Prices of food items may ease this year

After facing sharp rise in prices of most food items in 2008, consumers can look forward to a relatively comfortable situation this year in commodities like wheat, rice and edible oil. However, sugar prices, which have remained depressed for the last two years, are likely to move up.

“Inflation for food commodities will be less than 5 per cent. For commodities such as wheat, the market price could fall below the minimum support price (MSP) at several locations. There is abundance of rice as well. The grain stock in the government kitty is 50 per cent more than the country’s requirement. This will put downward pressure on market prices,” said Director (Asia) of International Food Policy Research Institute Ashok Gulati.

Sowing in major rabi crops is higher than last year. Acreage for wheat, pulses and oilseeds is up from last year (see chart). The country is likely to harvest a record rabi crop this year and there could be another record wheat procurement by the Food Corporation of India. The bumper crop is likely to reflect on market prices even if the MSP is hiked.

The huge grain stock with the government (19.59 million tonnes of wheat and 15.57 million tonnes of rice on December 1) allows it to intervene in the open market in the unlikely event of a price rise.

The government should look at steps like allowing exports and relaxing stock-holding norms for wheat and rice to ensure that the prices do not fall below the MSP, according to Gulati. The government had banned export of both these items to improve domestic availability and to control prices.

In edible oil, where India is largely dependent on imports, softening international prices is a good signal. However, sugar prices were certain to move up owing to a projected drop in output, Gulati added.
 

BON APPETIT
Crop	Area sown as  on Jan 1, 2008 (in million hectares)	As on 1-Jan-09	% change
Wheat	26.21	26.26	0.19
Coarse cereals	5.96	6.57	10.23
Pulses	12.07	12.88	6.71
Oilseeds	7.98	8.9	11.52

Notably, the Union government (in an election mode) has been closely monitoring sugar prices and is certain to act if prices rise to a point where it starts reflecting in the wholesale price index-based inflation.

The commodity has a weight of 3.62 per cent in the index, higher than cement’s 1.73 per cent, wheat’s 1.38 per cent and just lower than the iron and steel’s combined weight of 3.64 per cent. Following recent spurt in sugar prices, the government has allocated a quota of 5 million tonnes for the January-March period as against 4.4 million tonnes for the same quarter last year.