Indian food prices to stay high

Food prices in India have soared and outpaced global price movements after the federal government raised the prices at which it buys grains, in a move to build up stockpiles following the country's worst drought.

"Food prices will continue to remain high for now," P.H. Pai Panandikar, economist and president of RPG Foundation said.

Federal ministers said in Parliament they will seek to mitigate the effects of the drought late last year, which destroyed a large portion of India's rice, vegetable and pulses crops. Rising prices of these staple food items for India's large vegetarian population could continue to threaten a recovery in Asia's third-largest economy, which relies on domestic crops for most of its food requirements.

Government data showed the wholesale price of rice in India as of March 10 rose by an average of 23.4% from a year earlier, lentils by 48.4%, and wheat by 5.5%, with retail prices registering even sharper increases. Comparatively, global prices of rice rose 7.8% over the same period and wheat prices fell 4.3%.

Last year, the government sent grain prices soaring in the domestic market as it raised its minimum purchase price for rice by 5%, or INR500 (US$11) a tonne, and wheat by 1.8%, or INR200 per tonne, to build up its stockpiles in preparation for any future natural disasters. The federal government's stocks of both commodities swelled to double its usual buffer stockpile levels, but it has been reluctant to release stocks on concerns of another drought.

"While it is good for the government, it turns the market dry. The government bought much more than it requires under the buffer norms," said Madan Sabnavis, chief economist of National Commodity & Derivatives Exchange Ltd.

The government allocated three million tonnes of wheat from its stockpiles for sale in the open market between October and March, but prices were above global market prices and represented only 16% of its current 18.38-million-tonne wheat stockpile. Prices of wheat started falling in late December, when private traders started buying from federal stockpiles after the government reduced prices.

Analysts said they expect the government to release more grains in the domestic market to free up storage space once the new wheat crop is harvested from April.