Food commodity prices cool down, ease pressure on policymakers

Prices of key food commodities have cooled down substantially in the past one month, giving some relief to policymakers on the front of food inflation.

Prices of cooking oils, which had more than doubled between June 2020 and March 2021, have now cooled down by about 30% from their peak with the downward trend expected to continue further. Prices of pulses have declined by about 10%, while prices of meat, chicken, milk and cereals like rice and wheat have remained stable, industry watchers said.

Factors like monsoon will decide the impact on prices of fruits and vegetables, while the expected unfolding of demand will be the pull factor deciding any rise in food prices in the coming months, they said.

“Prices of many agricultural commodities have softened during past one month,” said Nagaraj Meda, director at commodity research and price consulting firm TransGraph Consulting. “The reason for their increase through 2020 was the cost push inflation caused by adverse impact of La Nina weather conditions and the monetary inflation as funds were chasing commodities to hedge against inflation. Now, these two factors are fading away.”

However, demand-pull inflation is expected to surge as the US and European countries have started opening up after vaccinating a majority of their population, he said. “While there will not be any major jump in food prices in the coming months, the demand-pull inflation will prevent any drastic fall in prices,” Meda said.

Wholesale price of sunflower oil at Krishnapattanam market, the port town where it gets imported, had increased by 41% from Rs 131/kg in December 2020 to Rs 185/kg on March 12, 2021. Now it has declined to Rs 131/kg.

Meda said edible oil prices have already dipped about 30% from their peak. “We expect the prices of edible oils to continue to fall further by about 10% as globally it is the peak season for palm harvest, while in India too our local harvest will begin by September,” he said.

Captains of the edible oil industry said the government, which was considering a cut in import duties to ease domestic cooking oil prices, is no longer talking about it as the prices have cooled down.

“The international prices of major oils like soyabean, sunflower and palm oil have decreased by about 23% during past one month,” said BV Mehta, executive director of Solvent Extractors’ Association (SEA). “The monsoon has set over the country and there are expectations of a good crop, which has changed the sentiments of the trade. No one wants to hold onto stocks anymore.”

The government had invoked provisions of the Essential Commodities Act to control suspected speculative increase in prices of pulses, after which prices have declined for major pulses.

According to the TransGraph database, prices of masur (lentil) have fallen by 6% in last one month. However, they are still 10.8% higher when compared to a year ago. Similarly, chana prices have fallen by 5.1% in one month, though they rule 21.6% higher than a year ago, and prices of tur (pigeon pea) have slipped 4.5% in a month but are 19.6% more than a year ago.

“Though the farm end prices of pulses have cooled down and are ruling at the minimum support price levels, there is no commensurate fall in prices at the retail level,” said Vivek Agarwal, director at commodities brokerage JLV Agro.

During the second wave of Covid-19, dairies slashed milk procurement prices by 20% to 30%, leading to farmers’ protests. However, there was no cut in the consumer prices of milk.

Analysts expect milk prices to remain range bound with likelihood of increase of Rs2-3 per litre after opening up, which will be controlled due to the flush season, when milk production increased naturally during the monsoons.

“We at Mother Dairy don’t foresee any movement in consumer prices in near future under the current situation,” a spokesperson of the dairy company said. “The procurement prices came down by almost Rs 3-4 per kg in last 2-3 months due to the impact of the second wave of Covid-19. However, in the past 15 days the procurement prices have seen some hardening and it is likely that the prices will go up further in the coming months to the pre-March 21 levels. However, hike in consumer price is not likely in near future. The last consumer milk price hike was in December 2019.”

Prices of mutton and chicken too have remained stable. “As compared to chicken, mutton becomes a luxury food item,” said Shahanawaz Thanawalah, vice president at Mumbai Goat Merchants’ Association. “With reduced purchasing power of people, many mutton consumers have shifted to eating chicken. We have seen 50% fall in consumption of mutton since a year, which has kept the prices stable at around Rs 650-700 per kg for close to a year now.”

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