January 21, 2011

life in financial markets: 3-year analysis of food prices in india

In order to interpret a relatively longer term trend in food prices that the Indian government uses in its Food Articles Index (a part of Wholesale Price Index) I did a story (in the newspaper I work) early this month.

Here is what I wrote:

Price volatility in some, consistent rise in others
Analysis of 55 food items reveal lesser-known ones registering the highest price increase

Onions have the potential to make government ministers cry in fear if its price keeps shooting up but it is not onion that has led the price rise in food articles over a longer time frame. The Food Articles Index (FAI), which weighs 14.34 per cent in Wholesale Price Index-All Commodities (WPI), rose by 17.39 per cent from its average of weekly prices in 2009 to that in 2010.

With respect to individual food items, out of 55 food items (cereals, pulses, vegetables, fruits, milk, eggs-meat-fish, spices and tea-coffe) that form a part of the FAI, 25 rose more than FAI and onion was not in this list, as per a FCRB analysis. Taking yearly averages, onion's price went up by only 5.25 per cent from 2009 to 2010. But from 2008 to 2009, it was the sixth highest riser at 36.36 per cent. Interestingly, in the year-on-year (YoY) period prior to that, from 2007 to 2008, onion price had fallen by 17.85 per cent.

Such volatility was the norm for many food items -- up in one year, down in next, again up in the following year, or vice versa. For instance, among the five highest gainers and decliners in the last three YoY periods, potato fell by the third-largest quantum of14.32 per cent from 2007 to 2008, shot up by the highest quantum of 70.57 per cent from 2008 to 2009, and fell by the highest quantum of 32.07 per cent from 2009 to 2010 (see table).

Who led food price flare-up?
Even as some food items fluctuate up and down from one year to next, some such as
turmeric rise sharply continuously
Risen the most Wt. in FAI* '09 to '10
Fallen the most Wt. in FAI* '09 to '10
Turmeric 0.56 125.88
Potato 1.39 -32.07
Garlic 0.42 97.86
Corriander 0.14 -29.80
Cardamom 0.14 88.32
Tea 0.77 -17.55
Guava 0.56 77.31
Masur 0.42 -6.23
Litchi 0.28 74.53
Gram 2.30 -3.01

'08 to '09

'08 to '09
Potato 1.39 70.57
Guava 0.56 -28.73
Turmeric 0.56 66.06
Corriander 0.14 -22.84
Tapioca 0.49 42.00
Lemon 0.49 -14.59
Moong 0.56 39.26
Brinjal 2.09 -9.21
Arhar 0.98 39.21
Coconut (Fresh) 1.67 -7.10

'07 to '08

'07 to '08
Corriander 0.14 68.69
Garlic 0.42 -22.73
Ginger (Fresh) 0.35 67.65
Onion 1.26 -17.85
Mango 4.53 37.34
Potato 1.39 -14.32
Tea 0.77 30.15
Urad 0.70 -10.53
Masur 0.42 25.01
Sweet Potato 0.14 -6.37
Figures in per cent

Year-on-year changes are calculated based on yearly averages of weekly prices
* Weight in Food Articles Index
Source: Capitaline Neo, FCRB

But there were a few consistent price gainers among the 55 food items in the three YoY periods. These included such as turmeric, cardamom, litchi, fish, arhar, tapioca, milk, orange, papaya, mutton and okra. The only consistent declining food item was gram that declined in the last two YoY periods and went up by a marginal 0.15 per cent from 2007 to 2008.

But the food items that impacted the FAI the most adversely were the ones that weighed the most in the index and which were shooting up consistently. For instance, the five food items that weigh the most in FAI -- milk (22.59 per cent weightage in FAI), rice (12.48 per cent), wheat (7.81 per cent), fish-marine (5.02 per cent) and mango (4.53 per cent) have all gone up in all the last three YoY periods, barring one instance of mango falling by a small quantum from 2008 to 2009. Milk, for instance, has gone by 6.01 per cent (2007 to 2008), 14.32 per cent (2008 to 2009) and 24.49 per cent (2009 to 2010). In the same three periods, fish-marine has shot up by 9.08 per cent, 8.77 per cent and 40.81 per cent and rice by 12.81 per cent, 13.68 per cent and 7.03 per cent.

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