Global food prices plunge to six-year low on bumper output

Most agri commodities in global markets below their MSP in India; agri exports to decline 10% in FY16

In a major setback for India’s agri exports, global food prices slumped to a six-year low in March owing to bumper production and record swell in inventory. Most agri commodities are currently traded in global markets below the levels of minimum support price (MSP) of those commodities in India.

According to Food and Agriculture Organization (FAO) data, the world food price index dropped a massive 18.7 per cent (40 points) in March compared with its level a year ago. The decline in March shows a 1.5 per cent fall from February 2015. Overall, except for a pause in October 2014, global food prices have been falling steadily since April 2014 on account of large global supplies.

“The fall in global prices will impact prices of agri commodities in India to the extent they’re traded with global markets. Chana (chickpea), wheat and rice are determined largely by domestic factors as they are less connected to global markets. Sugar, pulses, edible oils and maize will be impacted,” said Madan Sabnavis, chief economist at Care Ratings.

Agri commodity prices have declined 34 per cent in the past year. Wheat in global markets have plunged 34.4 per cent to trade at $181.18 a tonne currently, while cotton and maize have also fallen by 33.24 per cent and 31.32 per cent to end the financial year 2014-15 at $1,376.34 a tonne and $175.89 a tonne, respectively. RBD palmolein and sugar posted a decline of 28.99 per cent and 24.59 per cent to trade at $612.50 a tonne and $357.60 a tonne, respectively.

“Despite the government’s assistance of Rs 4,000 a tonne on raw sugar exports, Indian mills are unable to ink purchase contracts with global buyers due to a steep fall raw sugar prices in the benchmark New York Mercantile Exchange. Sugar prices have hit a seven-year low due to over production in global markets and falling Brazilian real, which makes export from Brazil more remunerative,” said Abinash Verma, director-general of Indian Sugar Mills Association.

Meanwhile, FAO raised production and carryover stocks of cereals in March from its earlier forecast in February. Since the past month, FAO has raised its 2014 world cereal production forecast by two million tonnes to 2,544 million tonnes, accounting for a larger-than-anticipated maize harvest in the European Union. At this level, global cereal output in 2014 would outstrip the 2013 record by one per cent.

FAO's forecast for world cereal utilisation in 2014-15 has been raised by nearly 17 million tonnes since March to 2,493 million tonnes, and now stands at 2.6 per cent (63 million tonnes) above the previous season's revised estimate. Thus, world cereal stocks, by the close of crop seasons ending in 2015, have been revised up sharply since last month's report and now stand at 645 million tonnes, 6.2 per cent or 38 million tonnes above the 2014 level.

“Most commodities in global markets are trading below the prevailing MSP in India. This will translate at least 10 per cent lower exports of agri commodities from India in 2015-16 from the current estimated level of $32 billion including agri commodities and plantation products,” said Ajay Sahai, director-general, Federation of Indian Export Organisation (FIEO).

While India’s agri commodities exports would be lower, the import bill for commodities such as vegetable oil and pulses will also be subdued.