The Hindu Business Line : Domestic grain prices spurt despite ease in global market

Although global grain prices considerably eased from record levels seen a year ago, the domestic market has not witnessed any significant downward correction.

Spurt in prices

If anything prices of some grains such as rice have spurted in recent months at the retail level.

One of the reasons for the price behaviour is the sharp hike in minimum support price/procurement price.

In 2007-08 and 2008-09, foodgrain output has more or less been stable at about 220 million tonnes.

The buffer stocks with the Government are considerably above the minimum stock norms; but carrying costs are exorbitant at about Rs 2,400 a tonne a year.

Export of most grains is banned, so is futures trading.

Yet, see how the wholesale price index for foodgrains (cereals and pulses) has moved.

From 222 in March 2008, the index inched its way up to 230 by September 2008 and then on to 240 by the end of the year.

By January-end it peaked at 245.3, only to show a small decline to 244.3 by March 7, 2009.

In the wholesale price index, the weight for foodgrains is 5.

Clearly, domestic grain prices have remained largely insulated from global influences.

Rice rising impact

Even within the group, during the last 12 months, rice displayed a sharper rise in prices than wheat.

This can be partly explained by the Government anxiety to maximise procurement of rice through the levy system and restrictions imposed by some States (Andhra Pradesh, for example) on movement of the grain.

Muted wheat

Wheat market has been somewhat muted because of open market sale.

According to millers, high rice prices have encouraged consumers to shift to wheat whose prices have remained more or less steady for nearly a year and a half.

Indeed, in some regions, consumers shifted to wheat from jowar when the price of the latter spurted to Rs 18 a kilogram.

Obviously some substitution takes place depending on relative prices of various foodgrains.

Because of fragmentation of the market, availability of a very wide variety of grades and sale of foodgrains largely in unbranded loose form, it has not been possible to capture how changes in wholesale prices have impacted retail prices. (Concluded)