The rising mercury has not only seen a steep rise in the prices of fruits, vegetables, pulses, cereals, sugar ,poultry and meat products , it has also raised several questions about the viability of the weather based insurance products because the Met office shows that temperature is higher by three to four degrees above normal for the last three months. There is panic both among the insurers and the insured, but before we come to that, there are more pressing ‘breaking news’. There are demands to take more commodities off the ‘futures’ markets. The NECC (National Egg Co-ordination Council) has been vociferous in its demand for banning ‘maize’ and ‘soybean’ futures. The State Trading Corporation is placing orders for the import of 15,000-20,000 tonnes of white sugar. There are also reports that confirmed orders for the import of over 10,000 tonnes of pulses are to be placed within the next few days. This edition of AgriMatters will look at how all these are connected to each other and their impact on farm economies.
Let us first look at food commodity prices. Normally they tend to ease around Baisakhi, the harvest festival for grain is available aplenty, and the farmer is keen to sell his stock. However this year, the scenario is different. Even though the prices of industrial commodities are falling, prices of food commodities like sugar, edible oils, pulses, fruits and vegetable prices have seen a sharper rise. In the case of sugar, for example, spot process in Maharashtra has shot up by 11.5% to touch Rs 2,220 rupees per quintal. As it is, sugar output is expected to fall by over 40% this year, which is why the STC is trying to import sugar to ensure that the consumer price does not hit the roof. Again, the institutional and bulk sale of sugar is rising more than the domestic demand as cola and ice cream makers penetrate markets and discover the ‘wealth at the bottom of the pyramid’. The high mercury has also affected the production of fruits and vegetables, increased storage and refrigeration costs, and the retail potato prices have gone up by over 18%. As it is potato production had also been affected by ‘blight’ which in turn is connected to a shorter winter.
A similar prediction about the comparatively lower yield of pulses has spiked the prices, and higher global prices are making imports more expensive. There is also a feeling that after the special prices for wheat and rice, many state governments may start offering pulses to the BPL families at special process. However in the case of oilseeds, the yields are only likely to grow, but there is no abatement in the price trends. Analysts are linking it to the global demand for oilseeds – but even this does not seem to justify the 12% rise in spot prices, and 16% rise in futures.
It is in this context that the demand of the poultry industry has to be seen. Already reeling under the impact of production losses on account of ‘bird flu’ and reduced consumer confidence and demand on account of the attendant fears, they have petitioned the government , not only to ban forward trading in maize and soybean, but also to regulate export of these commodities. It has been pointed out that over the last two years, the prices of maize have risen from Rs 500-525 per quintal to Rs 900-1000 per quintal. Likewise the prices of soymeal have doubled from Rs 1200 -1250 per quintal to Rs 2450-2500 per quintal. The poultry industry tried a switch from soya to Bajra, but that led to an increase in Bajra process from Rs 700 per quintal to over a thousand rupees per quintal. However, as mentioned earlier the demand for poultry (eggs and broiler) is not rising – and reduced margins are driving poultry farmers to despair. Moreover in many states, poultry is not treated at par with agriculture for purposes of loan waivers or interest subventions.
The main argument of the poultry industry with regard to futures is that unlike the US and EU markets, where agricultural farms are large and information asymmetry /price discovery are non- issues, in the Indian context, futures trading is engaged in only by ‘aggregators’ or consolidators – who are neither engaged in the production of the commodity, nor in their direct consumption. In India, these commodities are sold by the farmers to the traders at low prices at harvest time- and subsequently the price is jacked up by the traders, taking advantage of forward trading.
Meanwhile everyone is watching the fate of the various insurance products. The weather data on which temperature, humidity and rainfall thresholds were established are proving to be weak instruments for determining the compensation to be paid when the ‘triggers’ are set in motion. Everyone seems to be complaining – the farmer feels he is not getting adequate compensation, and the insurance company feels that the changes in weather are not following the pattern that 30 year tables ought to indicate. Do we therefore go back to crop cutting experiments and making payments under the Calamity Relief Funds after every drought?
How does everything connect? What are the factors within our control? Is agriculture a victim of global warming , or is it contributing to it unwillingly ? What are the carbon footprints of different crops and livestock? We are now beginning to get a faint idea of the linkages between water, fertilizer, cropping patterns, commodity markets, livelihoods and nutrition security at the micro , macro and global levels. We can either draw some lessons from the rising mercury levels, and start setting the house in order, or we can continue with our present profligate ways and make things even more difficult.