Agricultural commodities' prices rise on logistic and supply disruptions

Abundance of availability to cool down their prices in the weeks to come

Retail prices of agricultural commodities have jumped sharply in the past three months because of supply chain disruptions since the lockdown was imposed on March 25 to prevent the spread of coronavirus.

The data compiled by the Union Ministry of Consumer Affairs, Food and Public Distribution showed retail prices of almost all commodities jumped in the past three months till June-end in both Mumbai and Delhi. Though cereal prices remained a bit resilient — both rice and wheat went up by a mere 3 per cent since March — the cost of pulses and edible oil has skyrocketed because of transport disruptions. 

In contrast, prices of all these commodities in wholesale markets have either declined or remained flat since March because of ample availability at stockists' level. The imposition of nationwide lockdown had disrupted inter- and intra-state movement of vehicles. 

“There is ample supply of all these goods at factories of processed value-added products like pulses and edibles oils, and cereals in the government godowns. Hence, the retail price increase of all these commodities can be attributed to logistics issues, which disrupted their supply to stores,” said D K Joshi, chief economist, CRISIL.

According to Joshi, India’s agriculture economy will outperform manufacturing and services this year. While manufacturing and services faced immense problems during the lockdown, the agricultural activities remained relatively uninterrupted. “We estimate India’s agriculture sector to grow by 2.5 per cent, while all other sectors, including manufacturing and services, to contract this financial year,” said Joshi. Besides 83.27 million tonne (mt) of grain like wheat (55.83 mt) and rice (27.44 mt) lying in the godowns of the Food Corporation of India (FCI) as of June, there are massive stocks of foodgrain available with private stockists. The FCI is also sitting on a stock of 20 mt of unmilled paddy.  Meanwhile, the government, since April, has been distributing free 5 kg of rice/wheat and a kg of whole gram per person per month through the public distribution system (PDS) to benefit 800 million people across the country. This relief measure has now been extended until November. 

 

 

Others may avail foodgrain at subsidised rates. As against the prices of raw items like cereals, the cost of branded and value-added products, such as pulses and edible oil, has gone up significantly. Chana dal, for example, has become costlier in Mumbai by 21.4 per cent and is currently trading at Rs 85 a kg, as against Rs 70 a kg in March. Similarly, toor, masoor and urad dal prices have also risen by 17-34 per cent between March and June. Prices of essential commodities, too, have moved up significantly in Delhi and elsewhere across the country.

“Factories during this lockdown period operated at a significantly lower capacity than installed capacity due to shortage of labourers. Thus, despite having huge stocks on the factory premises, consumers faced a shortage of branded and value-added products of their choice which resulted in a price increase. We believe prices of all these commodities will decline in the weeks to come,” said Siraj Choudhary, managing director and chief executive officer, National Collateral Management Services.

Meanwhile, horticulture farmers could not harvest and supply their produces to mandis during the lockdown because of closure of agricultural produce market committee (APMC) yards.
 

The government has allowed farmers, aggregator, and farmer producer organisations (FPOs) to sell their produce directly to bulk and retail consumers. This will help eradicate the six-seven layers of middlemen, benefitting farmers and consumers alike.

“Logistics and supply chain hurdles are gradually being addressed now. With enough stock available, commodity prices will cool down,” said Narinder Wadhwa, president, Commodity Participants’ Association of India (CPAI).

Meanwhile, the rainfall this monsoon has been 22 per cent higher than the long-period average (LPA), and thus resulting in a 100 per cent increase in kharif sowing area (as of June 26).