Across farm commodities: Growth silver lining however meals inflation could also be darkish cloud

First, it was the Reserve Bank of India (RBI) that, on December 4, revised downwards its GDP de-growth projection for 2020-21 from 9.5% to 7.5%. On Thursday, the National Statistical Office (NSO) pegged the present fiscal’s GDP development at minus 7.7%. The determine was even higher, at minus 7.2%, after netting out taxes and subsidies on merchandise.
These official estimates — together with knowledge pertaining to the buying managers’ index, electrical energy and gasoline consumption, items and providers tax assortment, Google mobility index and different high-frequency indicators — verify one factor: The extent of unfavourable development induced by Covid-19 and the lockdown hasn’t been as a lot as was initially feared.
The NSO’s first advance estimates counsel that the Indian economic system might even register a small 0.3% year-on-year development within the second half (October-March), after contracting minus 14.9% within the first half (April-September) of 2020-21.
But this relative optimism on development — financial exercise appears inching in direction of its pre-pandemic ranges — is tempered by an rising problem: meals inflation.
This additionally makes it troublesome for the RBI to additional minimize rates of interest and even proceed with its accommodative financial coverage stance.
The NSO’s GDP knowledge got here the identical day the UN Food and Agriculture Organization launched its newest Food Price Index (FPI) quantity for December. This index – reflecting worldwide costs of a basket of meals commodities towards a base 12 months (2014-16) worth of 100 – averaged 107.5 factors for the month. It was the very best since November 2014.
What is critical is how the FPI has soared since May 2020 (see chart). From falling to a four-year low of 91 factors then, it has hit a greater than six-year excessive in December.
This excessive world value volatility may be seen throughout farm commodities.
Wheat, corn and soyabean costs on the Chicago Board of Trade change (for essentially the most actively-traded futures contracts there) are ruling at $6.42, $4.94 and $13.55 per bushel, respectively, as towards their corresponding year-ago ranges of $5.50, $3.84 and $9.44. The value of uncooked sugar futures traded on the Intercontinental Exchange has equally gone up from 13.59 cents to fifteen.60 cents a pound within the final one 12 months. So has crude palm oil from 3,042 to three,817 ringgit per tonne at Kuala Lumpur’s Bursa Malaysia Derivatives change.
Export costs of rice (Thai white grain with 5% damaged content material) and cotton (the benchmark Cotlook A index of Far East landed charges) are additionally greater in comparison with a 12 months again: $512 versus $418 per tonne and 86.55 cents versus 78.75 cents per pound, respectively.
Skim milk powder costs at Global Dairy Trade, the fortnightly public sale platform of New Zealand’s Fonterra Cooperative, averaged $3,044 per tonne on January 5. That is a steep leap from $2,373 eight months in the past.
There are three essential causes for worldwide agri-commodity costs firming up up to now few months.

The first is a gentle normalisation of demand as most international locations, together with India, have unlocked their economies after May. Even as demand has step by step recovered, restoration of provide chains post-Covid is taking time. Dry climate in main producing international locations equivalent to Thailand, Brazil, Argentina and Ukraine, plus a scarcity of transport containers, has solely aggravated the supply-demand imbalances.
The second motive is stockpiling by China, which has stepped up imports of every thing – from corn, wheat, soyabean and barley to sugar and milk powder – to construct strategic meals reserves amid rising geopolitical tensions and pandemic uncertainties. Last month, the nation revealed a brand new draft legislation considering “new situations and questions” posing extreme challenges to its “grains stockpile security”.

The third motive might should do the ultra-low world rates of interest and floodgates of liquidity opened by main central banks. This cash, which has already flowed into fairness markets, might effectively discover a residence subsequent in agri-commodities – extra so, in a situation of tightening world provides.
Household inflation expectations in India have historically been formed by meals and gasoline costs. Retail costs of petrol and diesel in Delhi have, since final 12 months, moved from Rs 75.74 and Rs 68.79 to Rs 84.20 and Rs 74.38 per litre, respectively. Annual shopper meals value inflation stood at 9.43% in November. That quantity, greater than GDP development, is the one price monitoring within the months forward.