Soaring global cereal prices have provided a rare opportunity, which India should leverage by allowing exports of agri commodities beyond the mandatory buffer stocks, said economists.
According to a recent report by Rabobank, average wheat prices surged nearly 15 per cent from US cents 651 per bushel in the third quarter of 2010 to US cents 748 per bushel in the second quarter of the current calendar year. Similarly, corn price shot up to US cents 732 per bushel from US cents 421 per bushel in the period under consideration. Sugar firmed up to US cents 24.4 per pound from US cents 20.1 per pound.
“The strong price support in agri commodities markets is expected to continue due to supportive fundamentals and on-going investor interest. The agri markets have greatly outperformed the equity and energy markets in August, as recession concerns and the possibility of increasing inflation, along with tight balance sheets encouraged both speculative and commercial buying in agri complex,” said the Rabobank report.
Investors are also likely to continue looking at the agri complex as a hedge against inflation — currently undervalued relative to gold, the traditional inflation hedge.
As on July 1, foodgrain stocks, including rice and wheat, stored in India’s central pool stood at 64 million tonnes, against the mandatory buffer of 27.14 million tonnes. On August 1, foodgrain stocks in the godowns registered with the public sector grain management company, the Food Corporation of India, marginally fell to 61.28 million tonnes. According to trade sources, a significant quantity of the stock could be damaged because it is stored in open plinth and exposed to moisture.
“Instead of allowing foodgrain to spoil, the government must allow an additional quantity for exports, considering the record high global price as a temporary phenomenon,” said D K Joshi, chief economist of rating agency Crisil.
The government, however, allowed a marginal quantity of exports of rice and sugar, which could not make any significant impact either on domestic prices or the storage conditions.
The Food and Agriculture Organisation (FAO) of the United Nations had recently said that prices of bread and wheat flour remained at relatively high levels in the Russian Federation, supported by increased fuel prices and export demand following the removal of the cereal export ban from July 1. Prices of bread and flour in July were 22 and 15 per cent above their levels a year earlier, respectively.
Commodity prices as on August 23
Similarly, white maize prices further strengthened in July in Central America, hitting new records. High international prices of yellow maize continued to provide support.
Madan Sabanavis, chief economist of Care Ratings, said: “Certainly, it is an opportunity for India to grab. But, the government would not like to open free exports of commodities like rice, wheat and sugar which created a havoc in recent years. The government would not like the scenario to repeat in the future.”
In 2005-06, a wheat supply shortage had prompted the Indian government to import the grain at a very high price from surplus countries such as Kenya. The same step was repeated in 2008-09 for sugar, when the government was forced to allow import of raw and white sugar duty-free, to meet rising domestic demand.