Cereal production to rise

With global food prices in remission, consumers across the world must heave a sigh of relief. International prices of key food products have trended downwards in the past few months. This can be gauged from the fact that the FAO Food Price index, which tracks price changes for five major food groups-cereals, oil, sugar, meat and dairy-stayed virtually constant in November compared to October and it is now down by 7 percent compared to average index level during the first nine months of CY11. Barring meat, prices of the remaining four major food groups eased down during the year. The FAO Cereal Price Index, which is compiled using the grains and rice price, stood at 228 in November. At this level, the index is nearly 9 percent lower compared to average index during the first ten months of CY11. The credit goes to a favourable weather pattern, but this is also down to a steep rise in agricultural commodity prices during CY09 and CY08, which has now been reciprocating the world with a higher agricultural output, drifting supply curve downward and to the right. Hence, the world is expected to see a record high global cereal production in 2011, which is expected to reach 2,323 million tons in 2011, nearly 3.5 percent higher compared to the previous year, as per the latest report, "Crop Prospects and Food Situation", by FAO. Domestic cereal production is also expected to be on the high side, forecasted to reach 38.2 million tons, marking a jump of around 11 percent compared to the last year. This is the highest growth rate among the group of 13 countries classified in Far Eastern region by FAO in the report. A significant growth is symptomatic of lower base, as historic floods had damaged the countrys output during last year. The growth stems from a massive surge in rice output, which is expected to grow by one third to 9.7 million tons in 2011 compared to the last year. While the wheat output, which is the major contributor to the countrys cereal basket, is expected to grow marginally to 24.3 million tons from 23.3 million tons last year. But, with the country wrestling with higher cost of production, the market doesn foresee any relief to domestic consumer in the form of lower food commodity prices. A combination of higher cost of production, coupled with indicators pointing towards rupee weakening, phasing out of subsidies and a higher wheat support prices, has been supporting this notion.