Posted by: commoditywise | December 21, 2007

Bluffing Govts can help on food front


nflation may have been politicized since more than a decade ago, helping politicians and bankers to jointly bluff the consumers of favorable inflation figures despite rising food and other commodity prices prices. But food prices will continue to be largely driven by the market forces – investment market or the consumer market – where governments can hardly intervene to soften the impact of rising food prices. 

Food prices have risen for a decade now. For example, wheat prices are at its peak in USA in December 2007, and so also majority of other food product prices. A recent report in The Telegraph of UK, informs ‘Food prices are accelerating at their highest rate for 14 years – and running at more than three times the rate of inflation, official figures show.

Thus, the overall demand supply situation in the global food and agri industry is such that the food prices are likely to remain high and even rise for next more than a decade too. How can governments help improve this situation?

The Food and Agricultural Organisation (FAO) of United Nations recently appealed to the governments and international communities to take “urgent and new” steps to protect the poor countries from rising food prices. Tucked away in one small corner, a small report in Hindustan Times (December 20, 2007) quoting UN’s FAO Director-General Jacques Diouf said: “Urgent and new steps are needed to prevent the negative impactes of rising food prices from further escalating and to boost crop production in the most affected countries”. 

At best, what the governments of rich countries can do here however is to supply large chunk of food to poor peoples in poor countries at highly subsidized prices, or for that matter free. 

 USA, possibly the only country openly flouting WTO norms on agriculture in every possible way, has been fast to take advantage of the widening demand-supply gap in the global agro arena. According to US Department of Agriculture (USDA), US agricultural exports for fiscal 2007 are expected to reach $79 billion, making 2007 the fourth record year in a row. For fiscal year 2008 export are again expected to increase to $83.5 billion. The Economist in its December 7, 2007 issue on rising food prices commented: “Food today is so cheap that the West is battling gluttony even as it scrapes piles of half-eaten leftovers into the bin”. 

In India where almost 50 per cent of world’s hungry are known to live, each year the government announces food programs aimed at helping the poor and poorest of the poor – BPL, living below the poverty line. Despite huge costs to the exchequer, the country’s state-owned granaries are known to be infested with rats and mices that eat away large chunk of food grains stored for the poor to be distributed through its rotten, porous and corrupt public distribution system (PDS).  

The lopsided policy on food grains is so poor that India is one of the top countries to import wheat for third year in a row. So, if the government and its corrupt bureaucrats wake up to stem the loss from such granaries and PDS at the earliest, there would be sufficient food grains to feed the BPL families, if not stop from helping Uncle Sam by importing wheat from USA. 

Similarly, the governments of many developed and developing countries can take necessary steps to help the BPL families in their own or in other countries. Most importantly, the governments need to infuse funds to the under-fed agriculture sectors. Comments The Economist – “Three-quarters of the world’s poor live in rural areas. The depressed world prices created by farm policies over the past few decades have had a devastating effect. There has been a long-term fall in investment in farming and the things that sustain it, such as irrigation. The share of public spending going to agriculture in developing countries has fallen by half since 1980. Poor countries that used to export food now import it”.  

Yes, there are ways and means to soften the impact of rising food prices, provided of course, politics is kept aside.


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