Global food price inflation is back in the positive territory. This isn’t bad news for Indian farmers ahead of the harvest season for kharif crops, even as agriculture is the only sector that has grown 3.4 per cent year-on-year (y-o-y) in April-June amid the overall economy contracting by 22.8 per cent.
The UN Food and Agriculture Organization’s Food Price Index (FPI) averaged 96.1 points in August, rising for the third successive month, from 91 in May, 93.1 in June and 94.3 in July. Annual food inflation based on the global index (base year: 2014-16=100) stood at 2.24 per cent, up from -1.23 per cent in April, -3.40 per cent in May, -2.31 per cent in June and -0.85 per cent in July.
International food prices have been very volatile for almost a year. Between August 2019 and January 2020, inflation based on the FPI soared from -1.99 per cent to 9.94 per cent (see chart). The index itself touched 102.5 points in January, the highest since December 2014, reflecting supply tightness building up in many commodities — from palm oil and sugar to rice and skimmed milk powder (SMP) — after a prolonged period of low producer realisations.
But then Covid-19 struck. It led to the FPI crashing from a 61-month high in January to a 48-month low in May, as world food trade and demand collapsed with most countries imposing lockdowns to contain the spread of the novel coronavirus. A third straight month of increase in the index is indicative of a price recovery that is underway and already apparent in a host of commodities.
Wheat and soyabean prices (for the most actively-traded futures contracts at the Chicago Board of Trade exchange) are currently at $5.53 and $9.66 per bushel, respectively, as against their corresponding levels of $4.53 and $8.68 a year ago. Prices have also gone up for raw sugar (12.07 cents per pound from 11.19 cents), coffee (131.2 cents/pound versus 95.55) and cocoa ($2,634/tonne versus $2,245) traded at the Intercontinental Exchange. Even prices of rice (export quotes for Thai grain with 5 per cent broken content), SMP (at New Zealand’s Global Dairy Trade auctions) and crude palm oil (Bursa Malaysia exchange futures) are higher compared to one year back: $525 versus $430 per tonne, $2,663 versus $2,500 per tonne, and 2,891 ringgit versus 2,181 ringgit per tonne, respectively.
The above price recovery bodes well for Indian farmers, who are set to harvest a bumper kharif crop on the back of 8.4 per cent above-normal monsoon rainfall and a record 1,095.35 lakh hectares area sown so far. This produce will start arriving in markets from the second half of September. World prices firming up should at least partly support domestic producer realisations. Although consumer food price inflation in July stood at 9.62 per cent y-o-y, the corresponding rate based on the wholesale price index for food articles was only 4.08 per cent.
The Reserve Bank of India has lately, in a clear change of strategy, been allowing the rupee to strengthen in order to contain imported inflationary pressures. Since August 20, the rupee has appreciated from 75.03 to 73.14 to the dollar, after having fallen to as low as 76.87 on April 16. The rupee’s strengthening may somewhat offset the rising global prices of commodities, which are mainly denominated in dollars.
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