The link between economic progress and commodity prices has seldom been as pronounced as it seems now. The prices of most commodities have witnessed significant falls, due to the euro-zone crisis and uncertain economic signals from other large economies. This trend seems likely to sustain itself through the near future, spilling into 2012. Significantly, agro-commodities, prices of which were in the past not necessarily in sync with those of other commodities, are this time moving with the overall commodity market. Standard & Poor’s price index of 24 industrial raw materials has come down by 16 per cent from a 32-month high in April. And, similarly, world food prices, as monitored by the Food and Agriculture Organisation (FAO), dropped in November for a fifth straight month. The FAO’s index of 55 food items saw a four per cent fall in October, followed by another 0.5 per cent slump in November, dragging prices far below their February peak.
Although the Indian external trade in commodities is still not fully liberalised, with “sensitive” items being subjected to curbs and controls, it cannot be expected to remain wholly unaffected by global developments. But, sadly, the impact seems more negative than positive — both in respect of industrial raw materials that the country imports and the agro-commodities it exports. Much of the gain on the import side from reduced world prices has been eroded by the sharp depreciation of the rupee against the dollar. For exportable agro-commodities, on the other hand, the downturn has come at a time when domestic supplies are tending to improve, following a couple of consecutive good harvests. Stocks have started to pile up. However, government policy on banning or capping exports has, as always, failed to keep track of international price movements, causing producers to lose out on crucial opportunities. This pattern of behaviour is clearly visible in the mistiming of the relaxation of the export ban on foodgrain, including wheat and non-basmati rice, domestic stocks of which are brimming over — as well as in actions affecting commercial goods like cotton and sugar. This is true also for semi-perishable vegetables like onions and potatoes, which contributed significantly to high domestic food inflation in the past, but are seeing prices fall and a build-up in inventories now. The easing of export curbs on most of these items came only when the international prices had already softened, and the best time to export had elapsed.
What government policy clearly lacks is guidance from a mechanism that gathers reliable market intelligence. The agriculture ministry had created a special wing to monitor domestic and global trends in production and prices of agro-commodities, but this cell has failed to provide useful advance signals. The government will be well advised to address this gap in its policy-making process, so that producers and traders do not find their activities consistently rendered unprofitable by heavy-handed and untimely state action.
