Prices of basic staples likely to stay higher, analysts say

By Zia Haq

In the April-August period , India’s rice exports rose sharply. “It was an abnormal increase,” said Union food secretary Sudhanshu Pandey, explaining why the government decided to curb overseas shipments last week.

Analysts expect tighter supplies of basic staples, such as rice, wheat and pulses, this year, rather than of perishables such as onions and tomatoes, which see price spirals every alternate year or so due to weather shocks. Food prices in August were driven by grains, pulses and miscellaneous commodities and a decline in vegetables and edible oils, according to data from the Centre for Economic Data and Analysis, Ashoka University.

“There will be inflation in basic staples. The government may need to release more foodgrains from its stocks in the open market to keep prices under control,” said Siraj Hussain, a former Union food secretary

The grinding Ukraine war has sparked a dire global food crisis, dwindling wheat supplies. This quickened rice shipments from India.

India is the world’s largest rice exporter, with a 40% share in global shipments. During the April-August period, India exported 9.3 million tonnes of rice, up from 8.3 million tonnes in the corresponding period of the previous year, the food ministry’s data shows. Last year, India exported nearly 121 million tonnes of rice, a 123% rise over 2019-20.

The food ministry last week said summer-sown rice output could fall by up to 12 million tonnes due to a patchy monsoon. So, cereals are likely to sell well above minimum support prices (MSPs), skewing food inflation, analysts said. MSPs are federally determined floor prices designed to ensure farmers don’t sell at a loss. Price trends show that of cereals, whose rates tend to go up gently and in tandem with MSP hikes, have risen at a faster clip than other items.

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Consumer food prices increased 7.6% in August, compared to a 6.71% rise in July, official data on Monday showed. Cereal prices rose 9.6% from a year ago, compared to a 6.9% increase in the previous month. Pulses in August rose a sharp 2.5%, compared to a 0.18% rise in July.

Rising cereal prices, anticipated lower paddy output and record-breaking export have pressured the government, which has to purchase large quantities – up to 40% of total production — for food handouts to nearly 800 million Indians. The government last week imposed a 20% export duty on rice and suspended sales of broken rice, largely used to feed poultry.

The area under total summer crops is marginally lower this year, as extreme weather hammered crops. The deficit in paddy acreage was 4.9%, while the area under pulses was lower by 4.1% compared to last year, official data show.

In May, the government halted wheat export after a heatwave crimped output by 2.5%, compared to the previous year, sending federally held stocks to a 14-year low.

“Rice stocks should remain above buffer levels, but current export restrictions may not necessarily improve the demand-supply situation materially. There remains an upside risk to prices,” said Sonal Varma, an economist with Nomura Holdings, a brokerage firm.

This article has been republished from The Hindustan Times.