Food inflation to cool in August with prices of crops falling steeply amid good rains

Source: The Economic Times, Aug 17, 2016

NEW DELHI: Food inflation is poised to moderate significantly when data for August is released next month as the wholesale price of pulses has eased 30% while vegetable rates have dropped as much as 50% in some markets in the past four weeks because normal monsoon rainfall has raised prospects of a bumper harvest after two years of drought.

aPrices of all farm commodities are likely to fall noticeably by October, when the new harvest reaches the market and the festive demand has been met, said traders, analysts and company executives. Last month, food prices were up 11% at the wholesale level.

For the consumer, the biggest relief is in the price of pulses, which has dropped at the wholesale level by 30% in the past four weeks. Last month, prices of pulses were up an annual 36%, on top of a similar increase in July 2015, official data on wholesale prices showed on Tuesday.

“Pulses and basmati rice prices have corrected in the past one month due to increase in imports, planting and expected good crop,” says Angshu Mallick, chief operating officer of Adani Wilmar. Among pulses, tur dal, which made headlines with record prices, has fallen to Rs 67 per kg while yellow peas is trading at Rs 29 per kg, according to traders in wholesale markets.

Basmati rice also fell, dropping 10% in the past month to Rs 52 a kg for the popular 1121variety, while sugar fell by Rs 2 in the past 15 days to Rs 35 per kg. Prices of cooking oil, ordinary rice and sugar are expected to fall by October while pulses are likely to drop further. BK Anand, business head (grains and oilseeds) at Cargill Foods India, said well-distributed rainfall and higher planting will help cool prices. “We are watching the monsoon progress and as of now feel that commodities including coarse cereals (corn, millets, sorghum, barley), pulses, oilseed and rice will see a correction by October,” he says.

HIGHER AREA UNDER CULTIVATION
Monsoon rainfall has been normal so far while area under cultivation is higher than in past two years, when severe rainfall deficiency hit farmers. In Mumbai, vegetable prices at wholesale markets — tomato, onion, ladyfinger, bitter gourd, capsicum, beans — have seen 40-50% correction in the past month, say traders, owing to harvest of new crop.

Mallick says prices of all major kharif crops will come down in the coming months. “The festive season has started and we now expect further correction in prices post Diwali in the month of October,” he adds.

Analysts like Prerana Desai, vicepresident, Edelweiss Agri Research, say all kharif commodities will come under pressure in the coming months while the downside will be limited for rabi crops such as wheat and chana. “In the current scenario we see extreme bearishness in pulses crop as imports from Africa begin. We have also seen correction in sugar prices in the fag end of the season and we expect volatility as the government monitors sugar stock position,” she says.

FURTHER CORRECTION
Desai says that once the crop is harvested starting October, prices of oilseeds from soyabean, non-basmati rice, sugar and pulses will correct further. In sugar, where prices have corrected by Rs 1.50-2 per kg in past 15 days, Tarun Sawhney, president, Indian Sugar Mills Association, says he doesn’t see any reason for rates to rise. “For the 2016 sugar season (October-September), we expect closing stock on September 30 to be 7.1million tonnes — the requirement of three months, which is ample,” he says.

Meanwhile, vegetable prices have also seen a major fall and are expected to remain stable for the next three months as harvest picks up across the country. “Prices have corrected by 40-50% depending on size and quality with tomato at Rs 7-12 a kg, cabbage Rs 7-8 a kg, ladyfinger at Rs 35 a kg, bitter gourd at Rs 20 a kg and bottle gourd at Rs 24 a kg,” says Kailash Tajane, president of the vegetable association at Vashi mandi.

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