High agri commodity prices a concern: FAO

Managing high agriculture commodity prices is becoming a concern for policy makers in India as well as globally. While Food and Agricultural Organisation (FAO) has already warned of a ‘food price shock’, concerns are raised that this situation could worsen as various exporting countries could consider restrictions which will further create supply bottlenecks.

As global food prices hit a record high, India just trails behind with food inflation touching a 23-week high on increased prices of onion, edible oil, wheat, vegetables and milk. At 18.32 per cent for the latest week ended December 25, the food inflation has more than doubled from its level of 8.6 per cent on November 20 last year. Of the 20 essential commodities monitored by the government, prices of most have moved up over the last three months (see chart) though there has been some cooling in prices of pulses and potato.

FAO has warned of a ‘food price shock’ on Wednesday after its benchmark index of agricultural commodities prices shot up to a record last month, surpassing the levels of the 2007-08 food crisis. internationally cotton, sugar, wheat, palm oil, soya and other commodities pricxes have gone up significantly in the past few months and wheat is at 28-month high while sugar is at three-decade high.

The UN body on Wednesday said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, vegetable oils, dairy products, sugar and meat, jumped to 214.7 points, above the peak of 213.5 set in June 2008. The FAO food index is at its highest since the measure was first calculated in 1990. The index averaged 206.0 points in November. not only FAO, there are others also who believe that food prices could further go up.Barclay’s commodity analyst said that,”the implication for such record high food prices is that this could accelerate efforts by various governments to rethink the export plans for their indigenous produce, in order to manage domestic inflation, which could inadvertently reduce availability on the global markets and push prices to new highs.”

“Prices are going to remain firm or move up from these levels. It will be difficult for the Indian policy makers to contain food inflation at 5-6 per cent. The possibility of controlling inflation through import route is also turning becoming distant as global prices are also ruling high. The government should reduce import tariffs on fruits and vegetables,” said Ashok Gulati, Asia Director of the International Food Policy Research Institute. Last month, the government abolished customs duty on onion after prices shot up to Rs 80 a kg.

Gulati, however, pointed out that India is in a lucky situation as it sits on huge wheat and rice stocks with an export ban on both these grains. As on December 1, the government grain procurement and distribution agency Food Corporation of India had wheat and rice reserves of 24 million tonnes each.

While being sufficient to cater to the annual public distribution system demand, these stocks also provide government a tool to influence open market prices.

Finance Minister Pranab Mukherjee has asked state governments to urgently look into the supply management of items that are driving the current round of food inflation in the economy, in particular looking at the local factors that are widening the gap between the wholesale and retail prices.