Prices of agriculltural commodities have started spiralling in the spot market, ahead of kharif sowing, due to the lower production estimates following a deficient monsoon forecast by the India Meteorological Department (IMD) this year.
A little over 60 per cent of the country’s cultivable land is only rain-fed and 70 per cent of the annual rainfall takes place during the monsoon.
The firmness in agri commodity prices began mid–April, when IMD first came out with a rainfall forecast of 93 per cent of the long-period average (LPA). In May, prices rose up to 30 per cent in wholesale markets. The rise has been more in the past three weeks.
According to the Union government's department of consumer affairs, wheat rose 30 per cent in May to trade currently at Rs 2,138 a quintal as against Rs 1,650 a qtl on May 1. There has bene a lower percentage of increase in pulses, potatoes and edible oils.
“The price rise is only because of lower production fear. A further rally in the short term looks unlikely. Future movement would depend on the progress of actual rainfall. The government’s response to deficient rain would also have a significant bearing on commodity prices,” said Jagdeep Grewal, vice-president (commodities and research), Kunvarji Commodities.
Union finance minister Arun Jaitley has sought to reassure on these concerns. Addressing journalists in Delhi on Thursday, he said, “The forecast rainfall pattern is similar to last year. Hence, foodgrain production might not have a significant impact. We have an abundance of foodgrain and our management was efficient last year, with no inflationary pressure (on this count).”
The Food and Agriculture Organization (FAO) of the United Nations has lowered India’s milled rice production forecast by 1.4 per cent to 94.5 million tonnes this year, as against 95.8 mt last year. However, added FAO, in a report issued on Thursday, “Cereal production is forecast to remain close to the record outputs of the previous year. Favourable weather and sufficient input supplies in India, including irrigated water and fertiliser, are expected to contribute to average yields in 2015, negating a small reduction in the area planted.”
Madan Sabnavis, chief economist at CARE Ratings, believes monsoon failure will definitely impact kharif output. “However, the effect on prices was not sharp last year. Pulses' prices have already moved up and will get impacted. Rice can be stabilised through use of buffer stocks. Edible oil prices can be moderated by imports, given low global prices. But, sustained imports of high magnitude can push up global prices, given the quantum of demand. Threfore, the government might have to hike the minimum support price of kharif crops, which will be inflationary,” he said.
An Assocham study shows pulses' prices have been spiralling since last year, due to lower production, followed by crop damage on unseasonal rain and hail early this year.
Global commodity prices at 6-year low
Major food commodity prices declined again in May, hitting an almost six-year low as cereal prices fell substantially, amid a favourable outlook for this year's harvests globally.
The Food Price Index compiled by the Food and Agricultural Organization (FAO) of the United Nations averaged 166.8 points in May, down 1.4 per cent from April and as much as 20.7 per cent from a year earlier. Cereals and dairy products were responsible for much of last month’s decline, although meat quotations also fell. By contrast, the oils and sugar markets firmed up. The May average puts the FAO Food Price Index at its lowest level since September 2009.
The agency has revised upwards its global cereal production outlook for 2015, to 2,524 million tonnes (including rice in milled terms), almost 15 mt higher than reported in May. At this level, world production would be one per cent or 25.6 mt lower than the record in 2014.