A Faster Pulse

ublic memory of the chilling food riots in 2008 in India and across the world hasn’t faded away. That’s why there has been growing unease at the sharp price upswings witnessed since June in a number of commodities. The affected items range from food (wheat prices, for instance, are up a whopping 24 per cent in the past month alone), metals (iron ore, tin, copper, aluminium have seen the fastest year-on-year growth) and energy fuels (crude, natural gas and coal). In a few cases (wheat and rice), the past couple of months have signalled a reversal of a falling trend in prices. But, for most commodities, the trend is pointing firmly upwards.

The global price trends may as yet be nowhere near the 2008 peaks but the spectre of shortages due to weather conditions (and demand and supply mismatch) are causing concern. There is also the apprehension that if the global economic recovery remains slow or slips, “there could be a shift in fund portfolios...resulting in commodity speculation. Till now we have been seeing funds flow to the stockmarket, but this could change,” warns Biswajit Dhar, director general of global trade thinktank RIS.

For India, which will take a call in October on whether to permit exports of wheat, sugar and rice, it is a challenging prospect. The government—striving to push inflation down to five per cent—already has overflowing cereal stocks. The added pressure of making fresh purchase of paddy from farmers after harvest in October will add to the government storage woes. Agronomist Anil Sharma of NCAER feels given the shortage of storage, “the government could balance purchase of fresh rice stocks by selling some of the excess stocks and thereby reduce some of the losses and use the remaining more effectively.”

On the food front, the current self-sufficiency on cereals does not extend to edible oil or pulses—where India is still vulnerable to global price volatility. Experts point out that as it is a regular importer of edible oil and pulses, India’s imports are not likely to cause any price shock—unless there is a spurt in demand. Even so, higher global prices of pulses and edible oil are expected to add to inflationary pressures in the country. This is despite price regulation for a number of food and fuel products.

Explains agronomist Ramesh Chand of NCAP, “We allow our domestic prices to rise according to trends in international prices if they are moving on the rising trajectory. But when there are a lot of fluctuations, we try to protect the domestic market.” Import of raw sugar last year or the ban on rice exports two years back are some instances where the government intervened to bridge a shortage in supplies and calm domestic prices.

N.R. Bhanumurthy of NIPFP points out that there is no integration of Indian markets with the global commodities market, “so neither the benefit nor adverse impact are fully felt as far as farm products are concerned. But for non-food products, we may have to absorb the impact—be it crude oil or metals.” With crude oil hovering around $80 per barrel, any spike works adversely as it adds to inflation pressures while high input costs make exports uncompetitive. Stating that the current trend “does cause some concern”, Biswajit Dhar stresses that for a large part commodity prices are moving up and down in a narrow range. Let’s hope we aren’t seeing an approaching storm.