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FAO food price index heading upwards again

The FAO food price index for December 2009 shows that global food prices are on the ascent again. FAO's Food Price Index monitors and plots the price movements of a food basket composed of cereals, oilseeds, dairy, meat and sugar. The December rise is the fourth straight monthly rises. In its December Food Outlook report FAO said that "market conditions are different from those that triggered the food price crisis that started two years ago" but I think that's an anti-alarmist tack taken by FAO.

A look at the index graph will tell you why. Leave the 2008 curve alone for a while and look at the 2007 curve. You'll see that from September onwards, the 2007 curve and the 2009 curve are heading upwards at around the same incline. That is the worrying resemblance which we should pay attention to through February, when the Ministry of Agriculture starts releasing the advance estimates for the 2009-10 season.

[Read FAO's December Food Outlook here.]

FAO says its index averaged 168 points in November, the highest since September 2008. "That was still 21% below its peak in June 2008. Prior to the price spike of 2007/08, the index never exceeded 120 points and, for most of the time, was below 100 points." I think that's enough to tell us that there are new conditions that are driving the global index upwards in the way the FAO graph shows, and that at country level we need to look at what these might be. There's a solid clue in a following statement contained in the media release about the December calculation: "... a growing appetite by speculators and index funds for wider commodity portfolio investments on the back of enormous global excess liquidity."

FAO December 2009 Food Price Index

I have an off the record opinion by a food processing unit manager in Mumbai which is almost exactly the same. His unit makes wafers and he said they're finding it difficult to keep to their manufacturing timetable because of erratic supply. He thinks the supply is erratic not because of a shortage of quality potatos, but because of futures trading activity.

Talking about the double-digit food inflation in India amid shortages and supply constraints, M S Swaminathan said that India should introduce legislation in the Budget session (which will be the upcoming session) to amend laws governing the agriculture sector. He was speaking at the 97th Indian Science Congress. "If pulses, potatoes and onions are beyond the purchasing capacity of the majority, malnourishment will be a painful result," he said and has urged the central government to implement recommendations of the National Commission on Farmers that were made under his chairmanship and tabled in Parliament in November 2007.

What laws governing the agriculture sector did he mean? The news report quoting him didn't explain, but we'll need to keep a very watchful eye on the four commodity exchanges and the agri produce they deal in.

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Please note that this is the opinion of the author and is Not Certified by ICAR or any of its authorised agents.