Resources Research

Food inflation has hurt, but we have just the prescription for it. So says the Economic Advisory Council to the Prime Minister of India. This group of the country’s seniormost macroeconomic planners is considered to be as heavyweight as they come, and have considerable influence on policy in India. The major ministries listen to the pronouncements of the EAC very attentively – finance, commerce and industry, power, steel, agriculture, infrastructure. India’s industry associations and business interest groups do the same – they are the Confederation of Indian Industry (CII), the Associated Chambers of Commerce and Industry of India (Assocham) and the Federation of Indian Chambers of Commerce and Industry (Ficci).

But amongst the five members of the EAC (all ‘Drs’, naturally) there are no women. There is no trade union member, there is neither nurse nor teacher, there is no housewife and there is no bus driver, there is no municipal sweeper and no roadside food vendor, there is no-one from a ‘scheduled caste’ or a ‘scheduled tribe’, in fact there is no tribal at all, there is neither artist nor essayist, there is no-one to speak for the old folk of India and none to explain the dreams of India’s youth. Still they call it a council to which the country’s prime minister listens. What he and his ministerial colleagues learn from these five cosseted greybeards in their ivory tower I can hardly imagine.

The price of a kilo of rice, from 2006 to 2011, in 49 urban centres in India.

Let us see why it is so difficult to find utility (the word classical economists make much of) in the pronouncements of this cabal.

They said: “Very high rates of inflation have characterized the last two years. Much of the inflationary pressure came from primary foods, including cereals in the initial months.”

True.

They said: “While, open market intervention and large releases under the public distribution system (PDS) helped to stabilize the price of cereals, pressure continued to come from rising prices from other primary food items – especially pulses, milk, eggs, meat & fish.”

What does “open market intervention” mean? If it means the central government buying foodgrain to funnel into the public distribution system, this is a method riddled with corruption and crippled by speculation. There are no “large releases” different from the normal schedule of releases which in a country like India are large anyway. Cereal prices have not stabilised – not in 2011 and 2010 and not at any time in the last five years.

They said: “Greatly improved output of kharif pulses in 2010 combined with marketing of imported pulses at controlled prices, helped to curtail the inflation in pulses by July 2010. However, prices continued to rise for fruit, milk, eggs and meat & fish.”

Inflation in the prices of pulses has by no means been curtailed, controlled or even understood. Many kinds of pulses in India are consumed in many different ways, and there is demand not only from final household consumers but also from the dispersed and very varied small foods and snacks manufacturers for whom pulses are a necessary ingredient. Fruit, milk, eggs, meat and fish – all scarce items in the food basket of the poor but high-margin items for the food retail stores in urban India. The EAC has made no mention of why prices for these foods rose – homework not done.

They said: “The prices of vegetables took an unexpected turn in December 2010 and January 2011, resulting in an increase in the wholesale price index of vegetables by 34 and 67 per cent respectively in these two months. In consequence, primary food price inflation stayed in the double digits.”

Not only in December 2010 and January 2011. Several staple vegetables have been the actors in price volatility operas in all the 49 urban centres for which  India’s Food and Consumer Affairs Ministry monitors retail prices. To blame, in my view, is the steady ingress of the food logistics sector (itself part of the corporatisation of food and agriculture in India) into urban centres beyond the major metropolises. The “cold chain” and “value chain” evangelists work for the retail food and processed foods industry, and can exercise degrees of arbitrage which are wholly ignored by the EAC. Inside the market, there was no hint of the “unexpected”.

The price of a kilo of wheat, from 2006 to 2011, in 49 urban centres in India.

They said: “Such a lengthy period of sustained high food price inflation had its expected impact on money wage rates and other cash expenses, which in turn began to get passed into the price behaviour of manufactured goods. Year-on-year inflation for manufactured goods rose from around 5 per cent to 8 per cent in September and October 2011.”

Shouldn’t fossil fuel products and the prices we pay for them share the blame? I think a cursory study of the prices for OPEC and non-OPEC crude products will explain a lot. And besides, “wages” are wages to people who – being mostly in the informal sector and unorganised labour – cannot bargain collectively nor are represented in policy-making bodies (like the EAC), so their money wage rates have not risen in tandem with inflation. Quite the contrary, for rural labour (agricultural and non-farm both) the average household spends 65% of its income on food.

[You can get the EAC Review of the Indian Economy 2011-12 document (pdf) here] [You can get a plain text file of the paragraphs on food and agriculture, prices and inflation (txt) here]

They said: “The net effect was that the headline rate of inflation stayed close to 10 per cent for an extended period of twenty two months.”

True, even for whatever is meant by “headline rate”.

They said: “It should not be forgotten that throughout this period there has also been a suppression of the headline rate insofar as the prices of several refined petroleum products, especially diesel, continued to be restrained by policy – which has had an adverse impact on the subsidy bill and therefore on government finances and also on the finances of the public sector oil companies.”

Oh we are so distressed by the hurt caused to government finances, especially coming on top of the enormous tax write-offs (called “forgone tax revenue” in India’s quaint public accounts jargon) given to the esteemed members of CII, Assocham and Ficci, many of whom are direct beneficiaries of the measures that led to a high “headline rate” of inflation in the first place. Money for jam, I would call it.

They said: “The effort of public policy, especially monetary policy, seems to have had its desired effect. The headline rate dropped to 9.1 per cent in November and further to 7.5 per cent in December and has dropped further in January 2012.”

Now I know that the spreadsheet program supplied to the EAC for such calculations is provided by Messers Alice in Wonderland GmBH.

They said: “The welcome developments in the easing of inflationary pressures will enable the RBI to adjust its monetary stance over the next several months. However, the continued pressure from the fiscal side will continue to impose some limitations. Hopefully the extent of the fiscal burden may ease in 2012-13 and create conditions that are more conducive to investment and economic growth.”

Ah yes, in case we were momentarily misled, this is to remind us that the purpose of high-level panels of greybeards is to prove circuitously to the proletariat that conditions conducive to investment and economic growth matter (so very much) more than our shrinking wages and the spiralling prices we pay for our daily bowl of rice and scraps of vegetables. We stand educated.

India’s Ministry of Agriculture has released it ‘second advance estimates’ for the 2011-12 crop season. These estimates (usually four) are released from around September or October until the following monsoon has set in by July.

The rice target of 102 million tons (mt) is the same as it was for 2010-11. The second advance estimate for rice is 90.18 mt for ‘kharif’ (sown in monsoon, harvested in autumn), the highest ever advance estimate, and 102.75 mt in total (both ‘kharif’ and ‘rabi’, the winter crop). The second advance estimate for 2011-12 is almost 10 mt higher, for the rice kharif crop, than the second advance estimate for 2010-11. The total rice estimate for 2011-12 is more than 8 mt higher than the advance estimate for the total rice crop in 2010-11.

The 2011-12 second advance estimate for wheat is 88.31 mt, more than 4 mt above the 2011-12 target of 84 mt. The wheat second advance estimate is also more than 2 mt above the fourth advance estimate for the 2010-11 season, of 85.93 mt. Coarse cereals (jowar, bajra, maize, ragi, small millets and barley) has been since 2008-09 set targets of over 40mt – 42mt in 2008-09 (the harvest was 39.48 mt), 43.1 mt in 2009-10 (the harvest was 33.77 mt), 44 mt in 2010-11 (the harvest was 42.22 mt). The 2011-12 coarse cereals target is 42 mt and the second advance estimates for the year for coarse cereals is 42.08 mt).

Total cereals for 2011-12 is 233.14 mt in the second advance estimate, almost 10 mt above the fourth advance estimate of 2010-11 (which was 223.47), and above the 228 mt target for 2011-12. Total pulses for 2011-12 is 17.28 mt in the second advance estimate, just above the 17 mt target for the year. This is still under the 18.09 mt fourth advance estimate for the 2011-11 crop year.

[You can find a four year data set from 2008-09 onwards here (xlsx)]

Thus, total foodgrain for the 2011-12 crop year is placed at 250.42 mt in the second advance estimate, over 5 mt above the target for 2011-12 – and the first time the total foodgrain harvest has been estimated at 250 mt. In the three previous crop years total foodgrains was 241.56 mt in 2010-11, 218.20 mt in 2009-10, and 233.88 mt in 2008-09.

In the first major indication of the way food prices will move in 2012, the UN Food and Agriculture Organization (FAO) has announced that its Food Price Index rose by nearly 2% or four points from December 2011 to January 2012. This is the Index’s its first increase since July 2011. A close look at the FAO Food Price Index shows that prices of all the commodity groups in the index have risen (oils increasing the most). At its new level of 214 points, the index is about 7% lower than what it was in January 2011 (when it reached 231).

In 2010 July, the Food Price Index has begun a steep upward climb it maintained for 7 months until 2011 February, from 172 to 237. Now, this 4 point jump in a month is the sharpest since the rise from 231 in 2011 January to 2011 February. “There is no single narrative behind the food price rebound – different factors are at play in each of the commodity groups,” said FAO’s Senior Grains Economist Abdolreza Abbassian. “But the increase, despite an expected record harvest and an improved stocks situation, and after six months of falling or stable prices, highlights the unpredictability prevailing in global food markets,” he added. “I can’t see that the usual suspects – the value of the dollar and oil prices – were  much involved in January. But one reason is poor weather currently affecting key growing regions like South America and Europe. It has played a role and remains a cause for concern,” he concluded.

What FAO is seeing and saying is routinely misunderstood or deliberately miscast by the mainstream business and financial press. An example of this can be seen in a recent opinion found on Forbes, the business magazine, which links “a slowing UN FAO food price index” and “falling commodity prices” to the global economic slowdown. This, the magazine has said, is “putting further downward pressure on food inflation”. Of course this is completely untrue, as wage labour, informal sector workers and middle class residents in many cities and towns of the South know.

Thus the ‘market’ view is that global demand for agricultural products appears to be slowing. This view exists because this sort of media represents the interests of its owners – the 1% targeted by the Occupy movement. Ever since 2011 July, when the FAO Food Price Index ceased its steady upward march, organs and media representing the interests of the global money markets and the interests of the speculators have attempted to leaven their crooked discussion of the matter by saying that the global dynamic in food and commodity markets took a structural turn. Their insistence on linking “quantitative easing in the USA” and what they call “emerging market demand” (meaning mainly China and India) for food staples has been a consistent feature of this disinformation.

What we are seeing is that the FAO Cereal Price Index averaged 223 points in January, up 2.3% (5 points) from December. International prices of all major cereals with the exception of rice rose, with maize gaining most, 6%. Wheat prices also gained, though less significantly. Prices mostly reflected worries about weather conditions affecting 2012 crops in several major producing regions. Fears of decline in export supplies in the Commonwealth of Independent States also played a part.

[The FAO Food Price Index data sheet is available here (xls).] [The FAO Deflated Prices data sheet is available here (xls).]

According to FAO’s latest forecast world cereal production in 2011 is expected to be more than sufficient to cover anticipated utilization in 2011-12. Production is expected to reach 2,327 million tonnes – up 4.6 million tonnes from the last estimate in December. That would be 3.6% more than in 2010 and a new record. FAO lowered slightly from December 2011 its cereal utilization forecast for 2011-12, to nearly 2,309 million tonnes, still 1.8% higher than in 2010-11. That would put cereal ending stocks by the close of seasons in 2012 at 516 million tones, 5 million tonnes above FAO’s last forecast.

A sober note has been sounded in the Jakarta Globe. The Indonesian newspaper reported the Asian Development Bank warning that Indonesia and other nations in Southeast Asia should be prepared for a possible rise in food prices, which might stoke inflation. Changyong Rhee, chief economist at ADB, is reported by the newspaper as having said the global financial turmoil, marked by the euro zone debt crisis and a possible slowdown in the US economy, might increase the volatility of prices for food and other commodities. According to the ADB, research funding [in agriculture] is being depleted amid climate change, making it difficult for food production to keep up with growing demand. “Food price increases have become more persistent than in the past,” he said in Jakarta. “It has a major impact on food security for millions [of people].” The Jakarta Globe reported that the FAO Food Price Index has risen by 50% in the last four years, compared with a 16% increase from 1991 to 2006.

Macroscan, the website is maintained by Economic Research Foundation, professional economists seeking to provide an alternative to conservative and mainstream positions, has posted an article I have written on ‘Food Prices, Health and Nutrition: Red-flag indicators for the 12th Plan’. Here is the opening section.

India rice price trends

The long-term impacts of food inflation on the rural and urban poor are yielding worrying indicators in the nutrition and health sectors. The debate over the provision of the National Food Security Bill and over the reform of procurement for the public distribution system has helped a great deal to bring to the foreground persistent inequities in food access and quality. What remains are the health and nutrition dimensions that are also determined by access to food, the prices at which food items are available and the extent to which food inflation determines nutritional choices for citizens in low income categories. Some of these linkages are brought out by reading together new data from the National Sample Survey Organisation’s 66th Round, and recent trends in retail food prices.

Retail prices of the separate elements of a common food basket are recorded by the Ministry of Food and Consumer Affairs (FCA), Department of Consumer Affairs, for 49 cities. This is a new series of 22 items, compared to the 16 items the FCA had maintained until early 2011. For rice and wheat there is a curious pattern to the price rise. The price band for the 49 cities moves up over time, but it also expands over that time. This can be seen in Chart 1.

With Bharat Nirman-centric infrastructure programmes deepening the connectivity between food supplying districts and consuming regions and with growing investment in agri-logistics and in food retail chains, in fact the reverse ought to happen. That is, food basket staples should be displaying greater homogeneity in retail prices. However, there are a variety of other factors influencing the price band (for the FCA’s 49 cities as much as for district kirana shops) and some of these are external factors such as energy costs, new demand centres arising in fast-urbanising towns which skew distribution costs and corner investment, and the offtake by the food processing industry which is growing at an annual rate of 14%-15%.

India rice and wholesale price index

While a number of factors are at work behind the divergences over time between states and between rural and urban consumption centres, these are not reflected by the movement of the Wholesale Price Index. However, it can convincingly show the variance between types of measurements. The Office of the Economic Adviser maintains the Wholesale Price Index (WPI). After indexing the upward movement in WPI (new series 2004-05) for rice from January 2006 and also indexing the minimum and maximum prices per kilo of the 49 cities’ price trendline, Chart 2 is the result.

As pointed out in a number of articles and commentaries on MacroScan by Jayati Ghosh and C P Chandrasekhar, there is a gap between the rate of increase of CPI for food items and the WPI for those items. This we can see in Chart 2. What we also see is that from October 2008 to January 2010 the rise in WPI accompanied, more or less, the rise in the lower limit of the rice price trendline. From January 2010 onwards, the difference in the growth rates of the WPI for rice and of the rice trendline is significant. This is the ‘fair average quality’ of rice. Yet the gap between the lower price trendline and the WPI is now greater than it has been at any time during 2007-08, when the global food price shocks took place.

How have these price trends hurt households in the lower deciles of consumption in both rural and urban areas? One of the early results of the 66th Round of the NSSO, ‘Key Indicators of Household Consumer Expenditure in India, 2009-10′, provides an answer. The state- and decile-grouped summary data tables show that for 16 major states, the rate of increase in monthly per capita expenditure (MPCE) on food has been faster than the rate of increase of the total MPCE. What has been the impact in the states? For example, with both food and total MPCEs indexed to the levels found in each state by the NSSO in 2003,  the food MPCE rose by 87% in 2009-10 in rural Maharashtra whereas the total MPCE rose by 65%. In 2005-06, food MPCE in rural Maharashtra had risen 14% and the total MPCE had risen 19%.

[Macroscan, the alternative economics website, has the full article.] [pdf only is here.]

This is one of two related articles written by me and published by Infochange India.The full article is here.

Transplanting paddy in the rice fields of North Goa, in monsoon 2011

If the Government of India is, during the finalisation of the Twelfth Plan (2012-17) direction for agriculture and food, deciding to favour production over rural livelihood needs, then it must recognise clearly the internal land grab that India’s farm households are experiencing. The protests in western Uttar Pradesh by farmers’ groups typify the scale of the diversion of farmland for real estate development or industrial use. In the last four years the Bahujan Samaj Party of Uttar Pradesh has approved a number of projects like the Yamuna Expressway which has been allotted to a private company, JP Infratech Ltd, which holds a contract that includes the right to construct apart from the right to collect tolls for 36 years.

A village in the tribal regions of Navsari district, Gujarat, off the Mumbai-Ahmedabad highway and its 'ribbon' land development

Along this 165-km eight-lane “super highway” a “hi-tech city” has been planned. This will include industrial parks, residential colonies, shopping malls, professional colleges, schools, hospitals and urban services centres. Currently estimated as a Rs 9,500 crore project this “hi-tech” city will, when complete to plan, occupy 43,000 hectares of land that is currently under cultivation by the residents of 1,191 villages. This very large land grab alone will remove the potential to harvest about 100,000 tonnes of foodgrain a year — an amount that can fulfil the cereal needs of all of urban Haryana for five weeks.

There are 533 urban centres with populations of between 1 million and 50,000 — this is apart from the metropolises. The drive to encourage the faster urbanisation of these 533 towns and cities has already taken an unknown amount of farmland out of cultivation. There is an estimate that in the last decade — to a large degree a consequence of the relentless expansion of the National Capital Region — Uttar Pradesh has lost about 6 million hectares of farmland. The expansion of the NCR and its satellite developments is unparalleled in modern India, but it is the biggest example of the land grab that is taking place in all urban areas in India.

A stack of crop residue in Satara district, Maharashtra. This biomass is increasingly being diverted from traditional uses and towards energy

Estimates based on fieldwork and the use of longitudinal spatial mapping based on satellite imagery show that for every acre of cultivable land that is built upon or used for urban purposes, over five years an additional four cultivable acres turns fallow and is quickly converted to non-agricultural use. How much has India lost in 2010? How much has it lost from 2001 to 2010? There are no best guesses, no reliable estimates, there is not even experimental methodology to apply to the chief crop-growing regions and their expanding settlements. Yet the macroeconomic models being produced for the central government and planning agencies promise ever-increasing yields from a plateau of cultivated land area. One of them is wrong and the evidence on the ground — and from the protests by farmers of Bhatta Parsaul village in Greater Noida — points to the error being in the models.

Will these errors be corrected before March 2012, when the Eleventh Plan ends? Will the social costs of real food inflation be counted, and will actual retail food inflation in India’s tier two and tier three cities be recognised and its underlying causes made public? At this point, all the answers are likely to be negative. The Government of India, the Ministry of Agriculture and the Ministry of Food Processing, the Ministry of Commerce and Industry (Department of Commerce), the Indian Council of Agricultural Research (ICAR) and central and state planning agencies now speak the same language — the message is that most of the growth in agriculture in future will come not from foodgrains, but from sectors such as horticulture, dairying and fisheries, where the produce is perishable, and where even greater attention needs to be paid to the logistics of transporting produce from the farm to the consumer, with minimum spoilage. Urban and urbanising markets and the structural change in nutrition being demanded by a section of the country’s population form the focus.

[This is one of two related articles written by me and published by Infochange India.The full article is here.]

This is one of two related articles written by me and published by Infochange India. The full article is here.

Waiting for the bus in Satara district, Maharashtra

How much food will India need to grow to feed our population in 2011-12? How much in 2013-14? Will we need to import wheat and rice or will we be self-sufficient? Do we know the environmental cost of this self-sufficiency? Are we willing to bear it? These are the questions that the Government of India, its ministries and its planning agencies must find answers to before the start of the Twelfth Five Year Plan period, which is 2012-17.

The foodgrains view from mid-2011 is one of relative comfort — 235 million tonnes is the estimate (including 94 mt rice and 84 mt wheat).

From this position, the Government of India has a set of six broad-brush objectives. These it wants its ministries and departments, connected directly and as adjunct to food and its provision, to internalise. It wants state governments to shape policy to support these objectives, which are:
* Target at least 4% growth for agriculture. Cereals are on target for 1.5% to 2% growth. India should concentrate more on other foods, and on animal husbandry and fisheries where feasible.
* Land and water are the critical constraints. Technology must focus on land productivity and water use efficiency.

On what was formerly farm land in Thane district, Maharashtra, residential condominiums are being quickly built

* Farmers need better functioning markets for both outputs and inputs. Also, better rural infrastructure, including storage and food processing.
* States must act to modify the Agricultural Produce Marketing Committee (APMC) Act/Rules (exclude horticulture), modernise land records and enable properly recorded land lease markets.
* The Rashtriya Krishi Vikas Yojana (RKVY) has helped convergence and innovation and gives state governments flexibility. This must be expanded in the Twelfth Plan.
* The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) should be redesigned to increase contribution to land productivity and rain-fed agriculture. Similarly, the Forest Rights Act (FRA) has potential to improve forest economies and tribal societies. But convergence with the National Rural Livelihoods Mission (NRLM) is required for strengthening rural livelihoods.

Are these objectives reasonable? Are they equitable and will they encourage an agriculture that is ecologically sustainable in India? From a resources use perspective, the government is right to point out certain constraints (land and water) and administrative improvements (land records, using NREGA labour for farm needs). The direction to provide better infrastructure in India’s rural districts, the better to link farmers to markets with, has been stated in every single Five Year Plan for the last five plan periods, and has been repeated in every single plan review and even more often in the Economic Surveys which accompany the annual budgets. (Under the Bharat Nirman programme, this need has to an extent been met, but the beneficiaries are as likely industry and land developers as they are cultivators.)

A 'basti' in Satara district, Maharashtra, whose residents provide both agricultural and construction site labour

Protecting livelihoods in agriculture, cultivation and from use of forest produce is not, however, a central aim for food and agriculture in the Twelfth Plan. This omission, surprising from the social equity point of view, is taking place because the central government has before it three points it is trying to make sense of, and to decide the best way to tackle. In brief, these three points are: there is a “structural change” taking place in nutrition (more consumption of dairy and meat); there are world factors influencing foodgrain production, consumption and use in India; there are indications that agriculture’s share of GDP is today edging higher than it was five years ago, and that per capita agricultural income is increasing faster than overall per capita income.

It is the last trend, as seen by the central government although not by smallholder farmers and marginal cultivators, which is being taken as proof that new approaches to agriculture are delivering income benefits. The new approaches revolve heavily around the provision of infrastructure that aids modern terminal markets, agri-logistics, cold supply chains, integrated farm to retail companies, agricultural commodity traders, private warehousing service providers, export-oriented food processing units, contract farming operations which are linked to branded processed food, and exporters of cereals, fruits and vegetables. It is here that the growth in agricultural GDP is taking place and it is here that the rise in per capita agricultural income is being recorded. The central government will fight shy of a real cost-real price district analysis of agricultural investment and income because it will reveal the huge structural imbalances that are forming — that is why a national outlook artificially disaggregated into states becomes far more comfortable to defend.

[This is one of two related articles written by me and published by Infochange India. The full article is here.]

Since 2011 January, the FAO food price index components have recorded some of their highest monthly readings. Sugar touched a peak in January (420.2) and February (418.2), oils reached highs in February (279.3) and January (277.7), cereals reached highs in April (265.4) and May (261.3), meat touched a peak in June (180.4) and in April (180.4).

The consolidated food price index has been within 6 points (2.5%) of the February peak (237.7) for all the months of 2011. In June 2011 the index is less than 4 points off the February peak.

FAO’s Food Price Index rose one percent to 234 points in June 2011 – 39 percent higher than in June 2010 and four percent below its all-time high of 238 points in February of this year. The FAO Cereal Price index averaged 259 points in June, down one percent from May but 71 percent higher than in June 2010. Improved weather conditions in Europe and the announced lifting of the Russian Federation’s export ban contributed to the price drop.

However the maize market remained tight because of low 2010 supplies and continued wet conditions in the United States. Prices of rice were mostly up in June, reflecting strong import demand and uncertainty over export prices in Thailand, the world’s largest rice exporter. The FAO Sugar Price Index rose 14 percent from May to June, reaching 359 points, 15 percent below its January record. Production in Brazil, the world’s biggest sugar producer, is forecast to fall below last year’s level. The FAO Dairy price Index averaged 232 points in June, virtually unchanged from 231 points in May. The FAO Meat Price Index averaged 180, marginally up from May with poultry meat rising three percent and climbing to a new record, while pig meat prices declined somewhat.

Following two consecutive revisions to the US crops and planting prospects for 2011, FAO’s latest forecast for world cereal production in 2011/2012 stands at nearly 2 313 million tonnes, 3.3 percent higher than last year and 11 million tonnes above FAO’s last forecast on 22 June. World cereal utilization in 2011/2012 is forecast to grow 1.4 percent from 2010/2011, reaching 2 307 million tonnes, just five million tonnes under forecast production. World cereal stocks at the close of the crop season in 2012 are now expected to stand  six million tonnes above their opening levels.  While wheat and rice inventories are expected to become more comfortable, coarse grains stocks, especially maize, would remain tight.

The FAO Food Price Index (FFPI) averaged 234 points in June 2011, 1 percent higher than in May and 39 percent higher than in June 2010. The FFPI hit its all time high of 238 points in February. A strong rise in international sugar prices was behind much of the increase in the June value of the index. International dairy prices rose slightly in June, while meat prices were stable. Of all the major cereals, prices of wheat fell most and rice increased. Among the oils and fats, prices of soybean oil were steady but palm oil weakened.

[Detailed data available from FAO here.]

The FAO Cereal Price Index averaged 259 points in June, down 1 percent from May but 71 percent higher than in June 2010. Improved weather conditions in Europe and the announced lifting of the export ban by the Russian Federation (from July) depressed wheat prices. However, maize markets were supported by tight old crop (2010) supplies and continued wet conditions in the United States. Prices of rice were mostly up in June, reflecting strong import demand and uncertainty over export prices in Thailand, the world largest rice exporter.

The FAO Oils/Fats Price Index averaged 257 points in June, down marginally from May. Continued production uncertainties and expectation of stronger world import demand sustained soybean oil prices. By contrast, palm oil prices eased further, reflecting improved supply prospects and ample export availabilities in Southeast Asia. The FAO Dairy Price Index averaged 232 points in June, virtually unchanged from 231 points in May. This was the result of diverging price movements, with prices of skim milk powder and casein up by 5 percent, whole milk powder down by 3 percent, while prices of butter and cheese remained stable.

The FAO Meat Price Index averaged 180 points, marginally up from May. Poultry meat prices experienced a 3 percent rise, breaking a new record, while pig meat prices declined somewhat. Prices of bovine and ovine meat were subject to modest increases, from already high levels. The FAO Sugar Price Index averaged 359 points in June, up 14 percent from May and only 15 percent below its January record. The price strength reflects  dynamic short-term demand against tight exportable availabilities, notably in Brazil, the world’s largest sugar producer where production is forecast to fall below last year’s level.

India’s meteorological department has issued its second long range forecast for the 2011 monsoon and has lowered its estimate. Rainfall will be 95% of the 50-year average in the June-September season, which are the monsoon months. In April, the Indian Meteorological Department predicted a monsoon that would be 98% of the long-term average. Normal precipitation is considered to be 96%-104% percent of the long-term average.

India’s agriculture-dependent population has been hoping for adequate rainfall to harvest good quantities of foodgrain and lentils for a second year and bring down inflation, which has led the Reserve Bank of India – the central bank – to raise rates for a 10th time in 15 months. Agriculture accounts for 14% of the economy and a reduced harvest can further lower rural incomes and send food inflation higher than it already is. Inflation in India is the highest among Asia’s major economies.

Bloomberg reported that the wholesale price index in India accelerated 9.06% in May after having increased 8.66% a month earlier, according to official data released on June 14. An index measuring wholesale prices of farm products including milk and lentils rose 8.96% in the week ended June 4 from a year earlier, according to the commerce ministry. India imported record quantities of sugar, lentils and oilseeds in 2009 following the weakest monsoon that year since 1972.

The IMD’s ‘long period’ is 1951-2000 and the department considers probabilities for the country (all-India) and four major regions: north-west India, central India, north-east India and south peninsula. “Over the four broad geographical regions of the country, rainfall for the 2011 Southwest Monsoon Season is likely to be 97% of its LPA over North-West India, 95% of its LPA over North-East India, 95% of its LPA over Central India and 94% of its LPA over South Peninsula, all with a model error of ± 8 %.”

The IMD also employs a six-parameter statistical forecasting system to prepare probability forecasts for five pre-defined rainfall categories. These are deficient (less than 90% of LPA), below normal (90-96% of LPA), normal (96-104% of LPA), above normal (104-110% of LPA) and excess (above 110% of LPA). The forecasted probabilities for the 2011 southwest monsoon season based on this system in percentage for the above 5 categories are 19%, 37%, 37%, 6% and 1%
respectively.

The department’s ‘Summary of the Update Forecasts for 2011 Southwest Monsoon Rainfall’ has said:

(1) Rainfall over the country as a whole for the 2011 southwest monsoon season (June to September) is most likely to be below normal (90-96% of LPA). Quantitatively, monsoon season rainfall for the country as a whole is likely to be 95% of the long period average with a model error of ±4%. The Long period average rainfall over the country as a whole for the period 1951-2000 is 89 cm.

(2) Rainfall over the country as a whole in the month of July 2011 is likely to be 93% of its LPA and that in the month of August is likely to be 94% of LPA both with a model error of ± 9 %.

(3) Over the four broad geographical regions of the country, rainfall for the 2011 Southwest Monsoon Season is likely to be 97% of its LPA over North-West India, 95% of its LPA over North-East India, 95% of its LPA over Central India and 94% of its LPA over South Peninsula, all with a model error of ± 8 %.

According to Reuters, government officials played down concerns that lower rainfall could fan inflation and dampen growth. “There is no need to press the panic button, as June rains are still above normal,” said Shailesh Nayak, the top civil servant in the ministry of earth sciences which controls the country’s weather office.

While rains could be slightly lower than normal in July, India’s chief forecaster said distribution was key. “There are chances the monsoon will pick up after July 15 once it covers the entire country,” said D. Sivananda Pai, director at the state-run National Climate Center. “Don’t go by the numbers, it is the distribution (of the rains) which we are still hoping to be good.” The weather office predicted 27 centimetres of rain in July compared with long-term average rainfall of 29 centimetres, and rains at 24 centimetres in August, when seeds start maturing, compared with long-term averages of 26 centimetres.

Weather office chief Ajit Tyagi remained optimistic. “Ninety five percent is a good forecast,” Tyagi said. “Had it been 90% of the long-term average then it would have been a cause for concern,” he said, adding that in the past slightly below normal monsoon rains had also seen adequate farm output because they were well distributed in the major crop growing regions.

Explaining climatic conditions over the equatorial Pacific and Indian Oceans, the department’s second long range said moderate to strong La Nina conditions that prevailed in the equatorial Pacific during mid-August 2010 to early February 2011 weakened during subsequent months and dissipated to neutral conditions around mid-May 2011. The latest forecasts from a majority of the dynamical and statistical models indicate strong probability for the present ENSO-neutral conditions to continue during the current monsoon season and the remaining part of 2011.

It is important to note that in addition to El Niño and La Niña events, other factors such as the Indian Ocean Sea surface temperatures (SSTs) have also significant influence on India monsoon. However, the latest forecasts do not suggest development of either a positive or a negative Indian Ocean Dipole event during the 2011 monsoon season. In the absence of strong monsoon forcing from both Pacific and Indian Oceans, intraseasonal variation may become more crucial during this southwest monsoon season and lead to increased uncertainty in the monsoon forecasts.

The third advance estimates of production of foodgrain in India has been released by the Ministry of Agriculture.

A comparison of final production of the years 1997-98 to 2010-11 (a 14-year period) with the third advance estimates shows that 2010-11 is expected to produce a record 235.88 million tons of foodgrain. This amount is higher than the 233.88 million tons of 2008-09 and the 230.78 million tons of 2007-08.

The year 2010-11 is expected to yield the third highest production of rice in the 14-year period, with 94.11 million tons, the highest production of wheat with 84.27 million tons, and the second highest production of coarse cereals with 40.21 million tons. Total cereals are to be the second highest ever in the 14-year period with production estimated at 218.59 million tons. Total pulses are expected to be 17.29 million tons, the highest in the 14-year period.

The third advance estimates will be seen by the Ministry of Agriculture and by India’s national agricultural research system (headed by the Indian Council of Agricultural Research; ICAR) as proof that the flagship programmes are delivering. These are the National Food Security Mission and the Rashtriya Krishi Vikas Yojana.

[The data file with the updated Third Advance Estimates is now ready. Get it here. The 14-year-comparison tables for foodgrain crops is available here.]

The third advance estimates for 2010-11 was released on 2011 April 06 by the Department of Agriculture & Cooperation / Directorate of Economics & Statistics / Agricultural Statistics Division.

The World Agricultural Supply and Demand Estimates (WASDE), the monthly forecast of the United States Department of Agriculture (Farm Service Agency, Economic Research Service, Foreign Agricultural Service) was released on 2011 March 10.

Highlights and main points for the major crop groups are:

Wheat – Global 2010-11 wheat supplies are projected 1.9 million tons higher reflecting higher production. Argentina production is raised 1.0 million tons based on higher reported yields. Australia production is raised 1.0 million tons with higher yields in Western Australia where wheat quality was not hurt by harvest rains as in the east. Other production changes include a 0.5-million-ton reduction for EU-27 with a smaller crop reported for Denmark and a 0.6-million-ton increase for Saudi Arabia on an upward revision to area.

Global wheat trade is projected lower partly reflecting reduced import prospects for a number of smaller markets as high prices trim demand. The largest import reduction, however, is for Russia where imports are lowered 1.5 million tons. Despite last year’s drought, Russia appears to be meeting its wheat needs as the government’s export ban helps maintain supplies for domestic users. With lower imports by Russia, Ukraine exports are lowered 1.5 million tons. Ukraine’s export restrictions have also disrupted trade with non-FSU countries. Exports are lowered 0.5 million tons for EU-27 on tighter supplies and the rising value of the Euro. Although exports are unchanged for the Australia October-September marketing year, exports are raised 1.0 million tons for the 2010-11 July-June international trade year increasing expected competition for U.S. wheat exports over the next few months.

Global 2010-11 wheat consumption is projected lower with the biggest change being a 1.5-million-ton reduction in expected wheat feeding for Russia. With increased global production and reduced usage, world ending stocks for 2010-11 are projected 4.1 million tons higher.

Rice – Global 2010-11 projections of rice production, consumption, and exports are lowered from a month ago, and ending stocks are raised. The decrease in the global production forecast, still a record at 451.5 million tons, is due entirely to a decrease in the rice crop in India, which is partially offset by increases for Argentina and Brazil. India’s rice crop is forecast at 94.5 million tons, down 500,000 tons from last month due to an expected decrease in average yield. Drier than normal weather in the eastern and northern rice growing regions is expected to lower Rabi yields. The increases in Argentina and Brazil are due to an expected increase in harvested area.

Global consumption is lowered 5.3 million tons to 447.0 million, still a record, primarily due to reductions in India (-4.0 million) and China (-0.5 million). Conversely, global ending stocks are raised 4.9 million tons to 98.8 million attributed mostly to increases for India, China, Bangladesh, and Burma. India’s 2010-11 ending stocks are raised 3.6 million tons to 21.6 million based on recently received information on government-held stocks. China’s 2010-11 ending stocks are raised nearly 1.0 million tons based on information from the Agricultural Counselor in Beijing. Global 2010-11 exports are lowered nearly 0.5 million tons, due mostly to reductions in Burma, China, and India.

Coarse Grains – Global coarse grain supplies for 2010-11 are projected 2.5 million tons lower this month with lower corn beginning stocks and reduced corn, barley, sorghum, and oats production. Global corn beginning stocks are lowered 0.6 million tons with upward revisions to Brazil exports and India feeding in 2009-10.

Global 2010-11 corn production is reduced 0.5 million tons as lower production in Mexico and India is partially offset by higher production in Brazil. Brazil corn production for 2010-11 is raised 2.0 million tons reflecting higher reported area and yields in the summer crop and expectations for increased area for the winter crop with government planting dates extended for crop insurance and loan programs. Mexico corn production is reduced 2.0 million tons as the unusual early February freeze destroyed standing corn crops across much of the northwest winter corn region, which normally accounts for about one-fourth of the country’s total corn production. Replanting is expected to offset some of the loss, but seasonally high temperatures in the coming months limit the growing season window.

Global 2010-11 sorghum and barley production are each lowered 0.5 million tons and oats production is lowered 0.3 million tons. Lower sorghum output for India more than offsets an increase for Australia. Lower barley and oats output for Australia account for most of the reduction in world production for these coarse grains.

Global 2010-11 coarse grain imports are raised this month as increases for corn and sorghum more than offset a reduction for barley. Corn imports are raised 1.1 million tons for Mexico with the lower production outlook. Corn imports are raised 1.0 million tons for EU-27 on stronger expected feeding. A 0.5-million-ton reduction for Russia corn imports is partly offsetting. Sorghum imports are raised for EU-27 and barley imports are lowered for Russia, Saudi Arabia, and China. Increased corn feeding in EU-27 is more than offset by reductions in feeding in Russia and lower food, seed, and industrial use in India and Mexico. Projected global corn ending stocks are raised slightly.