Financial Daily from THE HINDU group of publications
Saturday, Jun 22, 2002
Industry & Economy - Economy
Agri-Biz & Commodities - Trends
Do farm prices hint at recovery?
NEW DELHI, June 21
WILL the humble farmer bail out the economy this time around? Indications are that he will. What lends credence to this belief is, however, not the India Meteorological Department's (IMD) forecast of a 15th consecutive normal-to-excess monsoon year.
A `normal' monsoon - in terms of aggregate rainfall as well as spatial and temporal spread across the country - is necessary, but not sufficient condition for growth in farm incomes. The latter is a function of not just output, but also price levels.
And this is where there arises scope for cautious optimism. Prices of many agricultural commodities today are significantly higher than what they were last year. Mustard seed is quoting now at Rs 1,420-1,525 per quintal in Delhi against Rs 1,225-1,315 per quintal a year back. Groundnut oil (ready) is selling at Rs 432 per 10 kg in Mumbai, compared to Rs 385 a year back. Prices of copra and coconut oil in Alappuzha (Kerala) have similarly recovered from Rs 2,150 to Rs 3,000 per quintal and from Rs 3,000 to Rs 4,400 per quintal, respectively.
Moreover, this improvement in sentiment is not confined simply to oilseeds. Benchmark RSS-4 grade rubber has touched a four-year high of Rs 41 per kg in Kottayam, which is higher than last year's corresponding level of Rs 33 per kg. The same is the case with chillies, where `No. 1' varieties are now trading at Rs 2,000-3,000 per quintal in Hyderabad, compared to last year's Rs 1,500-2,000 per quintal.
Ghee prices, which were ruling at Rs 115-116 per kg in Delhi last June and had crashed to around Rs 102 per kg in March this year, are now in the region of Rs 130 per kg.
Over the last three months, wholesale prices of skimmed milk powder have also recovered from Rs 55 to around Rs 72 per kg.
A similar hardening is also evident in foodgrains, with prices of wheat dara now ruling at Rs 635 per quintal in Delhi, up from Rs 610 per quintal a year ago. Traders expect wheat prices to cross Rs 700 per quintal in a month's time.
This is not to deny, however, the persistence of bearish sentiment in certain other farm commodities, especially sugar, cotton, pepper, etc. But the fact remains that the overall outlook with respect to commodity prices has undergone a sea change.
A benign monsoon, under the circumstances, could lead to higher crop production levels, which, in turn, may well translate into higher incomes for the farmer and thereby constitute a harbinger to overall economic recovery.
This is unlike the situation last year when the marked decline in prices of most farm products more than offset the impact of a 5.7 per cent growth in the country's agricultural output.
As a result, farm incomes did not rise - in all possibility they shrunk - belying expectations of an agriculture-led recovery. Hopefully, things will be better this time, the rain gods permitting and the monsoon not playing truant.
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