Global ce­real bounty may keep do­mes­tic food in­fla­tion in check

Mint Asia ST - - Otherviews - RAVI ANANTHANARAYANAN

Low in­fla­tion has been one of the pos­i­tives about India’s economy in re­cent times and it has given space to the cen­tral bank to lower rates.

Low food in­fla­tion has been a key con­trib­u­tor but there are fears this may not last as the south-west mon­soon is caus­ing some con­cern, with its cov­er­age turn­ing un­even.

That has raised the chances of a lower crop out­put, pos­ing a risk to food in­fla­tion. For­tu­nately, help may be at hand from the global ce­re­als mar­ket.

Data on kharif crop sow­ing show that as of 8 Septem­ber, the area un­der cul­ti­va­tion of rice has de­clined by 1.4%, of pulses by 4% and coarse ce­re­als by 1.5%.

The global crop out­look, how­ever, has im­proved. Last week saw the UN’S Food and Agri­cul­ture Or­gan­i­sa­tion (FAO) re­vise up­wards its Septem­ber fore­cast for ce­real out­put in 2017-18, over its July fore­cast.

FAO is pro­ject­ing global ce­real stocks will reach an all-time high in 2017-18. Its cur­rent pro­jec­tions im­ply an in­crease in ce­re­als out­put of 18.4 mil­lion tonnes (mt) over the July fore­cast, with wheat and coarse grains be­ing the main con­trib­u­tors, al­though rice, too, saw a slight up­ward re­vi­sion.

Over­all, ce­re­als out­put is pro­jected to be marginally higher than the 2016-17 level, but con­sid­er­ing that was a good year with a 3% in­crease in out­put, even main­tain­ing that level is good.

FAO had ear­lier es­ti­mated 2017-18 will end with ce­real stocks of 704 mt, which is now in­creased to 719.2 mt. This is even as it ex­pects uti­liza­tion to in­crease on the back of higher out­put.

Clos­ing stocks of wheat are ex­pected to be TAK­ING STOCK Ce­real stocks are pro­jected to in­crease in 2017-18 af­ter out­put es­ti­mates were re­vised up. sub­stan­tially higher while that of rice will be marginally higher. Com­fort­able global stocks of ce­re­als means the gov­ern­ment can im­port them to sup­ple­ment do­mes­tic sup­plies. Soft global prices may, in turn, in­flu­ence do­mes­tic prices, too. Al­though do­mes­tic food prices don’t nec­es­sar­ily move in tan­dem with in­ter­na­tional prices due to re­stric­tions on im­ports, the gov­ern­ment can use im­ports to keep in­fla­tion un­der check.

The Au­gust edi­tion of FAO’S food price in­dex shows a se­quen­tial de­cline of 2.3% in the Au­gust value, al­though it is still higher by 6% over a year ago.

But that’s a low base ef­fect at play, and will wear off in Septem­ber, af­ter which even the an­nual in­crease should be lower.

In Au­gust, ce­real prices fell by 5.4% se­quen­tially due to good sup­plies, re­vers­ing a three­month trend of ris­ing prices. Sugar and meat

Food prices had in­creased since mid-2016 but are show­ing signs of slow­ing down; ce­real prices have been ly­ing low in rel­a­tive terms. prices fell in Au­gust, but vegetable oil and dairy prices in­creased. These form the com­po­nents of the food price in­dex.

In India, farm­ers have re­duced the area un­der pulses af­ter the sharp drop in prices and im­ports may raise in­ter­na­tional prices of pulses. It’s best to keep an eye on how that plays out.

While the global sit­u­a­tion may be con­ducive to keep food in­fla­tion in check and helps the economy, it dims the out­look for agri­cul­tural in­come.

If agri­cul­tural in­come does get af­fected, that’s bad news for ru­ral de­mand. It re­mains an im­por­tant source of ru­ral in­come, es­pe­cially af­ter al­ter­na­tive sources such lo­cal in­dus­try and con­struc­tion projects have been hit by weak eco­nomic growth.

While it’s too early to call, the risk that ru­ral de­mand may dis­ap­point in 2017-18 as well re­mains alive.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.