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Since the schedule for the Lok Sabha elections was announced in the first week of March, agricultural commodities have been on a downward spiral. The reasons include caution on the movement of cash, fear of action on essential commodities to control food inflation if a Bharatiya Janata Party (BJP)-led government comes to power and an increase in arrival of rabi crop commodities.
All these have seen the prices of various agricultural commodities fall 5-14 per cent in about a month.
During elections, the movement of cash for election-related expenses increases, owing to which enforcement agencies strengthen vigilance. “Several angadias (who move goods and cash, primarily in smaller towns) have become very cautious because of the vigil on the movement of cash. As we have to pay farmers in cash, trade is disturbed and farmers start selling at lower prices,” said a Saurashtra-based trader.
Prices of jeera, turmeric, barley, kapas, palm oil, castor seed and wheat, have fallen significantly in the past month, as many of these are rabi crops and this is arrival season.
“It’s a coincidence of arrival season (rabi crops) and the tight movement of funds during the election period. Together, this is putting downward pressure on commodity prices,” said Jagdeep Grewal, head of research at Kunvarji Commodities, which focuses on spot and futures markets across commodities.
The commodities that have seen a rise in prices include soybean (due to reports of a shortage), sugar and gur. Export incentives for raw sugar and lower production estimates have put upward pressure on prices, with gur tracing the sentiment.
The market fears if a BJP government comes to power at the Centre, it will use the Essential Commodities Act to tame food inflation. In 2011, a panel headed by Narendra Modi, the BJP’s prime ministerial candidate, had recommended measures such as a ban on futures trading in essential commodities, including rice, pulses and edible oils, as there was no strong linkage between spot and futures.
Other recommendations included making offences under the essential commodities Act non-bailable.
Grewal said, “Past remarks and the stance of the leading PM candidate towards essential commodity futures are a topic of discussion among market participants.”
Naveen Mathur, head (commodities and currencies), Angel Commodities said, “El Niño possibilities, if these come true, could be bad news for agricultural commodities. As this fear is growing, it could eventually arrest the price fall.”
