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10 December 2023

Commodity speculation driving up prices of Indian agro products

By VM Sathish




Global investment funds’ growing appetite for agrocommodities, commercial crops and spices produced by India are raising fears of possible food shortages, traders said yesterday.

Global prices of essential food items such as rice, wheat, sugar and spices such as pepper and cardamom, as well as crops such as rubber, tea and coffee are increasing at an unprecedented rate thanks to growing demand from emerging markets and the rise of the biofuels sector.

Countries such as India face sustained food price inflation and a real risk of shortages particularly in an environment of low interest rates and a weak US dollar.

A senior official from the Spices Board of India said the Indian Government banned rice exports after global funds invested heavily in a rice futures contract briefly introduced by the Multi Commodity Exchange of India, India’s largest commodity market. India also imposed a minimum price of $550 (Dh2,000) “Free on Board” (before shipment) per tonne of exported rice to control domestic prices and ensure food security.

Attending the Gulfood 2008 in Dubai, UK Vats, assistant general manager, the Agricultural and Processed Food Products Export Development Authority, said prices of various Indian commodities have been shooting up and rice exports have virtually been stopped due to high domestic prices.

“The Indian Government has fixed a minimum price of $550 per tonne on rice exports because the local price is more than the export price. We expect the same to happen with wheat and sugar,” he said. 

India, however, is not alone in its concerns over food shortages and high prices. Earlier this week the World Food Programme, the United Nation’s agency, drew up plans to ration food aid in response to the spiraling cost of agricultural commodities. According to a Financial Times report, Egypt has also widened its food rationing system for the first time in two decades, while Pakistan has reintroduced a ration card system that was abandoned in the mid-1980s.

Countries such as China and Russia are imposing price controls, while others such as Argentina and Vietnam are enforcing foreign sales taxes or export bans. Importing countries are lowering their tariffs. Soyabean prices on Friday hit an all-time high of $14.22 a bushel, while corn prices jumped to a fresh 12-year high of $5.25 a bushel.

The world’s poor countries will have to pay 35 per cent more for their cereals imports, taking the total cost to a record $33.1bn in the year to July, even as their food purchases fall two per cent, according to UN’s Food and Agriculture Organisation. The US Department of Agriculture warned this week that high agricultural commodities prices would continue for at least the next two to three years.

Bola Damodara Kamath, managing partner, Bola Surendra Kamath and Sons from the state of Karnataka, said: “Now international investment funds are buying Indian commodities such as rubber, coffee, sugar and other spices.”

Karnataka produces 90 per cent of India’s coffee. Kamath said NYSE Euronext’s move this week to buy a five per cent stake in Multi Commodity Exchange of India for $60 million is further evidence of the interest shown by global funds in the Indian commodities market.

Sajith Kumar, vice-president of Dubai-based JRG Metals and Commodities, Dubai Multi Commodities Centre, said: “The Indian commodity market is the first in the world to allow futures trading in agrocommodities [such as rice]. After futures trading in rice was permitted briefly, rice prices shot up and the market regulator imposed a ban on futures trading in rice.”

He said the surge in demand for agrocommodities could be in part because investors expect many favourable measures to be included in India’s pre-election budget on Friday. Foreign funds are currently barred from trading in commodity futures in India – and use third parties to trade – but the market expects a relaxation of the rules soon.

Thailand’s food market has also been similarly affected. Charlie Setpattachai, marketing manager, JP Rice International Co from Bangkok, Thailand, the world’s largest rice-producing country, said: “Rice prices have been going up because there is a perceived shortage in the market. The price rise may also be a side effect of bulk buying by investment funds of other commodities – wheat, sugar, tea or coffee.

“Thailand does not have enough rice to meet the orders. We are getting a lot of orders from across the world, but we would not know whether investment funds are directly buying rice from Thailand. Global Funds can buy through brokers in Thailand.”

The numbers


The fee imposed by India per tonne of exported rice to control domestic prices and ensure food security. The fee is being levied on exported rice before shipment


More will have to be paid by world’s poor countries for their cereals imports. Food purchases by poor nations will fall by two per cent, according to FAO figures


The value of the five per cent stake NYSE Euronext bought in India’s Multi Commodity Exchange, which is seen as a sign of interest shown by global funds in India