Food prices may drop as commodity prices fall

With the start of rabi crop arrivals, the prices of agri commodities have declined in the past two months, raising hope that food prices will moderate in the weeks ahead.

Most rabi crops, including wheat, potato and onion, have witnessed a significant rise in production estimates and their scattered arrivals have made prices fall.

Onion in some state mandis is currently selling at as low as Rs 1-2 a kg, while tomato was quoted on Thursday at Rs 7 per kg at the wholesale exchange in Vashi, Navi Mumbai.

Wheat, which has a major presence in the wholesale price index, has fallen by 24 per cent due to a historical high output estimate of 82-83 million tonnes (mt) this year, as against 80 mt last year. D K Joshi, principal economist of the rating agency, Crisil, believes food inflation, currently 14.1 per cent, would start declining to single digits after April.

Since the government was holding high buffer stocks of wheat and rice, prices of these commodities should come down, reducing inflation proportionately, Josh added.

According to V K Chaturvedi, managing director of Usher Agro, the government is currently holding four times the normal buffer stock, at 15 mt for wheat and 25 mt for rice. If the government's Food Corporation of India goes slow on procurement, more grain would be available in private hands, leading to a decline in prices, Chaturvedi said.

Generally, wheat prices start hardening in September, once the availability with farmers gets over and stockists take control. Rice follows the direction of the wheat crop.

However, Madan Sabnavis, chief economist, National Commodity & Derivatives Exchange Ltd, feels consumers would continue to pay high prices for commodities grown in the off-rabi season.

The price fall in cereal, pulses and oilseeds is a usual phenomenon, he said. Since, other commodities like rice, jowar, bajra, sugarcane, soybean, maize, etc. and vegetables and fruits continue to move in a higher range, consumers would continue to pay more for such commodities.

Also, these were traded on a low base last year, which had gone dramatically up this year. A marginal fall from the top would not ease matters by much.

Hence, while overall food inflation may come down to single digit, within the group there would be components that continue to show a high increase in prices. KC Bharatiya, president, Pulses Importers Association, has urged the government to allow export of pulses, banned for the past two years. Cumin seed production is estimated this year at 2.6 mt, against 2.3 mt last year.

Naveen Mathur, Associate Director of Angel Broking, said: "Barring turmeric, most agri commodities are likely to move in a bearish mode, due to higher production."