Wednesday, February 23, 2011


Food inflation is a worrying factor in many countries including India and opinions differ regarding the root causes for such distortions in the consumer prices of staple commodities like rice and wheat at global level. Sound economic principles always blame supply-demand distortions for the phenomenon of rise in market prices with demand out-stripping the supply. But a closer look will tell a different story. If per capita availability of food grains on a global level is calculated, the available stock is more than adequate to be distributed equitably but political and economic considerations do not permit such a simplistic interpretation of food inflation. Though world is supposed to be a global village after the setting up of WTO regime, blurring the national boundaries, the ground reality is different as each nation is still wedded to the welfare of its own citizens before considering the needs of others. Probably such practices can never be abolished as reflected by periodic export bans enforced by producing/exporting countries to prevent shortages and consequent price rise locally. According to FAO, frequent changes in export policies can cause distortions in global prices which should be avoided in the larger interest of humanity.

Probably in an idealistic world, sharing of happiness and sorrow equitably can make this planet a happier place to live but in the comity of nations all are not equal, some being poor, some rich and many others super-rich. It is only in countries practicing communism or socialism, remnants of equity can still be seen while in vast majority of countries the gap between the rich and the poor is widening significantly year after year. Take for instance the situation in the richest country in the world, the US where there is a substantial segment of population, being terribly impoverished and this most democratized country can do very little to bridge the ever widening gap. The agricultural policy in this country is so distorted that valuable foods that can feed millions of hungry people are being fed to meat animals and more are diverted to make ethanol for driving automobiles. Who can force this country to alter its policy to be fairer to fellow denizens? Probably none, as long as the pro-agriculture and pro-industry lobbyists have crucial influence on the government policies.

According to the FAO, the 2007-2008 food crisis in the world was mainly due to hastily taken decisions by some governments to ban exports in order to insulate their population from shortages and such knee-jerk reactions exacerbated the crisis, further aggravating the impact on over all food insecurity atmosphere around the world. The world body felt that export restrictions imposed by some surplus food-producing countries provoked more uncertainty and disruption on world markets, drove prices up further globally, while depressing prices domestically. This in turn acted as disincentive for the farmers to produce more food. It may be recalled that in 2008, India banned rice exports on lower procurement by the government while in 2006, it barred sugar exports as prices began to surge in the domestic market. Recently India banned onion exports after prices surged at retail outlets to nearly Rs 100 a kg. Russia banned wheat exports after its production dropped 5 million tonnes owing to the worst drought in five decades. It is true that such food inflation at a global level hits many poor countries which depend on imported foods for meeting the needs of their population as their food import bills reach non-affordable levels..

In principle what FAO says makes eminent sense but in practice putting it into practice is fraught with enormous implications. Does a country have no right to govern itself without interference from outside? Is the welfare of another country more important than that of the domestic population? What should be the criteria that should govern the export policies of a country? These are issues that must be addressed collectively by the countries who are members of the WTO to evolve a consensus. There are food security concerns facing practically every country in this planet, the degree of severity varying from one to the other. The experience and dilemma of a country like India must be a lesson for others. It was only recently that the government was hauled by the Supreme Court for allowing huge quantities of food grains to rot with no adequate storage facility available in the country. If even a part of the stock was offloaded into the global market , the world prices could have surged making the lives of many importing countries miserable. What options this country has under such circumstances?

Unless the world cooperates more meaningfully and sincerely, a solution to the surplus-shortage cycles vis-a-vis staple food grains and consequent price instability will refuse to go away. Either FAO must initiate action for setting regional food banks in different regions based on contributions from surplus countries or there must be inter-country cooperation mode for meeting one country's export obligations by another country with more favorable production situation. For example Russia, instead of abrogating its export obligations unilaterally last year could have requested India to help it out on a bilateral basis and settling the account on mutually accommodative terms. Same could have been done in the case of Onion where Pakistan could have helped India to pre-empt any supply problem and uncontrolled price escalation. The expected impact of the potential effect of the anticipated drought in China can be significantly lessened if appropriate arrangements are made by surplus producing countries to directly supply by-passing the global trade mechanism as an emergency basis. Recent pronouncements by the Prime Minister of India that environmental changes are responsible for food inflation is too simplistic a view that states the case but cites no solution!


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