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Indian monsoon could raise Gulf food prices: trade

business Updated: Jul 19, 2010 23:20 IST

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Weak monsoon rains in India may spark food inflation in the Gulf region over the coming months as tighter supplies pressure prices of basic commodities, traders said on Monday.

Monsoon rains, vital for farm output gains after last year's drought, were 24 per cent below normal in the past week and unlikely to rebound in the week ahead, the weather office said last week, raising fears of crop loss.

Countries in the Gulf region import most of their food supplies, as farming is a challenge due to extreme heat, limited water supplies and high soil salinity.

"At this point there have been a few corrections in the market as there is speculation that crops like basmati rice will drop by 15 per cent and this will mean that the bill for importing countries will rise," said Ashutosh Sharma, executive director of Duli Sons, a New Delhi based rice trading firm.

Monsoon rainfall was 16 per cent below normal in June but heavy showers in early July reduced the deficit to 10 per cent.

After a dry spell in the past week total rainfall between June 1 and July 16 is 15 per cent below normal.

Other crops that traders expect to be affected include maize, oilseeds and soya beans.

"Food inflation is already hitting India and any tight supplies in the market would mean a possibility that we will see higher food prices in the Gulf for any food imported from India," said Pradeep Unni, commodities analyst at Richcomm Global in Dubai.

Some commodities firms in India such as Amira Foods, which exports around 50,000 tonnes per year of basmati rice to the Gulf region are waiting till September before adjusting prices.

"The rain monsoon season is not over yet and its just too early to be adjusting prices before actually seeing the real impact on the crop," said Ishita Dutta, general manager at Amira Foods.

Gulf nations have long struggled to contain food inflation and were hot badly in 2008 when inflation nearly doubled the price of basic food items.

To counter the impact of rising food prices, the United Arab Emirates announced a plan in December to bolster food security and build up stockpiles of 15 commodities to cover three months' consumption.

Gulf based traders believe that Saudi Arabia may re introduce import subsidies on rice this year due to tight supplies after they were lifted last year as exporters had been seen to be abusing the measure.