Wednesday, September 1, 2010


Wheat market is getting more and more turbulent with Russia backtracking on its export commitments because of the severe drought ravaging the country. It is considered crucial that the global market is not allowed to "heat up" due to the temporary hiccup in grain production in one of the several countries that dominate wheat market in the world. Russia is 5th largest producer of wheat behind the EU, China, India and the US. According to market watchers what ever drop in global production has happened, that can be more than made up by the available stock in other countries like China, India, the US and Canada. India alone is sitting on a grain "mountain" estimated at 60 million tons (including rice), not knowing what to do with its surplus with severe constraint on domestic storage space for these grains. Any large export by India is considered fraught with the risk of price collapse in the world trade in wheat. It is unfortunate that there is no international cooperation amongst top producers to evolve a strategy to manage the present situation which is causing abnormal spurts in the price in the international market.

It may be recalled that a similar crisis occurred in 2008 when there was a severe drought in Australia leading to world wide shortages, fall in over all production and extensive embargoes on food export across Asia. This even led to "food riots" in Indonesia and Pakistan. At least one could understand the provocative but genuine cause for such disruption to global food supply at that time. The price of wheat, one of the major staples in the world shot up through the roof reaching $13 a bushel, a historical and unparalleled high in wheat price. But how is it possible that wheat prices are surging to day when there is a relatively small shortfall in production, that too in one country and global production recorded the third highest figure in history?. There is already dire forecasts that next years production would be less though such threat perceptions are generated by vested business interests, intent on creating opportunities to make unjustified profits on the fear of possible future shortage of wheat. It is feared that the consequences of such manipulations will ultimately affect the consumers in the rich as well as the poor countries. While higher wheat prices will reflect in higher prices for a wide range of wheat based consumer products like bread, biscuits, pizzas, rolls etc in industrialized countries, it will also affect poor and the hungry in the third world depending on imported wheat for survival. Who are going to be benefited by this unjustified distortion in wheat prices? Of course the rich farmers in the US, Canada, Australia and Europe who will laugh all the way to their banks with windfalls in wheat exports at high prices. Already farmers' organizations from the US are touring some of the Asian countries to bag orders for their wheat.

What is intriguing in the whole situation is why the Russians chose to announce the embargo on export now, even without waiting for the season to end? Are they in league with global wheat traders? After all Russia produced less than 50 million tons in 2007 while this year's projection was 90 million tons but they are still likely to harvest not less than 75 million tons. How can there be shortages there? Export commitments could have been met through bilateral consultations and accommodations with countries like India and China but it did not happen raising questions about the transparency of wheat trading system in the world. Is there no way to counteract the machinations of the wheat traders and ensure some stability in wheat prices? With massive subsidies that fatten the rich farmers in the US and Europe, it is very easy for these countries to raise wheat production but probably they may not do it because the scarcity will benefit their farmers in a big way. Considering that the US and India put together have more than 100 million tons of food grains in stock, the relatively small shortfall of production in Russia, should not have affected the global prices and a genuinely concerted effort by these countries with large stocks would have thwarted the efforts of speculators to ratchet up the prices under misplaced apprehensions. There is also the uncertainty regarding the attitude of China, top most producer of wheat in the world, to the present crisis, though they may not venture directly into global market for fear of escalation of domestic wheat prices. It is small consolation that the prices have not reached any where near the record highs in 2008 and there is still time for tackling this problem, given the dynamics of the situation.

In India's case there is already some apprehension that there would be a drop in production next year and this has clouded the thinking on the part of the government. As a knee-jerk reaction the high flying Food Minister has announced a slew of measures to augment the storage capacity, though no one is sure whether this would be translated into reality in the near future, knowing well the snail-like progress of government projects. Probably GOI could consider a strategic tie-up with Russia to loan to them some of the surplus grains for returning it next year when the production would pick up there, restoring normalcy in farming. By that time hopefully the new storage structures might be ready for use. Countries like China and the US have sufficient flexibility in their farming system to increase production within a short period. The present situation should not be allowed to be exploited by speculators for raising global prices that will affect the lives of millions of poor people who depend on purchase of wheat from international market by their countries. Led by Egypt the wheat importing countries in the third world constitute the largest net importers of wheat and they include Brazil, Indonesia, Mexico, Algeria, Nigeria, Iraq, Yemen, Bangladesh etc accounting for more than 90% of the 70 million tons traded in the world.


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