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World food price index surges in May to highest level since 2011: FAO

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FAO also issued its first forecast for world cereal production in 2021, predicting output of nearly 2.821 billion tonnes -- a new record and 1.9 percent up on 2020 levels.

Source: Reuters

World food prices rose in May at their fastest monthly rate in more than a decade, posting a 12th consecutive monthly increase to hit their highest level since September 2011, the United Nations food agency said on Thursday.

FAO also issued its first forecast for world cereal production in 2021, predicting the output of nearly 2.821 billion tonnes -- a new record and 1.9 percent up on 2020 levels.

The Food and Agriculture Organization's food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat, and sugar, averaged 127.1 points last month versus a revised 121.3 in April.

The April figure was previously given as 120.9.

On a year-on-year basis, prices were up 39.7 percent in May.

FAO's cereal price index rose 6.0 percent on May month-on-month and 36.6 percent year-on-year. Maize prices led the surge and are now 89.9 percent above their year-earlier value, however, FAO said they fell back at the end of the month, lifted by an improved production outlook in the United States.

The vegetable oil price index jumped 7.8 percent in May, lifted primarily by rising palm, soy, and rapeseed oil quotations. Palm oil prices were boosted by slow production growth in southeast Asia, while prospects of robust global demand, especially from the biodiesel sector, drove up soyoil prices.

The sugar index posted a 6.8 percent month-on-month gain, due largely to harvest delays and concerns over reduced crop yields in Brazil, the world's largest sugar exporter, FAO said.

The meat index rose 2.2 percent from April, with quotations for all meat types buoyed by a faster pace of import purchases by East Asian countries, mainly China.

Dairy prices rose 1.8 percent on a monthly basis and were up 28 percent on a year earlier. The increase was led by "solid import demand" for skim and whole milk powders, while butter prices fell for the first time in almost a year on increased export supplies from New Zealand

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FAO said its forecast for record world cereal production this year was underpinned by a projected 3.7 percent annual growth in maize output. Global wheat production was seen rising 1.4 percent year-on-year, while rice production was forecast to grow 1.0 percent.

World cereal utilization in 2021/22 was seen increasing by 1.7 percent to a new peak of 2.826 billion tonnes, just above production levels. "Total cereal food consumption is forecast to rise in tandem with world population," FAO said.

GDP Print: Second COVID wave has pushed back normalisation of consumption demand by few quarters

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The RBI will not have any further room to reduce rates as inflation remains on the higher side, so it is the Centre that will have to look for ways to revive consumption demand.

The Indian economy was within the process of getting back on its feet after it had been severely hit by a really stringent lockdown within half of the last fiscal. From a contraction of 24.4 percent Q1FY21 and after two consecutive prints of negative numbers, GDP prints turned positive within the third and fourth quarters of FY21. The full-year GDP growth was at -7.3 percent, better than -8 percent projected by the CSO. this is often excellent news little question.

However, beyond the initial joy, as you scratch the surface, the emerging story might not be as rosy. allow us to check out the expenditure side composition of the GDP that comprises private consumption, government consumption, investment demand, and net trade.

The data shows that growth within the Q4 FY21 was led by government consumption expenditure that grew by 28 percent and capital formation (or investment demand) increased by 11 percent. the expansion in capital formation was presumably thanks to a pointy increase within the government cost.

Unfortunately, the private consumption expenditure that comprises the majority of Indian GDP did not grow by any significant extent. Private consumption expenditure growth was at 2.7 percent in Q4FY21, only relatively better than the contractions witnessed within the first three quarters of the year. The share of personal consumption expenditure in current prices in Q4FY21 was at 59.2 percent, weaker than 60.4 percent in Q4FY20.

It was a known incontrovertible fact that the consumption demand was weak even before COVID-19 hit us. Last year's lockdown forced people to remain reception, while incomes were also hurt thanks to job losses and salary cuts. This led to an erosion in consumer sentiment but because the economy opened, some amount of pent-up demand came to the rescue. The second wave of the virus is probably going to possess squarely hit the method of normalization of consumption demand and will scar the economy for an extended period than is being expected.

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In the second wave, the infection has spread deep into the agricultural areas and data indicates that salaried jobs lost within the rural segment are quite within the urban segment. MNREGA is seeing pressure to supply employment, resulting in a widening gap between people seeking jobs under the program and other people getting it. While this gap can close because the sowing season gets underway, not all displaced workers will probably find work. There have been tons of reverse migration last year and possibly some this year too. Generally speaking, wages in rural areas also are less than those in urban areas.

For the urban population which has been hit by the virus, high medical expenditures and also precautionary savings to require care of future such expenditures could see consumption spending lagging whilst the economy exposes once more. Further, as long as the second wave hit us with such rage, there might be some aversion among people to venturing out, implying travel and tourism-related expenditures might be limited.

All this suggests that the expected normalization of consumption demand is often pushed back by a couple of quarters. The unintended consequence of the virus is that the inequality of income is probably going to possess widened again, a negative for consumption demand. India thrived on aspirational demand on robust expectations on future income generation and this might be truncated.

A speedy vaccination of the population is perhaps how which may enable recovery in consumer sentiments by reducing the uncertainty of the virus and fears of being suffering from further waves of infection. While the pace of vaccination had slackened, we remain hopeful that starting June supplies will end up to be better with domestic production also as imports of vaccines being ramped up.

The Federal Reserve Bank of India (RBI) won't have any longer room to scale back rates as inflation remains on the upper side. So, it's to be the Centre which might need to take up the mantle of reviving consumption demand. Higher allocations for MNREGA, implementation of an urban employment guarantee scheme, and a few cuts for the lower tax brackets could also help support demand.

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