The Hindu Business Line : Get set to pay more for food, less for fuel

Chennai, Dec. 31 When prices of most of the commodities hit a record in March no one thought the bubble will burst so soon. Not even when crude prices peaked in July at $143 a barrel. The talk was of when crude prices could hit $200 a barrel or even gold touching $1,500 an ounce after it had touched a peak of $1,032.80.

Since September, the picture changed so quickly that a gloom has set in due to the global economic downturn. Barring cocoa, which gained 71 per cent this year, and gold, which ended up three per cent, all prices of commodities fell. What then is the prospect for the New Year, especially in India?

Agricultural commodities, especially those that come under the Essential Commodities Act, are controlled to some extent by the Centre. One, the Centre sets a minimum support price for these, including oilseeds. Two, when the prices fall below that, the Government does act by going in for market intervention programmes. On the other hand, to balance consumer interest, it does come out with policies of regulating rise in prices, the way it did during the last couple of years. Since 2006, the Centre has been taking measures such as allowing duty free of imports of wheat, pulses and edible oil, asking agencies such as MMTC or STC to import edible oils and wheat and even banning exports.

Though some, mainly those in the Government, would like to point out at the declining rate of inflation, what cannot be wished away is that prices are still relatively higher or around the same level as last year with regard to food items. Only the rate at which they increased has dropped.

The year 2008 saw a steep hike in the minimum support prices (MSP) of cotton, oilseeds, rice and coarsegrains. Though MSP for rabi crops has not been announced yet, the Commission for Agricultural Costs and Production has recommended a hike for all and the Cabinet has only put off the decision to another day. But once the MSP is announced, we can only expect commodities such as wheat, mustard-rapeseed, and rice to rule higher. Therefore, consumers should be prepared to pay higher prices for their food, be it wheat or rice or corn for that matter.

VEGOIL PRICES

Edible oil prices are ones which has witnessed steep drop in the last couple of months. However, domestic prices at the retail level are not showing the same trend, barring palmolein. Under pressure from the farmers’ lobby and a section of the industry, the Centre raised the duty on soyabean oil. It is now considering a hike in duty of other vegetable oils such as palmolein and sunflower oil.

Vegetable oil prices during the last couple of years have tended to follow crude oil prices. With crude oil prices projected to touch $30 a barrel, they could come under pressure. But vegetable oil prices have already touched a level from where any fall could hurt growers badly around the globe.

SUGAR, COFFEE BULLISH

Therefore, it is unlikely that we may see any sharp fall in their prices. With a lower oilseed crop projected during kharif and rising population leading to dependency on imports, vegetable oil prices could come under pressure. Still, the direction that crude oil takes will hold the key.

Sugar is one which surely looks bullish for the New Year. This is mainly in view of forecasts putting production during the current season (November 2008-October 2009) between 190 lakh tonnes and 200 lakh tonnes. Imports will have to be restored and its effects are already being felt in the global market. Sugar, therefore, could be costly for consumers.

Coffee prices are likely to rule higher, while tea prices may moderate a bit now that Kenyan production is back with full vigour.

Crude, though seen under pressure, is projected to touch $60 a barrel by on the heels of the Organisation of Petroleum Exporting Countries resorting to production cut. That means, fuel will cost less.

Gold is viewed as the most promising but a section of experts sees it moving between a wide band of $630 and $980 an ounce.

Base metals could come under pressure in the short and medium term with prospects for zinc seen almost bleak.

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