Navhind Times
Monday, April 14, 2008
by D M Deshpande
Serious food shortage and galloping inflation are haunting the global economy. And as happens always under such conditions, the poor countries are the worst hit and the developing nations are not far behind. There are already reports of long queues and rioting in Bangladesh in the quest for food. The problem could easily spread to other poor nations.
Just how serious the food shortage problem is could be gauged from these facts. Global rice stocks have dwindled from 130 million tons to 72 million tons. India, China, Egypt, Vietnam and Cambodia have imposed export bans. Thailand is the world’s largest rice exporter (1.2million tons) though it produces no more than 23 million tons of rice annually. Just as in India, the government there also, has stepped in to punish hoarders; action has been initiated against super markets trying to put restrictions on retail trade so that they can export more at higher prices. Since January, the price of rice in Thailand has gone up from $400 to $760 a ton and there are a lot of people who believe that it would touch the $1,000 mark soon. Globalisation, always under attack, is once again on trial and this time it appears to be a really testing time.
In comparison, the domestic rate of inflation of food items has been much slower. Whereas between January to March global WPI in respect of rice moved up by 55.4 per cent, in India the rise was just 7 per cent; in case of wheat, world prices went up by a massive 117 per cent, whereas the rate of increase in India was less than 1 per cent according to FAO and GOI sources. Edible oil prices have gone through the roof internationally, with sunflower oil rising by a whopping 160 per cent and other oils increasing with in the band of 60 to 80 per cent. However, the rise in oil prices in India has been less than 20 per cent.
This is not to suggest that the food price rise has not hurt Indians or the Indian economy. In fact, with one of the largest numbers of poor inhabiting the country, there is certainly a lot of pain and discomfort. It is widely believed that the inflation rate of over 7.5 per cent is grossly understated. In any case, in current market conditions the difference between consumer price index and the WPI (which is used to measure inflation index) is more than 2 per cent.
Amongst the causes for current shortage is the sheer neglect of agriculture for a very long period of time. Indian food grain prices are on an average much lower than the international prices.
Growers get only a small percentage of the final price paid by the consumers. They have never thought of exports to get better price realizations; and how could they do, in the absence of vital infrastructure of roads, godowns and regulated markets.
Rising population is putting pressure on food prices globally; drought in China and Australia has aggravated the problem. As incomes are rising in Asia - especially in India and China, there is a growing demand for food. There are also reports of large-scale transfer of land to animal husbandry. In the US high crude oil prices have encouraged diversion of land to grow more bio-fuel instead of food for humans. A classic case of car eating food! Change in food and dietary habits are also compounding the problem. About a 100 million rural migrants in China have switched over to rice from wheat as their incomes have swelled. Perhaps the reverse may be happening in India but is not balancing out the global trend.
The causes of food crisis are fairly well known; but the solutions are not straightforward. Panic and knee jerk reactions will not help; in fact, they do more harm than good. For example, price controls that more and more countries are resorting to, will not work. In the short run it will not give results and in medium to long run, such controls send wrong signals and distort allocation of resources.
There is huge scope for improving productivity across the board. Within the State, there are wide variations in acreage that need to be plugged. According to one estimate, productivity gains can give additional annual production of nearly 32 tons of wheat, which is nearly a 40 per cent rise in output. Similar efficiency gains are possible in respect of rice and other agricultural products. Targeted subsides and beefing up public distribution system to reach out to the vulnerable sections are effective measures to tackle the shortages.
Monday, April 14, 2008
by D M Deshpande
Serious food shortage and galloping inflation are haunting the global economy. And as happens always under such conditions, the poor countries are the worst hit and the developing nations are not far behind. There are already reports of long queues and rioting in Bangladesh in the quest for food. The problem could easily spread to other poor nations.
Just how serious the food shortage problem is could be gauged from these facts. Global rice stocks have dwindled from 130 million tons to 72 million tons. India, China, Egypt, Vietnam and Cambodia have imposed export bans. Thailand is the world’s largest rice exporter (1.2million tons) though it produces no more than 23 million tons of rice annually. Just as in India, the government there also, has stepped in to punish hoarders; action has been initiated against super markets trying to put restrictions on retail trade so that they can export more at higher prices. Since January, the price of rice in Thailand has gone up from $400 to $760 a ton and there are a lot of people who believe that it would touch the $1,000 mark soon. Globalisation, always under attack, is once again on trial and this time it appears to be a really testing time.
In comparison, the domestic rate of inflation of food items has been much slower. Whereas between January to March global WPI in respect of rice moved up by 55.4 per cent, in India the rise was just 7 per cent; in case of wheat, world prices went up by a massive 117 per cent, whereas the rate of increase in India was less than 1 per cent according to FAO and GOI sources. Edible oil prices have gone through the roof internationally, with sunflower oil rising by a whopping 160 per cent and other oils increasing with in the band of 60 to 80 per cent. However, the rise in oil prices in India has been less than 20 per cent.
This is not to suggest that the food price rise has not hurt Indians or the Indian economy. In fact, with one of the largest numbers of poor inhabiting the country, there is certainly a lot of pain and discomfort. It is widely believed that the inflation rate of over 7.5 per cent is grossly understated. In any case, in current market conditions the difference between consumer price index and the WPI (which is used to measure inflation index) is more than 2 per cent.
Amongst the causes for current shortage is the sheer neglect of agriculture for a very long period of time. Indian food grain prices are on an average much lower than the international prices.
Growers get only a small percentage of the final price paid by the consumers. They have never thought of exports to get better price realizations; and how could they do, in the absence of vital infrastructure of roads, godowns and regulated markets.
Rising population is putting pressure on food prices globally; drought in China and Australia has aggravated the problem. As incomes are rising in Asia - especially in India and China, there is a growing demand for food. There are also reports of large-scale transfer of land to animal husbandry. In the US high crude oil prices have encouraged diversion of land to grow more bio-fuel instead of food for humans. A classic case of car eating food! Change in food and dietary habits are also compounding the problem. About a 100 million rural migrants in China have switched over to rice from wheat as their incomes have swelled. Perhaps the reverse may be happening in India but is not balancing out the global trend.
The causes of food crisis are fairly well known; but the solutions are not straightforward. Panic and knee jerk reactions will not help; in fact, they do more harm than good. For example, price controls that more and more countries are resorting to, will not work. In the short run it will not give results and in medium to long run, such controls send wrong signals and distort allocation of resources.
There is huge scope for improving productivity across the board. Within the State, there are wide variations in acreage that need to be plugged. According to one estimate, productivity gains can give additional annual production of nearly 32 tons of wheat, which is nearly a 40 per cent rise in output. Similar efficiency gains are possible in respect of rice and other agricultural products. Targeted subsides and beefing up public distribution system to reach out to the vulnerable sections are effective measures to tackle the shortages.
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