Agriculture seems to be defying the general declining trend in commodity prices seen over the past few months, on the back of an ever deepening economic crisis in Europe, the American recovery losing steam, and marked growth slowdown in China and India. Since the start of this calendar year, crude oil prices in New York have eased from around $100 to $86 a barrel, while industrial raw materials traded on the London Metal Exchange have also registered falls — from less than five per cent for aluminium, lead and tin, to 10 per cent for nickel and 30 per cent for steel billets. Even gold has ruled largely flat at roughly $1,600 per troy ounce. On the other hand, corn futures on the Chicago Board of Trade have gone up by 10 per cent, while soaring by 26-28 per cent for wheat and soyabean. Prices for these three major agri-commodities have already breached key psychological levels of $7, $8 and $15 a bushel respectively, bringing back memories of the 2007-08 global food crisis.

What explains this divergence between agri and non-agri prices, especially when investors have in the past, tended to lump all commodities into a distinct ‘asset class’ that, in turn, induces them to exhibit more or less uniformly bullish or bearish behaviour? The current bullishness in agri-commodities has mainly to do with drought conditions across the US, Russia, Ukraine and India, aggravated by forecasts of an El Nino event that could bring dry weather to Australia and New Zealand as well. These fundamental supply-side factors — besides the fact that people need to eat even during recessions, which is not the case with steel, zinc or copper consumption — have pushed global agri-commodity prices in the opposite direction to that of energy, gold and industrial metals. True, sugar, dairy products and cotton are still trading low, though there are signs of milk prices, too, lately rallying in sympathy with corn and concerns over weather in New Zealand.

All this needn’t be bad news for India. In particular, it is a double blessing for farmers and agri-exporters, as they gain from both a spike in global prices and a weak rupee. For the Government, too, this is an excellent opportunity to export surplus wheat and rice from its 80 million tonnes-plus inventories. Higher realisations from exports will help reduce its carrying cost of grain without affecting local availability, since the existing public stocks are 2.5 times the country’s buffer and strategic requirements. The Government must also resist the temptation of re-imposing export cubs on grains, cotton, sugar or milk products now, having lifted these in recent months. There is no reason to deny farmers the benefits of globalisation, which, in the current context and hopes of a monsoon recovery, can translate into higher rural incomes. And that’s not at all bad for the overall economy.

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