You are on page 1of 7

Warning signs on food front The Hindu-Dec 25

The record rise in the prices of wheat and most other food items coming on top of an unprecedented and unanticipated shift in global food supplies has prompted a sharp warning from the Food and Agriculture Organisation. Its top official said recently that fewer people, especially in the developing world, will be able to get food. FAO’s food price index has gone up by 40 per cent this year compared with 9 per cent the year before, when it was already high. The food bill of the most needy countries rose by 25 per cent to touch $107 million last year. Compared to a year ago, wheat prices are up 52 per cent. Very recently, for the first time ever wheat futures broke the $10-a-bushel mark, which is roughly $370 a tonne and the equivalent of global oil breaching the $100-a-barrel level. The price of not just wheat but the prices of most other cereals, oil seeds, milk, and meat have also gone up. But it is the inflation in wheat prices that has become the reference point and has, in many ways, been responsible for the all-round increase in food prices. In an ominous parallel development, FAO records show that wheat stocks have declined to their lowest levels since 1980, corresponding to just 12 weeks of the world’s total consumption, which is sharply lower than the average of 18 weeks during 2000-05. An unprecedented drought in Australia for two years in a row and unfavourable weather conditions in Argentina, Ukraine and Southern Russia — all principal wheat producing regions — have sharply reduced global output. Less understood but an obviously potent factor is the effect of global warming. The shift to biofuels, especially in the United States, is an immediate, well-documented cause. Besides, in China, India and some other developing countries, there has been a significant change in the consumption patterns with affluent families taking more of meat, milk and vegetables than cereals. The consequent increased demand for grains as cattle and poultry feed has aggravated the shortage. High global food prices have figured prominently in Indian policy making. When announced in November, the minimum support price for the winter wheat crop at Rs.1,000 a quintal seemed appropriate, balancing the interests of the farmers and the consumers. Evidently the government may have to pay more next April, as private trade is likely to bid up the prices. Even as the government is pinning its hopes on achieving a production target of 75.5 million tonnes of wheat, a great deal of uncertainty remains over the immediate direction of food prices and the impact they will have on inflation and the quantum of food subsidies. ---------------------------------------------------------------------------------------------------------------------

1

they do not have money to purchase their weekly quota of foodgrains on any one day of the week. Rajiv Gandhi. and so do find it difficult to obtain ration cards. there is no rationale for continuing to operate chronically loss-making enterprises. And there are many others. Until recently. the closure of such companies mean that the workers employed in these units would be unemployed. these subsidies lose all rationale after some time. Of course. the urban middle classes were the biggest beneficiaries of the public distribution system. Manmohan Singh’s remark focuses attention on a malady that has affected our package of economic policies over the years. For instance. Often. These enterprises would have to fold up unless they receive financial support from the central or state governments. However. While some form of safety net to mitigate their suffering needs to be evolved. Even if they have ration cards. with the majority of the beneficiaries being relatively well-off people. Another major reason for the mounting subsidy bill has been the support given to those public sector enterprises that run at a loss. the Centre will be in a slightly better position because the booming economy and better tax compliance have ensured a healthy growth in central tax revenues. He was repeating what one of his predecessors. Subsidised higher education or the unrealistically low prices of petrol and LPG are a burden on government revenues. So said the prime minister during the course of a recent speech in Delhi. the subsidy on fertilisers has gradually assumed mammoth proportions over the years. some of these subsidies had some initial economic justification. rich farmers benefit significantly more than small ones from the fertiliser subsidy since they buy substantially higher quantities. Perhaps. Perhaps. Successive governments have doled out subsidies to satisfy some vested interest or other. there is no hope of restoring the fiscal health of the central and state governments. Such examples are easy to find. But the government of the day simply cannot muscle up enough courage to remove them because that would be politically unpopular. I have written about a couple of them in recent columns of this newspaper.Do Away With Subsidies Times of India-Dec 20 Most state sops don’t reach targeted beneficiaries “We spend far too much money funding subsidies in the name of equity. with neither the equity nor efficiency objective being met”. had said several years ago — that only 17 paise out of every rupee spent on subsidies actually reached the targeted beneficiaries. Many of the really poor do not have any fixed address. While this ensures some spin-off benefits to the states 2 . Unless the subsidy bill can be drastically pruned.

They point out that in the post-reform period in China. --------------------------------------------------------------------------------------------------------------------- 3 . by the late 70s. The same differential pattern of achievements was also witnessed in education. compared to only 54 years in India. People from all income classes enjoyed the benefits of growth. the recent National Rural Employment Guarantee Scheme. The latter must involve some targeted subsidy schemes. For instance. Since these are precisely the states which need to accelerate development expenditure. the case for a drastic reduction in subsidies is stronger. rapid growth has resulted in huge reductions in poverty levels. Consider. What these figures hide is the vastly superior levels of achievement in the social sectors in China before 1979. Critics of schemes such as the rural employment guarantee scheme typically place all their bets on rapid growth to alleviate poverty. with a drastic reduction in chronic undernourishment.through larger transfers from the Centre. there may have been a slight increase in inequality. In the early 50s. Of course. But. The correct conclusion to draw from this is that efforts need to be made to ensure less corruption. If anything. China had pulled very far ahead. This is in principle a scheme that is targeted towards the rural poor — the relatively well off will not enrol in such schemes. it is equally important to realise that all types of subsidies should not be tarred by the same brush. But there can be no place for subsidy schemes where the major beneficiaries can afford to stand on their own feet. China surged far ahead of India in terms of infant and child mortality as well as life expectancy. there has been a relatively small increase in the poorer states’ own tax revenues. If schemes were to be scrapped simply because of the attendant corruption. The “growth-only” school often cites the example of China to bolster their arguments. The scheme has come in for a lot of criticism because corruption has resulted in some leakage. Walking on two legs is always better than limping along on one leg. A balanced approach to development must incorporate policies that promote growth and prepare adequate safety nets. with literacy figures in China being comparable to the most advanced countries in the world. when the current phase of reforms was initiated. They also emphasise that the Chinese government did not adopt any particularly pro-poor stance in their policies. life expectancy at birth in China was 68 years in 1981. China’s poor were much better fed. The incidence of poverty came down because of the so-called “trickle-down” mechanism. while India lagged very far behind. As far as comparable achievements in the health sector are concerned. India and China were at more or less comparable levels in terms of most social indicators. then practically all government activity would have to be stopped. for instance.

improving irrigation in the command area and adopting low-cost scientific irrigation methods to contain depletion of the water table. High global prices of wheat and other grains such as rice and corn. and that should include early completion of delayed irrigation projects. With prices forecast to stay firm.Ominous portents for wheat ET Dec 20 Part Of A Global Rise In Food Prices IF THE record highs scaled by wheat futures ($10/bushel) during Monday’s trade on the Chicago Board of Trade are any indication. the government needs to look for more lasting solution. Although prices retreated from the peak.9-$579. That apart. Nonetheless.6 per tonne compared to $385-390 per tonne quoted in August. to prevent a food shortage in the country. Misreading of the global market trends has already proven expensive for the country. will exert inflationary pressure on the macro economy. -------------------------------------------------------------------------------------------------------------------- 4 . Clearly. The situation in the domestic market is not encouraging either: the country seems set for another year of grain shortfall. as the acreage under cultivation has declined. This. Besides. India needs to go out and procure enough grains. the government would be wiser to drive a hard bargain with the global traders and buy on a continuous basis till domestic supply situation improves. Already wheat price have nearly doubled from the beginning of the year. the global supply situation remains tight due to a weather induced crop failure in major producing countries such as Australia and Argentina. Reports suggest that the rabi output (early next year) would be lower than last year. the higher prices notwithstanding. the higher MSP announced by the government at the beginning of the sowing season. despite. To prevent a recurrence of a food crisis. the mad scramble all across to stock up will only serve to keep prices firm in the near-tomedium term. The latest offers from commodity MNCs to supply wheat have come at $459. there is no hope for softer food prices in the first half of 2008. The government does not have the luxury to reject these offers and hope for more competitive price in the future. higher MSP alone provides little incentive to bring more area under wheat cultivation. storage facilities need to be upgraded to improve the shelf life of grain stock and prevent infestation by rodents.

Indeed. it has got extended to milk and meat and has coincided with soaring freight rates. Sharp price swings are not uncommon in agricultural markets but high prices rarely last beyond a season or two. Food price inflation is going to be the inevitable result. fooddeficit countries. are the low-income. and the government has been forced to jack up wheat procurement prices quite sharply in order to feed the public distribution system. So are. The upheaval in wheat prices. The worst-affected. besides untimely rains in the US. The situation is unlikely to improve in the near. thereby increasing the food subsidy bill.to medium-term. Matters have got even worse because some of the other cereals. where the bulk of the world’s 852 million hungry people lives. the stocks of other cereals traded in the global food bazaar. as the crop outlook is far from satisfactory in most of the major wheat-exporting countries. leading to some of the biggest price leaps in recent weeks. Most of these are wheat-exporting countries. and has not only endured but tended to accentuate. which in the case of wheat has been either stagnant or growing slowly in recent years. especially in the least developed countries. Consequently. even in irrigated tracts.Global food scarcity Business Standard-Dec 20 Wheat prices have climbed to record highs around the world. world cereal stocks are projected by the UN’s the Food and Agriculture Organisation (FAO) to drop this year by 17 million tonnes to 142 million tonnes. has been caused largely by a two-year drought in Australia. the lack of winter rains has affected wheat sowing in unirrigated areas. --------------------------------------------------------------------------------------------------------------------- 5 . The result is that global food security is in jeopardy. It is no wonder then that FAO has warned of a fall in the per capita consumption of cereals. farmers have not expanded the acreage under wheat despite the record Rs 250 per quintal hike in procurement prices. are being diverted to bio-fuel production as a response to spiralling crude oil prices. as stocks have ebbed to their lowest levels in a quarter century. mostly in sub-Saharan Africa. for the uptrend in wheat prices began in early 2006. and/or a sharp spurt in the food subsidy bill. notably maize. predictably. the price surge has not remained confined to cereals. While India continues to import wheat at today’s record prices — in the process fanning the global price rise — it has no escape from taking measures to boost domestic output. One inevitability will be even more attractive prices for farmers. though there are other reasons as well. The situation is different this time. It is not going to be a free lunch for anyone. the lowest level in 25 years. dry weather in Ukraine and unfavourable growing conditions in Russia. for instance. who face an unaffordable 25 per cent rise in their food bill in just one year. On top of that. there has already been controversy over expensive wheat imports. of course. Climate change-induced factors like droughts and floods are largely responsible for this state of affairs. India cannot remain unscathed.

even more rice will have to be produced from a shrinking land area. Will self-seeking. Besides. as well as livestock. against one-third at present. says IRRI. emits some 50-100 million tonnes of this harmful gas into the atmosphere yearly. 55 per cent of Asia’s population will be urban-based. More serious is the threat embedded in the very state of our agriculture. farming must seek innovative production and delivery methods. Continuous rice cultivation is no longer relevant or profitable. It asks people to accept the fact that arable land available to agriculture will only keep shrinking. Some 30 million hectares have been lost to water logging and salinity already. roads and urban areas aren’t the only things robbing the world of productive farmland. experts once again drew attention to issues about agriculture that can no longer be ignored. due not only to continued population growth but also to increasing rural-urban migration. which feeds more than half the world’s population. with less water. Farms must also learn to do with fewer workers to stay viable. the Manilabased International Rice Research Institute (IRRI) states the problem even more bluntly. yields are falling off. As the experts pointed out. yields from rain-fed land must go up to compensate for the inevitable loss of favourable irrigated land. In the next 25 years. Besides. such as nutritious rice. there’s the methane effect on climate. less cost and probably less available labour. At the same time.5 per cent a year during the first two decades of the Green Revolution. and that has to come out of land available for rice. The very act of growing rice. From 2. Farmers must look to diversify into higher-value crops requiring less water. At a meeting on the side of the global climate change conference in Bali. This means more land will be needed for housing. to keep pace with demand. and the depredation continues to claim 1. But rice alone won’t be able to lift farmers out of poverty. factories and roads. making agriculture even more vulnerable. the growth in rice yield has declined to about 1. there’s an increasing need to move into value-added products. 6 . as well as to grow new varieties of crops to suit new lifestyles. to earn the income that will make them stay on the farm. soil erosion and other forms of land degradation are eating up five to seven million hectares of farmland every year. The chop will inevitably fall on the most productive agricultural land.1 per cent a year since the late 1980s. What’s the world doing about it? What are we in India going to do about it? Do our politicians realise that the problem is graver than the flippant game they play of nailing opponents for immediate political gain? In a recent position paper outlining its strategy for the period from 2007 to 2015. Thus.5 million additional hectares each year.We don’t have a choice Business Standard-Dec 20 If raising farmer incomes is our goal. Even within rice. votebank politicians listen? New industries.

It’s beyond the powers of farmers. The pressures and the challenges should be obvious to everyone: How to make the best of a worsening situation: shrinking land area. mechanisation and post-harvest processing as in linking scientific advances with the real-world problems of both farmers and consumers. The danger signals are out and we don’t really have a choice. If raising farmer incomes is our goal. thus. We must be sober enough to accept the realities of the new agricultural situation. and genetic improvement has become a key necessity. We’ve got to involve the corporate sector. within the compulsions of altered economic. Agriculture. technological progress in rice cultivation has slowed substantially since the early 1990s. In this matter of utmost importance. Recovering some of that momentum is. emotional politics over petty land grab issues that only serve to misguide farmers. It’s beyond even the powers of governments alone. Those who want to shield farmers from these new realities and keep them entrenched in their traditional role and present marginal state are actually their enemies. As IRRI points out.What IRRI and other experts are saying makes one thing very clear. developing “climate-friendly” varieties that can withstand extreme conditions of drought or submergence has become more important. the primary goal of the institute’s new strategic plan. --------------------------------------------------------------------------------------------------------------------- 7 . self-defeating farming practices. scientific research and marketing forces on a scale that demands a bigger and more active involvement of the private corporate sector alongside governments and individual farmers. In the changed agricultural situation. and not to indulge in cheap. as much in seed development. It requires the deployment of technology. demographic and climatic parameters. It’s not going to be easy. farming must get out of its age-old trap and seek innovative production and delivery methods. the three shouldn’t be looked upon as enemies with mutually exclusive interests. therefore. falling incomes and adverse climatic conditions. has entered an area where big investments are called for. diminishing water resources.