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Mon 19 Jul 2010 10:03 PM

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Indian monsoon could raise Gulf food prices

Food inflation hits India after below normal rains which could affect Gulf import prices.

Indian monsoon could raise Gulf food prices
WEAK MONSOON: Indias weak monsoon may spark food inflation in the Gulf region as tighter supplies pressure prices of basic commodities. (Getty Images)

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 percent 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.

Ashutosh Sharma, executive director, Duli Sons, a New Delhi based rice trading firm, said: "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 percent and this will mean that the bill for importing countries will rise."

Monsoon rainfall was 16 percent below normal in June but heavy showers in early July reduced the deficit to 10 percent. After a dry spell in the past week total rainfall between June 1 and July 16 is 15 percent below normal.

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

Pradeep Unni, commodities analyst, Richcomm Global, Dubai, said: "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."

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.

Ishita Dutta, general manager, Amira Foods, said: "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."

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 UAE 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 reintroduce 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. (Reuters)

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