Spiralling food prices? Blame speculators

 Suman Sahai

 

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 

G20 PRESSURE ON INDIA TO EXPORT FOOD

Suman Sahai

The agriculture ministers of the twenty most powerful nations in the world, the G 20, to which India now belongs, met for the first time in June 2011. This high powered meeting held in the back drop of the global food crisis tried to hammer out a strategy for the farm sector that would help to alleviate the world food situation. Prime amongst the strategies proposed was for countries like India and Russia to export their grain reserves. Whereas Russia has traditionally been an exporter of certain grains , specially wheat, India is a net importer especially when faced with a monsoon that is less than adequate.

What quite takes my breath away is the gall of the Americans who pushed for India to lift its ban on exports to meet global demand for food. After the food crisis of 2008, India had imposed a ban on rice exports so as to meet domestic food requirements and avert a crisis that could result from high food prices. This ban, according to the Americans should be lifted. In addition, India should share with the Americans information on the amount of grains stocked and their location so that they can intervene more directly.

Quite apart from the brazen interference in the internal affairs of a sovereign nation, the Americans in typical fashion, hold one set of standards for themselves and another for the rest of the world. American corn is burnt to produce biofuel , creating a shortage in the international availability of corn. The biofuel fad leads nowhere since without the unnatural subsidies it receives, it is not a viable product. Nor apparently is it good for the environment it attempts purpotedly to save. The Obama administration’s review of the American biofuel program found that more conventional energy was required to transform corn into biofuel than the energy it would save. Why doesn’t America stop its biofuel program and let the corn and wheat that it destroys , re enter the food chain ?

If the American heart bleeds for the hungry and if it wants to help the global food crisis, let it begin to implement its sermons at home. Instead of telling other nations to release buffer stocks of grain meant for the poor and hungry, let America first release all the food stocks it destroys to produce biofuels. Then let it stop the enormous wastage of food . According to the most recent report of the FAO, the US and Europe together waste about a third of the food that is produced in their countries. Once they have cleaned up their own act, may be they will acquire some legitimacy and be able to offer suggestions to others about what they should be doing to resolve the global food crisis.