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Food Price Shock May be in Wings

 

Consumers awoke this morning to a sharp rise in the price of gasoline. By next month, they may also be facing higher prices for two other everyday items – imported cooking oil and pulses – because of the weakness of the rupee.

India, the world’s largest importer of edible oil, has so far not felt the pinch as a fall in international prices for oil has largely offset the impact of the weakening currency. (A weak rupee means it takes more rupees to buy the oil, which is sold in dollars.)

However, with the rupee expected to slide further, analysts say it is just a matter of time before importers either hold off increasing imports even though the coming months are a time of peak consumption. They could even slow their imports, a move that would further tighten domestic supply. Either way, prices are likely to rise.

The rupee’s weakness “is definitely hitting us as it has increased our cost,” said B.V Mehta, executive director of the Solvent Extractors’ Association of India, a trade body for the edible oil industry. “Everybody will wait for the dust to settle on the rupee before increasing their imports.”

The total cost of cooking oil imports is expected to rise to about 500 billion rupees ($8.9 billion) in the year that began April 1, from 400 billion rupees in the previous 12 months, largely because of the fall in rupee value. Those higher costs are likely to be passed on to consumers.

A flattening or reduction of edible oil imports would be a sharp reversal. In the first six months of the marketing year that began Nov. 1, edible oil imports rose 31% from the same period a year earlier to 4.6 million tons.

Consumers also may be paying more for pulses, the main source of protein for a majority of the population, because of a similar dynamic.

“We have absorbed most the rising import costs so far, but if the rupee’s free fall continues we may have to stop imports or raise the prices,” said Bimal Kothari, vice president of the India Pulses and Grains Association.

The country imports around 3 million tons of the protein staple annually.

Prices of milk and poultry are also expected to rise because of a 50% jump in the cost of feed material.

One possible plus for consumers is that the monsoon rains are expected to be normal and that has brightened the crop prospects for other staples such as rice, oilseeds, sugar and domestically-grown pulses.

“The overall scenario doesn’t look too good in the coming months especially for the imported food items like edible oil and pulses,” said Naveen Mathur, associate director for commodities and currencies at Angel Broking. “The food prices may escalate further. It may go through the roof. [Compiled from DJ Reprints]

Always Yours — As Usual— Saurabh Singh

 

OIL POLITICS, SPECULATION, CHAIN REACTION AND MANAGEMENT

It requires quantum of intelligence, to infer from what is happening in the markets, or politico-socio-economic across the globe, to why it is happening. Things are never as simple as they seem to be. This would become comprehendible and evident as soon as one reads, relates and analyses the instances mentioned hereunder:

Crude oil prices peaked to US $ 100 – 115 a barrel in April and May 2011 and moved downwards after that to touch a rate of US $ 90 – 92 per barrel in June 2011. In such a scenario, price increase by the Union Government should have been announced in April – May 2011, but the same did not occur. The Government found June 2011 to be the auspicious time for announcing price hike when the prices had nearly normalized. What could have been the motive for doing so? Simple answer is that April – May 2011 was the time when five states were going to elect the assembly members. The states being, West Bengal, Tamil Nadu, Assam, Kerala and Puducherry.

If one goes by what the campaign managers of Congress had to say on the Rahul Gandhi’s much publicized kisan padyatra-(which as claimed was undertaken to champion the cause of the farmers of the region) –  was conceived to detract the public attention from the issue of hike in petroleum products and their possible spiraling effect on inflation. This yatra detracted the lot of electronic media attention from the campaign that opposition forces such as BJP and Left were seeking to build up on the oil price hike related issues.

Since the Oil shock of 1973, USA strategically took measures to control the oil market by keeping continued focus on West Asian Region. In 1980, Jimmy Carter, the then President of USA declared Persian Gulf an exclusive zone of American influence and created a rapid deployment of forces, which latter turned into what is known as US Central Command or CENTCOM. 

As is being believed by majority that skirmish in Libya is behind recent spurt in prices, should correct their facts. Libya produces less than 3 per cent of global petroleum output. Where as Saudi Arabia has already made up for the current shortfall and its excess stocks are more than that of Libya and Algeria put together. In fact in present situation too oil production at many of Libyan facilities continues even in civil war there.

The argument being forwarded by few is that rising demand from China and India has forced an upward trend in oil prices is also unjustified. Though these two countries do account for growing share of global demand, but then same is counterbalanced by slower demand from USA and Europe.

There is still a wide spread perception that cartel of Oil Exporting Countries can manipulate and influence the prices by changing the level of their supplies. Reality today is much different. The OPEC has turned from being a cartel to being a minor player today. Non OPEC countries now account for increasingly significant proportion of global supply. Russia has already snatched the title of being largest supplier of crude oil from Saudi Arabia since 2009. 

Many more such instances may be quoted. It’s not being quoted in anticipation that the variety of above instances is good enough to comprehend that nearly none of the factors assumed or arguments forwarded are capable of forcing any kind of hike in prices of the crude oil.

 

Then what is it, which is responsible for hike in crude oil price?

 

…….any guesses, if not, then storm your grey matter and keep visiting this place in hope of getting answer to this simple question.

 

Always Yours — As Usual —- Saurabh Singh

 

 

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