August 1, 2012

India's egg and chicken (protein food items) prices may increase in the coming months, due to scanty rainfall and higher global prices, which is also an early indicator of the potential impact a drought may have on food inflation.

Average prices of poultry feed - consisting of oilseed cakes, rice bran, grounded maize and soy - rose by 69% on-year in July up from 18% in June, due to lack of rainfall and higher global prices, a Nomura research says. These price increases outpaced those during the 2009 drought. Feed is a key input in poultry farming, and this sharp price increase suggests that prices of eggs and chicken may rise sharply in the coming months, the note adds.

If farmers choose to substitute poultry feed with cereals, then prices for cereals could rise as well. Rising feed prices are an early indicator of the potential impact that the deficient monsoons could have on food prices. As delayed monsoons hurt production of vegetables, cereal and oilseeds, WPI food (primary and manufactured) inflation is expected, which is currently 9% on-year, to rise into double digits in the coming months. This will keep both WPI (wholesale price index) and CPI ( consumer price index) inflation elevated above the central bank's comfort zone.