Domestic and international grain prices are showing divergent trends: While international prices of wheat and rice have declined nearly 20 per cent since September, Indian wheat prices have remained stable and rice has seen a marginal increase. In case of maize, while international price dipped by 25 per cent since September, domestic prices have slipped by 13 per cent (see chart).
Experts were of the view that the sharp hike in minimum support price (MSP) for various crops has got factored into market prices and therefore prices are unlikely to cool down soon. “The Indian government hiked MSP substantially at a time when international grain prices were rising. Now, even though global prices are declining, MSP cannot be brought down. Today, the market price is higher than import parity prices. There is a threat of cheaper imports,” said Ashok Gulati, the Asia director of the International Food Policy Research Institute.
The MSP of wheat was hiked by 17.64 per cent to Rs 1,000 a quintal in 2008, while MSP of common variety paddy was hiked over 20 per cent to Rs 900 a quintal.
The first half of 2008 witnesed a contrasting trend: International prices for many food items more than doubled, while domestic prices went up by a mere 20-30 per cent. This was on account of several government measures like banning export of wheat and rice and allowing duty free import of wheat, rice and crude palm oil. The fiscal and monetary measures resulted in increased domestic availability of commodities such as rice, wheat and edible oils and helped to moderate prices.
“The government’s actions had helped moderate domestic food prices earlier this year. MSP of crops like wheat and paddy had been raised substantially and this is getting reflected in the domestic prices. Consequently, open market prices have not come down, even though production is good,” said Madan Sabnavis, chief economist at the National Commodity and Derivatives Exchange. The country harvested record crops of wheat, rice and pulses in 2007-08.
Gulati added that global food prices are expected to come down further in the next 2-3 months, while any relief in domestic prices is unlikely. International wheat prices are declining owing to the prospects of a record world production in 2008 and large exportable supplies, particularly in the Black Sea region. A stronger US dollar, weakening crude oil prices and the worldwide economic slowdown are also behind the downward price pressure on wheat. Expectations of record 2008 paddy crop and subdued demand have kept a downward pressure on global rice prices.
