India must not pursue reckless high-growth policies at the cost of diverting attention and investment from agriculture and food production
2012 looks like a repeat of 2008. Food prices are soaring in India and the world. For food-importing countries to which India sometimes belongs, when the monsoons have been sub-optimal, as they have been this year, this brings a special burden.
Prices of agricultural commodities in the international market have risen from 20 to 30 per cent for corn and wheat. For soybean they have gone up by 40 per cent. All this means food imports will be even more expensive. This kind of food inflation is debilitating for the poor who can spend from 70 to 80 per cent of the total household income on food.
Global warming and climate change are part of the problem. Climate turbulence brings extreme weather conditions, like unprecedented drought conditions, as in the US this year, which has decimated the corn crop. In addition, drought conditions these last two years in major wheat-producing countries, like Australia, Russia and Ukraine, have led to short supply and spiralling prices for this staple.
Another major reason for food shortage and spiralling prices is the diversion of food grains to biofuel production and high-blending mandates in both Europe and the US. A 20 per cent blending mandate means a mix of 20 per cent biofuel and 80 per cent fossil fuel. This is resulting in increasing amounts of corn, canola and soybean being diverted for ethanol and bio-diesel production. Increasing ethanol production, especially in surplus-producing countries, hikes the demand for corn. This sets off a chain reaction, drawing in other foods, as substitution effects kick in, thus resulting in food shortages.
When corn is diverted to ethanol production, corn consumers shift to wheat and rice, increasing demand for these cereals and causing their prices to rise. Similarly, the diversion of corn to bioethanol causes shortages of animal and poultry feed; so these producers take wheat to feed their livestock, sending up the prices of wheat. In a related development, wheat and rice farmers see an assured market for corn, with attractive prices and shift to growing corn instead of rice and wheat, causing a shortage of rice and wheat stocks and, therefore, escalating prices of these cereals. A World Bank report of 2008 categorically states that the crop-derived fuels have been the major triggering factor of the food price crisis.
There is a third factor, which was beginning to be mentioned at the time of the 2008 food crisis but is acknowledged more openly now, and this is financial speculation. Financial speculation is now probably the most influential factor that is pushing food prices north in the short term. So who is investing ? A range of players, and not just the rich “high net worth individuals”, but also agencies as diverse as pension funds, public and private foundations
and university endowments, in addition to corporate investors, are all chasing the honey trail.
Looking at price rise this year, there is no question that the drought in the American Midwest played a role in the dramatic rise, but that is not the whole story. It is true that wheat prices in the international market began climbing this summer as soon as news of the US drought started circulating, but the hike is not explained by panic buying fearing shortages due to the drought. Analysts found that physical stocks of wheat were not so low as to be any cause for alarm and that the sharp rise in wheat prices was because of speculation by non-commercial investors, like hedge funds and pension funds.
This is a trend that has been consistent these past few years. Spiralling food prices appear to be influenced by heavy speculation rather than physical shortages. After oil and real estate, the commodities markets seem to be the new target of global speculators. When the commodities in question are food, the consequences are spiralling food prices, shortages in food-importing countries and increased hunger.
In addition to the usual reasons for food shortages, rising prices and hunger, exacerbated by climate change, the poor are now the victims of financial speculators. Global financial players are pouring their dollars into food (and other) commodities on the expectation that emerging economies will have to buy increasingly from the international market to satisfy their demand. By jacking up prices in this manner, they are causing unimaginable hunger and human distress across the vulnerable regions of the world.
The only way for us to counter this immoral and pervasive manipulation is to ensure that we strive to achieve food security at the national and household level. India must not pursue reckless high-growth policies at the cost of diverting attention and investment from agriculture and food production. Not just food security but food sovereignty (however much the economists try to rationalise it away) has to be upheld as a prime national goal. We need to keep in mind the old truism — a nation that is not food secure cannot be considered secure in any other sense.
The writer, chairperson of Gene Campaign, is a scientist and development activist.
Source: Asian Age, New Delhi, December 15, 2012