The global economy is “the peak inflation of the past”, according to Elon Musk. Tesla’s CEO believes “inflation will go down quickly” and the commodity prices used in making electric vehicles “Trends fall in six months”.
What he projected had happened in food. The Food Price Index of the UN Food and Agriculture Organization (FPI) averaged 140.9 points in July, 8.6% down from the previous month level and marked the most steep monthly decline since October 2008.
FPI averaged trade from international prices for main food commodities at the basic period, which was taken in 100 to 2014-16-reaching high in 159.7 points in March, the month that followed the Russian invasion to Russia Ukraine on February 24 . The latest index reading is the lowest since 135.6 January points, before the war still survived.
Between March and July, FPI has declined cumulatively by 11.8%. This has been led by vegetable oil and cereal, the average price drops more than 32% and 13.4% each. The Vegetable Oil Price Index has been very fluctuating, soaring from the Covid demand induced by a low accident 77.8 points in May 2020 to 251.8 in March 2022, before it decreased to 171.1 in July (see graph).
Global factor
There are four shock drivers of the main supply side of the great global food inflation from around October 2020: weather, pandemic, war and export control.
Shocks related to weather including drought in Ukraine (2020-21) and South America (2021-22), which mainly affects the supply of sunflowers and soybeans, and Indian wheat waves in March-April
The impact of the Pandemic supply side feels the most in Malaysian oil palm plantations, where harvesting fresh fruit bunches is carried out mainly by migrant workers from Indonesia and Bangladesh. Because Covid-19 resulted in many of them flying back and no new work permit issued, output from producers and exporters of the second largest palm oil in the world fell.
The Russo-Ukraine war caused supply disorders from the two countries, in 2019-20 (non-war years, which were not obscured), contributed 28.5% of the world wheat, 18.8% of corn, 34.4% of wheat and wheat and wheat World wheat and wheat, 18.8% 78.1% exports of sunflower oil.
Export control was first worn by Russia in December 2020, driven by fears of domestic food inflation arising from heat records. Concerns deficiencies at home triggered similar actions in palm oil by Indonesia (producer-Cum-Cum-1 world) and in wheat by India during March-May 2022.
The perfect storm, from the four surprises that came one by one in one and a half years, now it seems to recede. The most obvious symbol is the start of exports from Ukraine through the Black Sea. The critical artery of global agricultural trade was blocked after Russia launched what was called special military operations. The agreement supported by the United Nations to unblock from the Black Sea trade route also provides shipping without resistance to Russian food and fertilizer. Russia itself is expected to export 40 million tons (MT) in 2022-23 (July-June), up from 33 MT last year.
But that is not only Ukraine and Russia. Indonesia, since the end of May, has raised the prohibition on exports of palm oil. This, even when the US, Brazil, Argentina and Paraguay were regulated to harvest the bumper soybean plants. Not for anything, price sentiment has changed. This is most visible in eating oil, where about 60% of Indian annual consumption requirements are met through imports. In the last three months, the retail price of all-India capital (most quoted) has dropped from Hospital 175 to RS 150 per kg for soybean oil and from RS 165 to RS 142.5 for palm oil.
Not just global
Global is separate, there is a domestic reason to expect a fairly large food inflation coincision.
The most important thing is southwest monsoon. Cumulative rainfall during the current season from June to 7 August has been 5.7% above the long-term historical average for this period. Almost all areas are significantly agricultural-except Uttar Pradesh, Bihar, Jharkhand and Bengal Western-after receiving good rain so far. Prospects for the coming days seem to be equally encouraging, with low pressure areas formed in the Northwest Bay of Bengal off the coast of Bengal Odisha-Barat-and one estimated one more after mid-August.
Above the average rainfall throughout the southern Peninsula, Central India and northwest has increased the area below most of the plants of this kharif season (rainy season). The exception, as shown by the table, is rice (transplant has received a blow from lack of rain in ganga plain countries), pulses and peanuts (their area is diverted to cotton and soybeans that take a better price).
However, the rice stock in the government warehouse, at 47.2 MT on July 1, was 3.5 times the “buffer” needed was 13.5 MT for this date. That, plus rice planted in the rabbis season (winter) as well, must make the rice situation as a whole can be managed.
The same thing applies to the availability of pulses. Chana (Chickpea) sells wholesale mandis at a price of RS 4,400-4,600 per quintal, under the minimum support price of RS 5,320. Government institutions hold around 3 MT Chana and 100,000 tons of masur (red lentil), compared to 2.2 MT and 25,000 tons each year ago. The surplus that can be exported internationally, especially from Canada and Australia, is also higher than last year about 0.5 MT each for both pulses. In Urad (Black Gram), also, July-end shares in Myanmar are estimated at 0.3 MT, around 0.1 MT more than a year ago.
“There may be problems in Arhar (Pigeon-pea) because of fewer areas, government shares are low (0.1 MT versus 0.4 MT last year) and there is no additional supply of exports (from Mozambik, Tanzania, Malawi and Myanmar). But the government’s decision Narendra Modi to allow the free import of duties from Arhar, Urad and Masur until March 31 will hold the overall price, “said the industrial source.
Trends down
Overall, there are strong reasons – global and domestic – for food inflation in India for “down trends”, even if it does not “go down quickly”. This has been seen in vegetable oil. Increased soybean and cotton production, owned by the rainy season, must increase the availability of oil cakes. This, together with corn, is the main ingredient in animal feed and poultry. A good rainy season also means more animal feed and water for animals, further reducing the cost of livestock input and inflationary pressure on milk, eggs and meat.
Not only that.
The current water level in the country’s main reservoir is 5.9% higher than last year and 25.1% above the average storage of their last 10 years. If the rainy season gives naturally in the second half (August-September), the benefits of filling groundwater will also flow to rabbis plants. And assuming there is no new setback in the Black Sea, the Monetary Policy Committee of the Reserve Bank of India may not need to raise interest rates.