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The wholesale fibs party and its propaganda

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(This article was first published by Vijayvaani and is available here.)

The Congress disinformation machine is up and running so hard that now it’s reinventing economics. An article in The Hindustan Times, dated Jan. 15, 2019 on the wholesale price index (WPI), with a wild headline, “Worst price slump in 18 years shows scale of farm crisis”, shows the Congress-plus-opposition agitprop firing on all cylinders. The trouble with this shoddy report and its very obvious promoters is that the wholesale price index (a) hasn’t behaved the way they claim it has (b) is not an indicator of the income health of the kisan household.

These minor inconveniences did not stop The Hindustan Times report from pronouncing that “This financial year, 2018-19 could end up being the worst year for farm incomes in almost two decades, government data indicates in a revelation that emphasises the gravity of the ongoing agrarian crisis”. The government data cited is the WPI which, as the name makes clear, is an index of the change in prices at the level of bulk sale, which for primary agricultural produce is at the mandi, or “farm gate”, as this reporter calls it fashionably. “The WPI sub-component for primary food articles has been negative for six consecutive months beginning July 2018. This means their prices are falling,” says the report.

This is false. Here are the WPI numbers for the category ‘primary articles – food articles’, for the months July to December (the latest month) 2018: July 144.8, August 144.8, September 144.5, October 145.9, November 146.1 and December 144.0 – where is the “negative for six consecutive months”?

Even the simple math the report claims to have done – based on a misreading of the WPI – is wrong. “The WPI sub-component for food components was -0.1% in December. It was -2.1%, -4%, -0.2%, -1.4% and -3.3% in the preceding five months,” says the report. Also false. The sequence of change, from December running backwards to July, is -2.1, 0.2, 1.4, -0.3, 0 and 3. And the change is a number, not a per cent, because the WPI and its components are indices.

But the HT report ploughs on unmindful: “The last time WPI for primary food articles showed negative annual growth for two consecutive quarters was in 1990. The disinflation in farm prices has also led to a collapse in nominal farm incomes, which was last seen in 2000-01.”

So many non-sequiturs in two sentences. A sequence of WPI numbers over several months is not an indicator of annual growth or contraction for what is being measured. As any Food Corporation of India warehouse manager could have told the reporter, what is indexed is the change.

Did the newspaper scrutinise WPI data back until 1990? If it did – and if the sponsors of this “data revelation” did – they would not have failed to notice that the current WPI series has the base year (from which index numbers of 697 different components are calculated) of 2011-12. The previous base year was 2004-05, before that it was 1993-94 and before even that it was 1981-82.

What happened instead is that The Hindustan Times was told to reference the Centre for Monitoring Indian Economy which maintains the WPI data back to the 1981-82 series, but has shown a chart with the news report that draws the 2004-05 series. The rider while comparing indices from different series – that they be recalculated with a specific linking factor that makes two series intelligible to each other – is not mentioned at all by the reporter nor by those interviewed by the paper, and they are, in order of appearance: Himanshu, an associate professor of economics at the Jawaharlal Nehru University; Niranjan Rajadyaksha, research director and senior fellow at IDFC Institute, Mumbai; Praveen Chakravarty, chairman of the Congress data analytics department. And last, BJP spokesperson Gopal Agarwal.

Their quotes, and the confused graphs thrown in, are meant to prop up the sagging storyline – that the Doubling Farmers’ Income programme of the BJP is not working, that there is ‘agrarian distress’ all over India (the reason given for the INC-Left-NGO morcha to Delhi in November 2018), that the boost to minimum support prices are not working.

“To be sure,” the report says, so that we get the point that the data certainly does not make, “the current crisis in farming is related more to a crash in farm prices rather than output growth.” And immediately adds that in July 2018, “the central government increased the minimum support prices (MSPs) of 14 crops to give farmers a 50% return over their cost of production”. In fact, the MSP was raised so that it is now no less than 50% above the cost of production. Several crops have their MSPs pegged at 60% and even 70%.

Not content with the bashing of the BJP government by those the reporter has interviewed, the newspaper then brings in still another angle, GDP (gross domestic product) data. “That disinflation in farm-gate prices has put a squeeze on farm incomes can be seen from a comparison of growth in agricultural GDP at current and constant prices,” blithely says the report.

“The first advance estimates of GDP figures for 2018-19, which were released by the Central Statistical Office (CSO) last week, show that the difference between current and constant price growth in Gross Value Added (GVA) in agriculture and allied activities was -0.1 percentage point. This differential is 4.8 percentage points for overall GVA.”

It is surprising that The Hindustan Times appears to have no access to any of the Indian Council of Agricultural Research’s agronomists, who could have been asked to clarify what the connection is, if any, between GDP growth rates, gross value added and the income of a kisan household in any of our 350 (and rising) districts that produce food for markets near and far. What matters to that household is the income realised for crop grown and sold, and this is where eNam, the electronic national agriculture market, is making a difference with, till date, 585 markets in 16 states and 2 union territories being integrated.

But the newspaper wants to press every available economics button in its frantic attempt to convince its readers that there is an agrarian crisis being engineered by the BJP government. And so it enlists the Reserve Bank of India, too, claiming that “The failure of MSP hikes to arrest the decline in farm-gate prices was taken note of by RBI as well”. What has been quoted from the RBI monetary policy committee meeting held during 3-5 December 2018 does not say so at all.

“The prices of several food items are at unusually low levels and there is a risk of sudden reversal, especially of volatile perishable items,” is how the RBI has been quoted. And what this means is that the consumer of food could find the weekly food bill rising; as with the other crutches this report leans on heavily, the RBI has not said what The Hindustan Times tells readers it has. The risk of the price of some food items rising is not a “decline in farm-gate prices”.

Likewise, the second quote from the RBI meeting – “available data suggest that the effect of revision in minimum support prices (MSPs) announced in July on prices has been subdued so far” – is an encouragement, far from the burden it is made out to be by the report.

Typically, a rise in the MSP would have been transferred, at least some if not most of it, by the layers of crop collection, retail and distribution, to the consumer. This transfer, said the RBI, has been subdued, which shows that the measures taken by the government to cut out profiteering middlemen are working.

Six months in 1990 are not six months in 2018. Gross value added whether at constant or current prices is in no way a measure of income for harvested crop a kisan earns at a mandi or through eNam. These and every other trick used in this report show why it is a shabby, confused, hodge-podge of opposition party innuendo that is meant to ride on data which the reading public scarcely notice. Except, when it is noticed, the whiz-bang falls flat.

Written by makanaka

January 26, 2019 at 08:38

The weekly intelligencer

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Indices, prices, data series, readings and jottings of note over the last week, fortnight and month, compiled for the week beginning 6 August 2017.

Quick Estimates of Index of Industrial Production (IIP) with base 2011-12 for the month of May 2017, released by the Ministry of Statistics and Programme Implementation, Central Statistics Office. The General Index for the month of May 2017 stands at 124.3, which is 1.7% higher as compared to the level in the month of May 2016.

India Meteorological Department, Hydromet Division. Until 2 August 2017, 67% of the districts have recorded cumulative rainfall of normal, excess or large excess and 33% of the districts have recorded cumulative rainfall of deficient or large deficient. This compares with 69% and 31% respectively at the same time last year.

Ministry Of Commerce and Industry, Office Of The Economic Adviser. The official Wholesale Price Index for All Commodities (Base: 2011-12=100) for the month of June 2017 declined by 0.1% to 112.7 (provisional) from 112.8 (provisional) for the previous month.

Ministry of Water Resources, Central Water Commission. As on 3 August 2017 the total live storage capacity of the 91 major reservoirs is 157.799 billion cubic metres (BCM) which is about 62% of the total estimated live storage capacity of 253.388 BCM. As per reservoir storage bulletin dated 03 August 2017, live storage available in these reservoirs is 67.683 BCM, which is 43% of total water storage capacity of these reservoirs. Last year the live storage in these reservoirs for the corresponding period was 65.109 BCM and the average of last 10 years was 69.510 BCM.

Reserve Bank Of India Bulletin, Weekly Statistical Supplement. 4 August 2017. Aggregate deposits Rs 106,254 billion. Bank credit Rs 76.888 billion. Money stock: Rs 14,689 billion currency with the public, Rs 101,600 billion time deposits with banks.

Ministry of Agriculture. The total sown area as on 4 August 2017 stands at 878.23 lakh hectare as compared to 855.85 lakh hectare at this time last year. Rice has been sown/transplanted in 280.03 lakh hectare, pulses in 121.28 lakh hectare, coarse cereals in 156.95 lakh hectare, oilseeds in 148.88 lakh hectare, sugarcane in 49.71 lakh hectare and cotton in 114.34 lakh hectare.

Ministry of Consumer Affairs, Food and Public Distribution, Price Monitoring Cell in the Department of Consumer Affairs. Maximum prices recorded (per kilo and per litre) amongst the set of 100 cities monitored during the week of 23-29 July: Rice 52, Wheat 45, Atta (Wheat) 50, Gram Dal 132, Tur/ Arhar Dal 132, Urad Dal 150, Moong Dal 140, Masoor Dal 110, Sugar 52, Milk 65, Groundnut Oil 180, Mustard Oil 170, Vanaspati 120, Soya Oil 110, Sunflower Oil 130, Palm Oil 110, Gur 68, Tea Loose 360, Salt Pack (Iodised) 22, Potato 35, Onion 45, Tomato 100.

Expanding India’s WPI, neglecting its CPI

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There are some 130 food items in the proposed WPI whereas the retail price collection basket with the most items has only 46.

There are some 130 food items in the proposed WPI whereas the retail price collection basket with the most items has only 46.

The Planning Commission is to agree by the end of 2014 March on the composition of an expanded set of items for the wholesale price index. The expanded index – with a few new categories and some reclassifications – is a proposal, formally, by the Office of the Economic Adviser, Ministry of Commerce and Industry.

But there are retail wheels within wholesale ones, and there are indications provided by the financial and business press that it is the Prime Minister’s Office that is backing the revision – which will also allow the Reserve Bank of India to make decisions about interest rates that could benefit industry.

My interest was drawn to the several additions that have been made to the category of ‘food articles’ (some of which has been covered by media reportage, which quite typically has ignored the changes proposed in the rest of the categories). More important than these few changes to the components of wholesale food price are the additions made under the ‘manufactured products – food products’ category.

This is a greater expansion of items (although the weightages for the new items have not yet been made public) and reflects the shift in what is being purchased by households – more packaged and processed food in place of raw cereals, pulses, fruit and vegetables. The expanded list also signals the dietary shift – a nutritional time-bomb whose effects can already be seen in the rising rates of youth becoming overweight – towards processed cereals, sugary drinks, edible oils, and snack foods.

The tall and narrow chart you see here shows the difference between the sets of items covered by the proposed new WPI and the current sets of items that are monitored for consumer retail prices. The three sets that do this are from: (1) the Ministry of Agriculture, Directorate of Economics and Statistics, (2) Ministry of Labour and Employment, Labour Bureau, and (3) Ministry of Consumer Affairs, Food and Public Distribution, Department of Consumer Affairs.

This is the second expansion in the number of items that make up the WPI in the last three years, whereas the relatively much smaller list of items that are used to monitor the prices of food for consumers has remained the same over the same period (the last revision was about five years ago in the Ministry of CAF&PD system).

As usual, there is little or no public discussion on the additions to the WPI and the continuing neglect of the items that are used to compute the consumer price index – some of those collection systems are 30 years old. The proposed expansion of the WPI food and food-related items will deepen the already very serious lack of correspondence between the WPI and CPI.

More troubling is the deepening meaninglessness of the CPI numbers – rural and urban for major states doesn’t help one bit if the list of items is not expanded to reflect more accurately what households actually buy, rather than ignore the growing list of items they do. Continuing to ignore this long overdue need for correction will short-change India’s salaried workers and wage earners, and very seriously under-report true inflation especially for food.

India’s food price inflation is no surprise

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Reports on the new evidence of price increases for staple foods in India have evoked surprise and a variety of responses from economic analysts. Reuters has reported that inflation “unexpectedly hit a seven-month high in September as food prices climbed” because the “wholesale price index (WPI), the main inflation measure, climbed to 6.46 percent last month”.

If tomato, potato and onion show the behaviour of all vegetable prices, the new food inflation peak is no surprise at all.

If tomato, potato and onion show the behaviour of all vegetable prices, the new food inflation peak is no surprise at all.

Supplied by the views from the financial markets and industry sources, and supported by a government position of prices and food supply that is predictably optimistic, reports in the mass media claim that inflation is expected to come down in coming months.

Business Standard reported that “the simultaneous rise in WPI- and CPI-based inflation in September can be explained by the lag effect of rising food prices on consumer prices. The newspaper quoted a chief economist of the State Bank of India who said: “Consumer price inflation is correcting the huge gap we had witnessed in food items at retail and wholesale levels in the previous months.” It also quoted an economist with a credit rating agency, CARE Ratings, who said the divergent trend in July and August could be explained by the fact that retailers couldn’t increase prices at the same rate as wholesalers and, therefore, had to squeeze their margins.

The Hindu reported that “headline inflation unexpectedly touched a seven-month of 6.46 in September riding on the back of a whopping 323 per cent increase in price of onion followed by all round hike in price of other fruit and vegetable items”. This newspaper said that the latest data released by the government on Monday put the food inflation at 18.40 per cent in September over the same month last year.

The three pairs of charts you see here describe the prices of tomato, potato and onion as recorded by the retail price monitoring cell of the Department of Consumer Affairs, Ministry of Food and Consumer Affairs, Government of India. The cell collects retail prices of 22 food items from 57 urban centres, and these are the monthly averages from 2009 January to 2013 September.

The monitoring cell does not collect the prices of common vegetables (such as brinjal, cauliflower or pumpkin) or leafy green vegetables, hence these will serve as indicative proxies that describe the movements of vegetable prices in Indian urban retail food markets over the measured period.

The charts with the full set of price trendlines for all 57 centres are dense to look at, hence I have simplified them to three trendlines each: an average, the price of the 80th percentile of the centres, and the price of the 20th percentile of the centres. Doing so helps preserve the overall trend over the period measured and also helps more clearly display the difference between the upper and lower bounds of the variation in price amongst the set of urban centres.

The tomato chart shows periodic spikes from mid-2010 however the peak of 2013 July dwarfs all others. The potato chart shows the previous peak being during 2009 October, but in terms of the persistence of high price the period from 2012 August till the present is the longest since 2009 January. The onion chart records the previous spike during 2010 December to 2011 January, which has been topped during the current spike that began in 2013 June.

The tale of the charts is that even for items that go through cycles, like vegetables, the overall trend is upwards and this upward trend is at a rate faster than the wage increases for agricultural and rural labour, for those working in the informal urban sector, and is a rate that is only partly offset by any dearness allowance (if that old mechanism is still used).

For all those who are said to be knowledgeable on food price and the causes of inflation – the ministries of agriculture, of commerce and of food processing, the industry associations, the bankers and financiers, the food and retail industry – the current food inflation spike is no surprise at all, it was expected as the festival season has begun. The difference now is that with every such season, the new base price for our food staples is pushed to higher level, further squeezing household budgets that are not reinforced by bonuses.

The cereals, oils and sugars have been far more predictable in their rise for the last five years. Their price rise in inevitable given the growth of the retail food industry, the processed foods industry, the rise in the price of fuel, and the rise on the prices of fertiliser and pesticides. Just as the so-called ‘carrying cost’ of PDS foodgrain is derided as being inefficient by the private sector, they too bear a carrying cost – inventory of processed food and inventory of primary crop used for such food – which is concealed in the price the consumer pays.

It is only local food networks that choose organic crops, supply locally and insulate themselves from the organised food profiteers that can free themselves from the pain of India’s steadily rising food price inflation.

Peaks, spikes and food price worries in India

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RG_WPI_major_groups_main_chart_20130410

This chart traces the trends of the wholesale prices of ten major food and crop groups in India. The data is from the Office of the Economic Adviser to the Government of India, which is a part of India’s Ministry of Commerce and Industry.

The cereals group has from early 2012 risen relatively more steeply than it has from the beginning of the period described by the chart. The pulses group has gone through three peaks (late 2006, late 2009-early 2010 and mid-2012) that have led to successively higher base levels. (In the panel below, these groups are coloured to distinguish them from the rest.)

The eggs, meat and fish group has accelerated from about mid-2009, rising fairly steeply for about a year-and-a-half and then steadily thereafter. The vegetables groups shows the distinct cyclical nature of prices, with nine peaks erupting from a steady upward trend (the last being in mid-2012).

The other groups – fruit, milk, spices, tea and coffee – help us understand the causes for the overall rise in food price inflation experienced by the consumer and also the changing market prices for crops in the fibres (6 components) and oilseeds (11 components) groups. [You can get a zipped set of these charts here.]

RG_WPI_major_group_charts_20130410

Written by makanaka

April 10, 2013 at 16:40

Understanding how food prices are gathered in India

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The main price types and their collection agencies and departments

The main price types and their collection agencies and departments

It isn’t easy, not with 468 cities and urban agglomerations whose populations are more than 100,000 – how many of their markets can be reliably covered? There are 236 with populations of between 100,000 and 200,000.

From there to 300,000 there are 79, from there to 400,000 there are 35, from there to 500,000 there are 22, to 600,000 and then to 700,000 there are 13 each, then up to a million there are 17, from there to two million there are 34, from there to five million there are 11, and five million and above there are eight.

How can any agency deal with such a spread, variety in typologies of urban growth, speed of growth, differences in income strata, and hope to be somewhat uniform and at least reasonably regular in the collection of price data? No one agency can, and not even a set of them can.

Still, to understand how prices are arrived at (“discovered” is the term the commodities futures markets like to use, but such use is far from innocuous and more than hurtful for the low-income households) and how they change over time we have to make use of what is available.

In India, price data is broadly classified into two categories: prices relating to bulk transactions and prices for small transactions (what the price collection agencies call ‘bulk transactions’ include wholesale prices and farm harvest prices).

What the price collection landscape in India looks like

What the price collection landscape in India looks like

Retail (or consumer) prices are small transactions – what the rural and urban (and migrant) household pays for a local food basket, for electricity, health care, education, clothes, transport, communication, durables and various services including banking.

So there are what the price monitoring and collection agencies call “customarily collected” prices and these are for items which are included in the typical consumer basket of goods of segments of population that have been terms industrial workers, agricultural labourers and rural labourers – and this is because there are separate consumer price indices computed every month for these three categories.

Several departments and agencies of the Government of India are involved in the collection of prices and their redistribution. Perhaps the most important but also the most frustrating (to find and use) is the Price Monitoring Cell of the Department of Consumer Affairs. It is important because the PMC collects and disseminates wholesale and retail prices of selected essential food items. It is frustrating because the website that delivers the data is frequently down. That’s apart from data gaps. But we have to work with what we have.

FAO 2011 October Food Index down, food prices still up, what’s going on?

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FAO has released its Food Price Index for October 2011, saying the index has dropped dropped to an 11-month low, declining 4 percent, or nine points, to 216 points from September. Indeed the index has dropped, declined and has certainly not risen. But does this mean food prices for the poor in many countries, for labour, for informal workers, for cultivators too – has the cost of food dropped for any of them?

The answer is a flat and unequivocal ‘No’. FAO has said so too: “Nonetheless prices still remain generally higher than last year and very volatile.” At the same time, the Rome-based food agency has said that the “drop was triggered by sharp declines in international prices of cereals, oils, sugar and dairy products”.

The FAO has said that an “improved supply outlook for a number of commodities and uncertainty about global economic prospects is putting downward pressure on international prices, although to some extent this has been offset by strong underlying demand in emerging countries where economic growth remains robust”.

Once again, the FAO is speaking in two or more voices. It should stop doing so. A very small drop in its food price index does not – repeat, does not – indicate that prices for food staples in the world’s towns and cities has dropped and people can afford to buy and cook a square meal a day for themselves and their children. Not so at all.

I am going to contrast what FAO has said about its October food price index with very recent reportage about food and food price conditions in various parts of the world.

FAO: “In the case of cereals, where a record harvest is expected in 2011, the general picture points to prices staying relatively firm, although at reduced levels, well into 2012. International cereal prices have declined in recent months, with the FAO Cereal Price Index registering an eleven month-low of 232 points in October. But nonetheless cereal prices, on average, remain 5 percent higher than last year’s already high level.”

Business Week reported that rising food prices in Djibouti have left 88 percent of the nation’s rural population dependent on food aid, the Famine Early Warning Systems Network said. A ban on charcoal and firewood production, which provides about half of the income of poor people in the country’s southeast region, may further increase hunger, the Washington- based agency, known as Fewsnet, said in an e-mailed statement today. Average monthly food costs for a poor urban family are about 33,907 Djibouti francs ($191), about 12,550 francs more than the average household income, Fewsnet said. Urban residents in the Horn of Africa nation don’t receive food aid, it said.

FAO: “According to [FAO’s November 2011] Food Outlook prices generally remain ‘extremely volatile’, moving in tandem with unstable financial and equity markets. ‘Fluctuations in exchange rates and uncertainties in energy markets are also contributing to sharp price swings in agricultural markets,’ FAO Grains Analyst Abdolreza Abbassian noted.”

A Reuters AlertNet report quoted Brendan Cox, Save the Children’s policy and advocacy director, having said that rising food prices are making it impossible for some families to put a decent meal on the table, and that the G20 meeting [currently under way in Cannes, France] must use this summit to agree an action plan to address the food crisis. Malnutrition contributes to nearly a third of child deaths. One in three children in the developing world are stunted, leaving them weak and less likely to do well at school or find a job. Prices of staples like rice and wheat have increased by a quarter globally and maize by three quarters, Save the Children says. Some countries have been particularly hard hit. In Bangladesh the price of wheat increased by 45 percent in the second half of 2010. In new research, Save the Children analysed the relationship between rising food prices and child deaths. It concluded that a rise in cereal prices – up 40 percent between 2009 and 2011 – could put 400,000 children’s lives at risk.

FAO: “Most agricultural commodity prices could thus remain below their recent highs in the months ahead, according to FAO’s biannual Food Outlook report also published today.  The publication reports on and analyzes developments in global food and feed markets. In the case of cereals, where a record harvest is expected in 2011, the general picture points to prices staying relatively firm, although at reduced levels, well into 2012.”

IRIN News reported that food production is expected to be lower than usual in parts of western Niger, Chad’s Sahelian zone, southern Mauritania, western Mali, eastern Burkina Faso, northern Senegal and Nigeria, according to a report by the World Food Programme (WFP) and the Food and Agriculture Organization (FAO), and a separate assessment by USAID’s food security monitor Fews Net. “We are worried because these irregular rainfalls have occurred in very vulnerable areas where people’s resilience is already very weakened,” said livelihoods specialist at WFP Jean-Martin Bauer. Many Sahelian households live in a state of chronic food insecurity, he said. “They are the ones with no access to land, lost livestock, without able-bodied men who can find work in cities – they are particularly affected by a decrease in production.” A government-NGO April 2011 study in 14 agro-pastoral departments of Niger noted that pastoralists with small herds lost on average 90 percent of their livestock in the 2009-2010 drought, while those with large herds lost one quarter. Those who had lost the bulk of their assets have already reduced the quality and quantity of food they are consuming.

FAO: “Food Outlook forecast 2011 cereal production at a record 2 325 million tonnes,  3.7 percent above the previous year. The overall increase comprises a 6.0 percent rise in wheat production, and increases of 2.6 percent for coarse grains and 3.4 percent for rice. Globally, annual cereal food consumption is expected to keep pace with population growth, remaining steady at about 153 kg per person.”

The Business Line reported that in India, food inflation inched up to 11.43 per cent in mid-October, sharply higher than the previous week’s annual rise of 10.6 per cent, mainly on account of the statistical base effect of the previous year. Inflation in the case of non-food items and the fuels group, however, eased during the latest reported week. According to data released by the Government on Thursday, an increase in the year-on-year price levels of vegetables and pulses contributed to the surge in the annual WPI-based food inflation for the week ended October 15, apart from the base effect. Sequentially food inflation was up 0.25 per cent.

FAO: “The continuing decline in the monthly value of the FAO Cereal Price Index reflects this year’s prospect for a strong production recovery and slow economic growth in many developed countries weighing on overall demand, particularly from the feed and biofuels sectors.”

Al Ahram reported that Egyptian household budgets had mixed news in September with prices for some basic foods tumbling month-on-month and others showing small climbs, according to state statistics agency CAPMAS. Figures released this week show the price of local unpacked rice fell 15.6 per cent to LE4.96 per kilo between August and September 2011. It was the commodity’s first decline in nearly a year, although the per kilo price remains 68 per cent higher than the LE2.95 that rice cost in October 2010. Chicken also fell 5.8 per cent to LE16.26 per kilo between August and September. Other staples, however, continued to rise; the price of potatoes climbed 14 per cent to LE4.89 per kilo, while a kilo of tomatoes gained a monthly 14.8 per cent to cost LE4.65.

Food Prices, Health and Nutrition: Red-flag indicators for India’s 12th Plan

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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.]

FAO food price index tops the 2008 peak

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The UN Food and Agriculture Organization’s food price index has risen to 214.7 for December 2010, which is above its peak of 213.5 in June 2008.

This new peak, at a time when the price of crude oil is above USD 90 a barrel, is the strongest signal yet that global foodgrain supply has entered a critical phase. The FAO index has been rising steadily through the second half of 2010 – we discussed it here.

The cereal price index stands at 237.6 which is almost 40 points below the peak of 274.3 (in April 2008). The oils price index stands at 263 which is just under 20 points less than the peak of 282.6 (in June 2008). The dairy price index stands at 208.4 which is 60 points under the peak of 268.6 (in November 2007).

But the sugar and meat price indices are at all-time highs. The meat price index is now at 142.2 (in September 2008 it was 137.4 and its previous all-time high was 139.3 in September 1990). The sugar price index is now at 398.4 which is an extraordinary 180 points above its all-time high of 218 (in March 1990 – it was 207 at the maximum during 2008). The sugar price index crossed 300 in August 2008 and remained above 300 until March 2010, and again crossed 300 in September 2010.

Comparing three-month averages for the FAO food index and its main index components helps us understand how the 2010-11 food price crisis compares with its predecessor in 2007-08:

Food     Meat       Dairy     Cereals    Oils       Sugar
3-month avg
at 2008 Jun    210.4    129.5    240.8    271.7    273.9    173.9
3-month avg
at 2010 Dec    206.4    141.2    206.3    227.0    242.1    373.7

A Bloomberg report quotes FAO senior economist Abdolreza Abbassian: “One might expect prices to come down in spring, and this may be in fact the worst. But given how unexpected the weather events have been, I for one would not want to bet on anything along those lines.” The report said that concern about drought doing harm to Argentine harvests helped corn jump 52% in Chicago last year and soybeans to rise 34%. Prices also gained as China, the world’s largest soybean buyer, became a net corn importer. Wheat added 47% in 2010 as Russia, hit by its worst drought in a half-century, banned all cereal exports.

“Eyes will be on the Argentina corn crop,” Abbassian said. “There is still, unfortunately, a potential for grain prices to strengthen on the back of a lot of uncertainty. If anything goes wrong with the South American crop, there is plenty of room for them to increase further.” Potential damage to South American soybean and corn crops is of greater concern for world grain prices than harm to wheat in Australia caused by floods, according to the economist. Argentina and Brazil are the world’s second- and third-biggest corn and soybean exporters after the US. “The watch is definitely on South America for the next two weeks,” Abbassian said. “Given the very tight corn market, and demand from China for soybeans and the tight soybean market, if those commodities start to rise more, that will also lift wheat.”

Agrimoney has a report polling commodities fund managers in several financial centres worldwide for their views. What they say about the impact major forecasts, such as the World Agricultural Supply and Demand Estimates, have is worth paying close attention to. The WASDE report provides the US Department of Agriculture’s comprehensive forecasts of supply and demand for major US and global crops.

Reuters has reported that India’s food inflation rose for the fifth straight week to the highest in more than a year, reinforcing fears it has spilt over to broader prices and cementing expectations of a January interest rate hike. “But the spurt in prices of many basic foodstuffs has also raised questions over the government’s ability to control price rises through monetary policy, with poor infrastructure, hoarding and supply bottlenecks contributing to stubbornly-high food inflation.”

Unseasonal rains are officially blamed for pushing up prices of vegetables such as onions and tomatoes, but some commentators point instead to poor agricultural productivity and transport after years of few reforms and weak government investment. Onion prices, a key food staple for Indian families, rose over 23% percent over the week to December 25. The food price index rose 18.3% in the year to December 25 and the fuel price index climbed 11.6%. This compared with 14.4% and 11.6% annual rises the previous week.

The Wall Street Journal has said that food prices in India are continuing their sharp rise, increasing concerns among economists about a prolonged spell of high prices and adding pressure to the central bank to raise interest rates later this month. “The Reserve Bank of India next meets on Jan. 25 to consider an interest rate rise after pushing up rates six times in 2010 – one of the most aggressive tightenings of any central bank. But calls for a further move keep coming, most recently with the International Monetary Fund saying in a report released Thursday that rates need to be higher to curb inflation.

“The central bank will need to walk a fine line, however, since liquidity within the bank system is tight and further rate hikes could exacerbate that problem, economists said. Data from the Ministry of Commerce and Industry Thursday showed that the wholesale price index for food articles rose 2.5% in the week ended December 25 from the previous week. The year-on-year inflation rate for food surged to 18.32% from 14.44% the week before. It was the fifth straight week of rising food prices, which have been hovering at elevated levels in recent months.”

India fuel price rise provokes Left

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The rise in fuel prices in India has led the four Left parties – Communist Party of India (Marxist), Communist Party of India, All India Forward Bloc and Revolutionary Socialist Party – to issue the following statement:

The decision of the UPA government to inflict a steep rise in the prices of petrol, diesel, kerosene oil and cooking gas is a cruel blow against the people who are already suffering due to the runaway increase in the prices of food and essential commodities. The price of petrol has gone up by Rs. 3.50 per litre, diesel by Rs. 2 per litre, kerosene oil by Rs. 3 per litre and cooking gas by Rs. 35 per cylinder.
This callous decision of the government has come at a time when the food inflation rate is around 17 per cent and the general inflation rate has reached double digits. India has the dubious distinction of having the highest rate of consumer price inflation in the world.
The UPA government has decided to deregulate the price of petrol and leave it to the market to determine. Going by the Kirit Parikh Report, the government is going to decontrol prices of all petroleum products, including diesel. This is going to prove disastrous for the economy and the country.
The government is giving false arguments to justify these measures. The prices of petrol and diesel were increased by Rs. 3 per litre only three months ago at the time of the Union Budget. International oil prices have not risen substantially in this period. Neither is the government prepared to rationalize the taxation structure on petroleum products which is adding to a price of petrol and diesel in a large measure.
It is a myth that such a step is being taken to protect the public sector companies from under-recoveries. The so-called under-recoveries are entirely based on notional prices calculated without any reference to the actual cost of production. In fact, the deregulation is only to help private companies who withdrew from the market because of the government price controls. Now they will be free to enter the market to make profits.
By deregulating petrol prices, the government has opened the way for continuous increases in the prices of petrol. By increasing the price of diesel and kerosene oil, the farmers and the poorer sections are going to be badly hit. The LPG increase will further burden the middle classes.
The Congress-led government has shown its callous and anti-people character by these measures. The Left parties demand the immediate scrapping of the price increases. They call upon all their units to jointly launch protests against these hikes.

The statement is signed by Prakash Karat, General Secretary, CPI(M); A B Bardhan, General Secretary, CPI; Debabrata Biswas, General Secretary, AIFB; T J Chandrachoodan, General Secretary, RSP