultural production has been trailing the growth rate of population. In 2006-07, for example, our food grains harvest was the highest ever at 216 million tonnes. On a per capita basis, however, at 193 kg, it was lower than in 2001-02 (205 kg). Clearly, fluctuations in production make the annual per capita availability very erratic. This indicates that supply pressures are ever present and this may provide more grist to the inflation mill.
And since imports are likely to prove costly, food-price inflation in India may acquire an endemic character.
Meanwhile, in Chicago, March 2008 wheat futures had breached the $10 per bushel ($367.43 per tonne) mark at one point for the first time ever - some analysts describe this as the equivalent of crude oil crossing the psychological barrier of $100 per barrel - before easing to around $9.50 per bushel.
Just a year ago, the March 2007 wheat contract ruled at only $4.875. The story is broadly similar in other grains. In fact, in oilseeds, the increase has in fact been a whopping 65%. Soybean is now at a 34-year high and corn at an 11-year high.
Yet, in India, a reliable measurement of food-price inflation is easier said than done.
Using the primary articles in the wholesale index as a proxy, this subgroup has risen by 4.79% for the week ended December 8, 2007, even though the overall inflation rate was much lower at 3.65%.
At the retail level, the inflation rate is higher, with the consumer price index for agricultural labour up by 6.2% in November 2007 and for rural labour by 5.9%.
Clearly, the trend is more or less in accordance with the food-price movements abroad. Non-availability of a unique index only blurs the dimensions of this problem. Even using the WPI, the latest inflation number for rice is 7.48% and for edible oils 8.34%.
Wheat and pulses have eased somewhat, thanks to imports that had augmented their availability. But, sooner or later, the bullish sentiment abroad is likely to impact on India as well for two reasons: our agriculture is experiencing a production crisis and this embraces all the cereals including wheat, pulses and oilseeds.
Already, we are a major importer of pulses and oilseeds and of late, we are forced to import wheat. Since no quick-fix solution is possible to accelerate the growth of farm production - and that too, covering the entire gamut of crops - our dependence on overseas markets is set to increase.
It is in this context that the latest developments in the international arena need to be viewed. Harvest setbacks, strong demand and depleted inventories mean commodity prices will be on the boil in the coming months as they were for the most part of this year.
In cereals, particularly, tighter supply and strong demand may keep prices firm, says the FAO.
In oilseeds, the supply-demand outlook for 2007-08 points to continued price firmness.
Already, since our needs are large, even a somnolent market is stirred up when India enters it for a buy.
If FAO's assessment holds true, the international markets will be bullish in 2008 and we may have to pay dearly for our purchases of edible oils, pulses and wheat. The food-import bill is bound to bloat up further. All this indicates the urgency of imparting dynamism on the farm production front at home.
The food price index, published by the Food and Agriculture Organisation, had hardened by 37% in September 2007, year on year.
In contrast, the rise was mild during 2006 - though high by the conventional yard stick of inflation - at 9%.Apparently, there has been no let-up in the subsequent weeks, for the Reuters-CRB composite index for grains and oilseeds shows a spurt of 40% by end-November.
The FAO's observation deserves a mention: "What distinguishes the current state of agricultural markets is rather the concurrence of the hike in world prices of not just a selected few, but of nearly all the major food and feed commodities….Rarely has the world felt such a widespread and commonly shared concern about food-price inflation."
In Europe, food prices leaped by 4.3% in November and in the United States by 4.8%. China had to contend with a food-price inflation of 18% in that month. As for India, the picture is rather confusing due to the multiplicity of index numbers, none of which help gauge the underlying trends satisfactorily.
All of them do suggest, however, that food prices are ruling above the general price level. And judging by the behaviour of commodity futures, food prices are poised to jump by heftier margins in the coming months. The RBI might swear by the efficacy of its monetary policy measures to tame the beast of inflation, but such an approach ay not be very effective in tackling food-price-driven inflation.
Rather, it is the demand-supply chasm that should be bridged urgently. Indeed, the tempo of agricultural production has been trailing the growth rate of population. In 2006-07, for example, our food grains harvest was the highest ever at 216 million tonnes. On a per capita basis, however, at 193 kg, it was lower than in 2001-02 (205 kg). Clearly, fluctuations in production make the annual per capita availability very erratic. This indicates that supply pressures are ever present and this may provide more grist to the inflation mill.
And since imports are likely to prove costly, food-price inflation in India may acquire an endemic character.
Meanwhile, in Chicago, March 2008 wheat futures had breached the $10 per bushel ($367.43 per tonne) mark at one point for the first time ever - some analysts describe this as the equivalent of crude oil crossing the psychological barrier of $100 per barrel - before easing to around $9.50 per bushel.
Just a year ago, the March 2007 wheat contract ruled at only $4.875. The story is broadly similar in other grains. In fact, in oilseeds, the increase has in fact been a whopping 65%. Soybean is now at a 34-year high and corn at an 11-year high.
Yet, in India, a reliable measurement of food-price inflation is easier said than done.
Using the primary articles in the wholesale index as a proxy, this subgroup has risen by 4.79% for the week ended December 8, 2007, even though the overall inflation rate was much lower at 3.65%.
At the retail level, the inflation rate is higher, with the consumer price index for agricultural labour up by 6.2% in November 2007 and for rural labour by 5.9%.
Clearly, the trend is more or less in accordance with the food-price movements abroad. Non-availability of a unique index only blurs the dimensions of this problem. Even using the WPI, the latest inflation number for rice is 7.48% and for edible oils 8.34%.
Wheat and pulses have eased somewhat, thanks to imports that had augmented their availability. But, sooner or later, the bullish sentiment abroad is likely to impact on India as well for two reasons: our agriculture is experiencing a production crisis and this embraces all the cereals including wheat, pulses and oilseeds.
Already, we are a major importer of pulses and oilseeds and of late, we are forced to import wheat. Since no quick-fix solution is possible to accelerate the growth of farm production - and that too, covering the entire gamut of crops - our dependence on overseas markets is set to increase.
It is in this context that the latest developments in the international arena need to be viewed. Harvest setbacks, strong demand and depleted inventories mean commodity prices will be on the boil in the coming months as they were for the most part of this year.
In cereals, particularly, tighter supply and strong demand may keep prices firm, says the FAO.
In oilseeds, the supply-demand outlook for 2007-08 points to continued price firmness.
Already, since our needs are large, even a somnolent market is stirred up when India enters it for a buy.
If FAO's assessment holds true, the international markets will be bullish in 2008 and we may have to pay dearly for our purchases of edible oils, pulses and wheat. The food-import bill is bound to bloat up further. All this indicates the urgency of imparting dynamism on the farm production front at home.