Agri product prices to soar: Experts

The prices of agricultural commodities have gone up sharply in the last one year while production has remained stagnant despite rising global demand.

Experts believe that the price escalation will continue for the next two-three years at least unless there is a sharp increase in production.

According to an economist in a leading research house, the prices of agri-commodities are largely driven by the demand-supply arithmetic. It's actually a Catch-22 situation. 

DRILLING A HOLE IN THE POCKET Price Rs per quintal
Commodities	Mar 29.2008	Price one year ago
Wheat (MP-Sihor)	2400-2600	1700-1800
Wheat (Medium quality)	1600-1800	1200-1300
Wheat Lokwan	1300-1500	1100-1300
Wheat (Low quality)	1250-1300	1150-1200
Basmati Rice	6000	4000
Broken Basmati Rice	1300-1600	1000-1200
Colom Rice (Good quality)	2000	1400
Sugar	1550	1400
Soybean	2245	1400
Groundnut (20 kgs)	575	490
Masoor Dal	4300-4400	3600-3800
Kabuli Chana	4500	3200
Tur	3800 - 4000	3400-3500
Turmeric	3382	2100
Agri Indices
MCX	1705.42	1695.18
NCDEX	1746.51	1548.74

For prices to stabilise, the acreage area under agri-farming has to increase. That can happen only if forest land is converted for foodgrain cultivation. But that's difficult because of the growing lobby against environmental degradation.

Experts said the only way that the per hectare yield can be improved is through the availability of good quality seeds - possibly genetically modified ones - plus fertilisers of higher quality and better irrigation facilities.

The economist said that the water level in the north of the country is receding, which indicates that evaporation in this area is on the rise because of huge deep water extraction programmes for crop irrigation. Although the situation is not alarming yet, irrigation through rain water conservation in canals may provide a solution to ground water scarcity.

Ramnikbhai Chheda, chairman of the Retail Grains Dealers Co-operative Society, however, said that the major reason for the sharp rise in domestic agri-commodity prices is a shift in the government's focus.

According to him, the government is concentrating largely on passing on the benefit of high commodities prices to farmers. This is evident from the rise in the minimum support price (MSP) across all agriculture commodities.

Wheat
Global commodities like wheat move largely on international issues such as crop losses in major producing countries including Ukraine, Australia and the US, from where India imports coarse cereal in case of scarcity.

Therefore, the price rise in the domestic market is directly linked with the global phenomena, says Sharad Maru, president, Grain Rice & Oilseed Merchant Association (GROMA).

Recently, a report published by the Food and Agriculture Organisation (FAO) found a virulent fungus capable of destroying entire wheat fields in East Africa and Yemen. Consequently, the wheat price in India shot up by Rs 50-100 per quintal in the spot retail market.

Meanwhile the Union government increased the MSP for wheat from Rs 750 to Rs 1,000 a quintal to ensure maximum procurement in order to maintain buffer stock at a comfortable level.

Lower procurement by the Food Corporation of India (FCI) put the government in the dock, resulting in imports of 1.8 million tonnes in 2007. In 2006, the country had imported 5.5 million tonnes. Chheda blamed multinational companies for procuring wheat at a premium which forces others to pay high rates.

Rice
High demand for exports has been the major reason for the unprecedented spurt in the prices of basmati and colom rice. Though the government banned rice exports last year to ensure domestic availability, prices continued to spiral upwards in the domestic market.

Maru said, "Usually, prices of rice start weakening when the arrival from Punjab begins in the first week of April. This year also, the prices are likely to slump in the next fortnight."

Channelising the supply line remains the major challenge for traders as major growing centres such as Punjab and Haryana are quite far from major consuming centres like Delhi and Mumbai. Therefore, the transportation cost is the main contributor to the price rise. With rising crude oil prices, the cost is likely to increase.

This year, global basmati rice production is estimated at 2 million tonnes with India's share at 74 per cent. Non-basmati rice production, however, is estimated at 9.3 million tonnes.

V K Chaturvedi, managing director of Usher Agro, a company engaged in wheat and rice processing, attributes the 20 per cent rise in MSP for paddy and rice to the spike in the spot price for rice.

For the current season, the government has fixed MSP at Rs 735 a quintal including bonus as against Rs 650 last year. Similarly, the MSP for rice has been raised to Rs 1,298 from Rs 1,050 last season.

According to a market source, the Commission for Agriculture Cost and Pricing (CACP), responsible for recommending MSP for agri commodities, is likely to fix MSP for paddy for the season 2008 at Rs 1,050. This will be the major driver for the price of rice this year, Chaturvedi said.

Pulses
The shrinking acreage area because of crop diversion to other remunerative commodities is largely the reason for the price rise. India being an import-dependent country has to rely on the crop situations in surplus countries such as Australia and Myanmar. India produces about 14.50 million tonnes of pulses while 1.6-1.8 million tonnes is met through imports.