The prices of agricultural commodities have declined to a six year low last month. The Food Price Index (FPI) in fact stood at 165.1 points, a decline of 21% from the year before period. The drop in the price of sugar and dairy products was one of the leading causes.
As per the leading newspaper 'Business Standard' the sharp decline in sugar price is primarily because of higher than expected production in India and Thailand. Note that India is the world's largest sugar consumer. The most affected item in relation to dairy products on the other hand was milk powder. The reasons for the price decline was the world's largest agriculture producer, Brazil, reporting an output which was higher than forecasted and better harvesting conditions prevailing in the month of June. The prices have also declined amid concerns about the El Nino effect strengthening in South East Asia.
The vegetable oil index too met a similar fate. Averaging 156.2 points in June, the Index has declined by 17% as compared to June last year.
Overall, there was unfavorable weather in some regions. However the rise in agri commodity prices was contained because of carryover of inventory and due to good production prospects.
Perhaps one positive aspect of this multi year low in agri commodity prices is as far as India is concerned is that it may help to keep the inflation levels under control, the latter eventuality giving some room to RBI for further rate cuts.