Business Daily from THE HINDU group of publications
Friday, Dec 08, 2006
Agri-Biz & Commodities - Foodgrains
Government - Agricultural Policy
High food prices here to stay
Mumbai , Dec. 7
With Parliament in session, it is but natural that rising inflation is causing temperatures in the House to rise despite the winter season. While the official inflation number at the wholesale level is 5.45 per cent as of November 18, consumers have been facing double-digit price rise.
There seems to be no respite from high prices, notwithstanding the Finance Minister, Mr P. Chidambaram's sanguine expectation. He believes sugar prices would ease and a good wheat crop would soften the price sentiment.
But he could be in for a shock. While sugar may ease in the near term because of hectic crushing activity, there is nothing to suggest that crop prospects for the ensuing rabi season are bright. If anything, summer-harvested oilseeds output is likely to decline.
In addition to domestic shortage that is sure to lead to higher imports, international vegetable oil prices are on the upswing because of huge diversion for bio-diesel production. India's imports for 2006-07 would, therefore, be not only large but also expensive.
Most observers are keeping their fingers crossed over wheat crop prospects.
Harvest would not begin at least until the second half of March. There are four months to go before new crop wheat begins to flow.
A clear final acreage estimate for wheat, pulses and oilseeds may not be available until mid-December. It may be premature to talk about output; but soil moisture and other conditions do not inspire much confidence.
Therefore, high prices, especially of essential food items, cannot be wished away.
Meanwhile, political leaders have begun to question the Union Government about the cut in wheat allocation for States despite assurances otherwise. Questions are also being raised about the phyto-sanitary conditions for imported wheat.
The Centre is obviously finding itself on the back-foot.
Even if the country manages to produce 71-72 million tonnes of wheat (optimistic on current reckoning), there may be no escape from importing 4-5 million tonnes in 2007.
Pulses will continue to be imported to meet domestic supply shortfall.
Mercifully, customs duty exemption has been extended by four months beyond March 2007.
In this fire-fighting operation that essentially relates to trade liberalisation and price control, the basic thrust on strengthening agriculture is receding into the background. Major exporting countries are keenly watching developments in India.
Major import market
Whether wheat, pulses or edible oils, and even sugar, India is fast turning into a major import market. The next on the block could be maize (corn).
With rising maize prices and demand exceeding supplies, imports may become inevitable.
There is something for Indian policymakers to learn from China. That Asian giant is keen to ensure more equitable growth by focusing more on agriculture. Over the next five years, it is expected to lay more emphasis on strengthening its farming activities and double rural incomes.
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