What global food price rally will mean for India
Global food prices rose for the eighth straight month in January, as per the FAO’s food price index. According to the UN body, international food prices have reached their highest level since July 2014. Mint explores how it will translate for India.
Global food prices rose for the eighth straight month in January, as per the Food and Agriculture Organization’s food price index. According to the UN body, international food prices have reached their highest level since July 2014. Mint explores how it will translate for India.
How broad-based is the food prices spike?
According to the FAO, cereal prices rose by 7% in January over the previous month, led by international maize prices, which soared 42.3% above their level a year ago, buoyed in part by purchases by China and lower-than-expected US production. While vegetable oil prices in January were at their highest levels since May 2012, sugar prices rose by 8% over the previous month and are now at their highest level since May 2017. In comparison, dairy prices surged 7% higher year-on-year, while meat prices were still lower in January compared to last year’s levels.
What are the reasons for this rate surge?
A variety of reasons are driving up prices, including stockpiling by large buyers like China. Maize prices are at their highest since 2013 due to lower production in the US, dry weather in South America, and a suspension of exports by Argentina. For rice, robust demand in Asia and Africa combined with tight supplies from Vietnam and Thailand are driving prices northwards. A reduced production of palm oil in Malaysia and Indonesia due to labour shortages and excessive rainfall, respectively. Dry weather in Brazil is also worsening the outlook for sugarcane crop, thereby adding to the reasons for food price spike.
Is the price rise limited to only food crops?
No. Cotton prices are also on the rise due to lower global production and stocks, and higher demand from China on account of growing demand from its domestic textile industry. Cotton prices are 20% higher now compared to early January last year. Likewise, prices for soybean, used for edible oil and animal feed production has witnessed a sharp spike.
How will this impact food inflation in India?
Except for edible oils, India is largely self-sufficient in food production. Higher rice exports can push up prices, however, the Centre can easily tame domestic prices by liquidating stocks with the Food Corp. of India, which are at a record high. Since India imports 70% of its edible oil consumption, higher global prices can pose a risk. Even so, the annual south-west monsoon will play a key role. For several years now, India has seen normal rains but sub-par rains in 2021 could lead to higher prices, especially for pulses.
Do farmers stand to benefit from this rise?
Yes. Higher international prices will benefit domestic growers of commercial crops such as cotton and soya beans. For both crops, the current wholesale prices are 5-10% higher than the Centre announced minimum support price. Similarly, rice growers stand to benefit from higher exports, which are forecast to hit record levels this fiscal year. Between April and December 2020, the value of farm exports from India increased year-on-year from $26 billion to $29 billion. The numbers are likely to rise further if global prices continue to rise.
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