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 Kamar Nor Aini Bt Kamarul Zaman
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 The Economic Times
 Rising food prices hurt consumers hard

18/02/2008 (The Economic Times), New Delhi - January has been a sizzler for world food prices. Everything from vegetable oils to coffee to sugar became more expensive. For a food trading country such as India, that is a mixed blessing.

Indian exporters of coffee, rice, tea, soyabean meal, cotton, sugar, and corn are gaining from the continuing spiral in prices. Large volumes of these commodities are being shipped out due to the attractive international prices.

The downside is that sharply rising vegetable oil and fertilisers prices are raising the cost of importing these essential commodities. Latest estimates from the Solvent Extractors Association say there has been a more than 45% jump in India’s cooking oil imports in January alone.

Soyabean oil is now so expensive that India chopped imports by 1 lakh tonnes between November 2007 and January 2008. The heartfriendly sunflower was completely out of reach for India’s wallet and import fell to zero in these three months.

Agriculture prices as a basket climbed 4.5% in January, led by a 6.9% gain in fats and oil prices, the World Bank has said in its latest commodity price review.

Palm and other vegetable oil prices climbed some 12% on tight supplies and strong demand for food and biofuel production.

Palm kernel oil and coconut oil (close substitutes) prices increased 12.6% and 11.4%, respectively, on tight copra output from the Philippines (world’s largest coconut oil supplier) and increased demand from China.

In January, palm oil prices increased 11.5% as supplies appeared insufficient to cover expansion in demand to uses normally covered by rapeseed oil — most of which is used for biodiesel.

India alone increased its crude palm oil imports between November 2007 to January 2008 by 13%. Soyabean oil prices rose 9.6% on a smallerthan-expected crop in Brazil, increased demand from China and India, and higher government mandated biofuel use.

These high prices are already compelling Indian companies to alter their purchase patterns.

In grains, rice prices shot up $15/tonne between December and January. Top quality Thai rice was available for not less than $375/tonne in January.

In wheat, prices rose by about $10/tonne in January on the back of irrepressible demand. Consumers across the world still show no signs of curtailing their bread consumption despite rise in prices.

But for Indian sugar companies, the spurt in global prices has been providing succour. Sugar prices increased 12.2%, despite a global surplus, as sugarcane demand in Brazil for ethanol was expected to increase, and estimates of the
Indian crop were reduced.

In the global animal feed market, maize and sorghum prices were up 14% and 13%, respectively, on projected strong export demand.

According to the World Bank, the increase is also partly due to the higher wheat prices. Traders are expecting more acreage to be planted with wheat because of the attractive prices.

In case farmers cut down on fertiliser usage because of higher prices, it could affect corn yields.

The frantic sowing on farms around the world this spring has further pulled up global fertiliser prices. TSP and DAP are up about 20%.

There were rumours that China will raise the export tax on phosphate fertilisers from 20% to 35-45% to protect domestic supplies. DAP in January was selling for not less than $700/tonne.

In December, prices were less than $600/tonne. Potassium chloride fertiliser prices rose 13.8% along with other fertiliser prices due to strong demand for spring plantings. Most new contracts have been negotiated with large price increases.

Coffee and cotton prices also rose strongly on expected poor robusta crops and lower cotton plantings, respectively. Coffee (robusta) prices rose 8.6% due to poor crop prospects in Cote d’Ivoire and Vietnam, as well as disruptions to shipments from the recent turmoil in Kenya.

Cotton prices rose 6.3% on reports that cotton production in 2007-08 will fall 3%, driving the stock-to-use ratio to a 6-year low.

That should ensure that India would continue as price-maker in the global cotton market.



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