More expensive food

Food will get more expensive in the coming weeks. One reason is the tense monsoon situation, which is making trade volatile because no one knows where things are going. Two, Raksha Bandhan, Janamashtami and Ganesh Chaturthi are in August itself, a month before schedule. Id and Navratri follow in September.

Festivals mean higher demand for cooking oil, rice, sugar, besan, maida, dry fruits, milk and spices. Can India cope? That is the question bulls are punting on. And what does it mean for your wallet? I did a bit of crystal ball gazing to help you get a fix.

Cooking oil: Prices will go up by at least Rs 2/kg in August to cope with festival demand. MRP, which is what you and I pay, will rise proportionately too. This figure is valid only if the monsoon eventually turns out to be okay; and the government does not impose customs duty on imported crude palm oil in a moment of madness.

If the monsoon fails, and the rain-fed soya and groundnut crops get decimated, India would become even more dependent on imports. The only limit would be the Indian consumer's ability to pay for it. Expect to pay at least Rs 55/kg.

Sugar: We are reeling under a short supply. Yet prices haven't risen as much as TV channels would have you believe when they discuss sugar equity stocks because of the government's decision to clear out local godowns before importing.

Now these godowns are virtually empty. As India's new crushing season starts only by October, imports will have to gain pace. But international prices are much higher than Indian prices. So Indian prices will have to rise too for importers to get into action.

The rule of thumb: you will pay the international price of raw sugar plus Rs 3/kg for processing and transportation. If you use Equal, this may not bother you now. But think of cola, chocolate, ice cream, biscuit and bread companies. They will make you pay. Eventually.

Maida: Maida will remain affordable, thanks to abundant wheat. Demand for maida rises in July when school tiffins again get stuffed with bread, noodles, and biscuits. But this year plenty of wheat and competition will keep things in check, festivals or not. Maida is selling now for around Rs 13/kg. Expect it to be at Rs 14.50/kg in August.

Chana and besan: They are affordable but won't stay that way. India needs to import chickpeas and the world market is rising. So, local prices would have to keep pace too. Expect besan to become more expensive between July-end and Diwali. That means higher cost for halwais and namkeen makers.

Rice: Like me, if you love the finer varieties–basmati, ponni, sona masuri, you must already be paying through your nose for them. Alas, things won’t get any better. This is not because of the rains, by the way. Instead blame it on the government's hugely successful procurement programme.

The MSP for basic varieties of rice is now so attractive that farmers prefer them over superior varieties bought exclusively by traders and rice mills. Lower production of the finer varieties means higher prices for you, me and NRIs who can't bear to eat any other kind.

Pulses: Pulses are hardy crops and can make do with very little water and inputs. So unless there is a drastic failure of rains across entire western and central India even after July 15 (highly unlikely), prices won’t be astronomical.

Even so, urad, moong and tur will become at least 10% more expensive in August to bring India at par with world prices and accelerate imports.
Expect to pay not less than Rs 50/kg for tur to your grocer, if he is an honest fellow.

Milk: This one is a no-brainer. Poor rains have left cows and buffaloes with little to eat. There is hardly any fresh green grass, so vital for optimum milk production. Fodder crops are also affected. In major milk producer Gujarat, fodder is 25% more expensive. That has forced dairies like Amul to pay farmers 20% more for milk. Ghee is already 40% more expensive than last June. But I can’t see a respite. Ditto for paneer and khoya.

Dry fruits and condiments: Cashews are expensive because the world has produced less this year and we import 6 lakh from Africa every year as desi cashew meets just half of total Indian demand. So, international prices play a hefty role.

Cardamoms are significantly more expensive because poor rains have hit local crop. Cloves could touch an amazing Rs 400/kg here because major exporter Brazil has a smaller crop. Thank god a little of all this stuff goes a long way.

Meat and eggs: An egg now costs Rs 3 because poultry farms are producing less. At the same time, Gulf countries such as Oman have lifted a ban on Indian egg and live chicken. This means a lot of eggs will get converted to powder for export. Chicken and buffalo meat are expensive because animal feed is soaring.

In short, carbs, proteins, fats and sugar are all set to become costlier. At a time when most of those deep discount grocery chains have shut shop and left your neighbourhood. Poor rains will be only part of the problem. A far bigger reason will be the rise in international prices to which we are now inextricably linked.

Rising incomes and population, coupled with stagnant farm yields, have left India increasingly dependent on foreign farmers to supply it with food. It is a reality from which there is no escape as the demand genie is unlikely to go back into the bottle. A good monsoon only affects the degree of our dependence. The bulls know this.

via Economic Times

India to face Wheat and Rice glut

India, which is currently at a comfortable position in cereals, may face a glut in rice and wheat two years from now, an expert said.

"The way prices have gone up in cereals like wheat andrice, there will be glut of these cereals in next two years,"India head of US-based International Food Policy ResearchInstitute Ashok Gulati said.

Speaking on sidelines of a function, he said the robust prices in cereals have attracted the sugarcane farmers, who were suffering from a glut in the sugar market, towards paddy cultivation.

During 2007-08, India has produced a record 76.78 million tons of wheat and 95.68 million tons of rice. The sugar output is estimated at about 27 million tons against the domestic consumption of 20 million tons.

Gulati noted that the wheat procurement of about 21 million tons in a little over one month signals that support price of Rs 1,000 a quintal was good for farmers. He also said, the shift towards cereals would affect other crops like oilseeds as total cultivable area remains the same. He said India can become self sufficient in edible oil if oilseeds production is increased by 40 per cent, but cautioned that in the process, other crops would be affected. There is need to tap potential in oil palm, which is the cheapest source of edible oil compared to oilseeds, he suggested. While palm oil is harvested through the plantation crop, other oils come from oilseeds grown in field.

"Oil palm in the country is being grown in 30,000-40,000 hectares while it has potential of 800,000 hectares," he said.

India imports 40 per cent of its domestic edible oil requirement, majority of which is palm oil from Indonesia and Malaysia. The edible oil import was about 47 lakh tons in 2006-07 season ending October last year.

Food prices remain high despite higher output: FAO

High food prices have particularly hit vulnerable populations in many countries that spend a substantial part of their income on food, according to a report released today by the UN Food and Agriculture Organization (FAO).

The latest Food Outlook indicates that the food import bill of the Low Income Food Deficit Countries (LIFDCs) is expected to reach US$169bn in 2008, 40% more than in 2007. FAO calls the sustained rise in imported food expenditures for vulnerable country groups “a worrying development,” and says that by the end of 2008 their annual food import basket could cost four times as much as it did in 2000.

International prices of most agricultural commodities have started to decline, but they are unlikely to return to the low price levels of previous years, Food Outlook reports. The FAO food price index has remained stable since February 2008, but the average of the first four months of 2008 is still 53 percent higher when compared to the same period a year ago.

Hunger likely to worsen:

“Food is no longer the cheap commodity that it once was. Rising food prices are bound to worsen the already unacceptable level of food deprivation suffered by 854 million people,” said FAO Assistant Director-General Hafez Ghanem . “We are facing the risk that the number of hungry will increase by many more millions of people.”

Despite a favourable global production outlook, the expected price decline in many basic agricultural commodities during the new 2008/2009 season is likely to be limited, because of the need to replenish stocks and an increase in utilization. Due to rising utilization, more than one good season is required to replenish stocks and reduce price volatility.

Record output expected in 2008 world cereal production:

FAO’s latest forecast for world cereal production in 2008 points to a record output, now at nearly 2192 million tonnes, including milled rice, up 3.8 percent from 2007. Among major cereals, the tight wheat supply is likely to improve most, given the prospects for better harvests in 2008. Despite record production levels in several crops, tight markets will probably lead to continued price volatility during the season.

Heads of State and Government will address the problem of high food prices and the challenges of climate change, bioenergy and food security at the upcoming June summit in Rome (3-5 June 2008).

Other Commodity Highlights:

Oils and oilseeds

The rise in international prices of oilseeds and oilseed products has accelerated in 2007/08, with values climbing to new record levels in March 2008. World markets have tightened considerably as reduced supply growth for oils and a drop in meal supplies are coinciding with further expansion in demand. First forecasts for the 2008/09 season point towards a strong recovery in global oilseed production, and the resulting oil and meal output should be sufficient to meet global demand.

Sugar:

Generally favourable growing conditions led to a record world sugar production in 2007/08 and although world sugar consumption is foreseen to increase at a sustained rate, it will not be enough to absorb an expected second consecutive global supply surplus. International sugar prices are likely to remain under downward pressure.

Meat:

Global meat output is expected to grow in 2008 despite high feed prices. Strong economic growth is expected to sustain steadfast consumption in many developing countries.

Dairy:

Global milk production, which is responding to the past year’s high milk product prices, is forecast to grow strongly in 2008. However, there is uncertainty as to where dairy markets will head. Global trade in milk products is anticipated to fall again in 2008 mainly because of reduced exportable supplies. Import demand seems to have faltered because of high dairy product prices due to strong increases in milk output among several importing countries.

Fisheries:

Food Outlook forecasts that aquaculture production growth will continue this year with the historic milestone of reaching the same level as the expected capture fisheries in 2008. Prices for wild species from capture fisheries are moving upwards strongly but the price increase for farmed species are expected to be more moderate.

The potato:

Worldwide potato production could expand over the next decade between 2 and 3 percent annually – with developing countries, especially those situated in Sub Saharan Africa, being the main engine of growth. In China, the world's biggest potato producer, authorities are reviewing proposals for the potato to become one of the country’s major food crops, while India is considering plans to double potato output in the next five to ten years.

Food crisis looming

The head of the Asian Development Bank on Monday called for an "immediate response" to soaring food prices which he said placed more than a billion Asians at risk of malnutrition.

ADB president Haruhiko Kuroda also warned that the food problem could cut into decades of economic gains in the Asia-Pacific region.

"These are troubling times for the world economy. On the heels of turmoil in the financial markets and economic slowdown in the US and elsewhere, soaring food prices are hitting the poor very hard," he said.

"This price surge has a stark human dimension and has greatly affected over a billion people in Asia and the Pacific alone. Their purchasing power has been eroded, placing them at a greater risk of hunger and malnutrition."

He said stocks of food grains were at the lowest levels for decades.

Reduced supplies and increased demand, along with the sharp depreciation of the US dollar and trade restrictions by some countries have combined to cause the price spike in recent months, Kuroda said.

"The focus must now be on the soaring prices and our immediate response," he said.

He called for "prudent macroeconomic management" along with targeted income support to protect food entitlements and livelihoods of the most vulnerable.

"The absence of such measures could seriously undermine the global fight against poverty and erode the gains of the past decades," he said.

"The ADB is prepared to respond with immediate financial assistance to relieve fiscal pressure on affected countries," Kuroda said.