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Dr B K Mukhopadhyay concluding his two-part article.
The temporary trends in the world food situation should be taken with a pinch of salt. There exists the problem which has not been a small one. If we glance back it could be located that rice added to the previous peak in food costs in 2008, with prices climbing 33 percent in 2007 and another 11 percent the next year, after export bans by producers including Cambodia, Vietnam, India and Egypt. Thai grade-B white rice, the Asian benchmark, has dropped almost 3 percent from a year ago to US $533 a ton in recent days. The price of rice from Thailand, the world's largest exporter of the grain, reached $1,038 a ton in May 2008. The price of rice has risen in some local markets. In Bangladesh, the biggest South Asian rice buyer, prices rose to a record in January because of low levels of public stocks after the government cut purchases in the previous crop season. Higher food prices have pushed 44 million people into "extreme" poverty in developing countries since June, the World Bank itself recently noted. Wheat prices climbed in the past six months after Russia banned grain exports in August following a crop-damaging drought, while rising U.S. ethanol production has lifted demand for the feedstock corn.
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No doubt, the decrease in the overall index brings some welcome respite from the steady increases seen over the last eight months. But at this juncture, considering it a reversal of the upward trend would be premature. The International Monetary Fund and World Bank warned of more potential social unrest from high food prices and joblessness. World Bank president Robert Zoellick cited soaring food prices as "the biggest threat to the poor around the world….We are in a danger zone because prices have already gone up." Both organisations described the economic recovery as frustratingly incomplete, posing serious challenges for poor and wealthy countries alike, and called on the Group of 20 developed and emerging economies -- many of which are facing their own fiscal crises -- to focus on food and job issues.
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Authorities in Australia correctly assessed that global food prices are expected to rise in the first half of the 21st century after falling in the second half of the previous century because of a rising population and higher incomes, slower crop-yield growth and the effect of climate change. The latest - rice planting in the U.S., the world's third-largest exporter, may drop 25 percent this year because growers can earn more from corn and soybeans! Added to this - world rice stocks are forecast to slip 0.7 percent to 93.9 million tons at the end of 2010-2011, after climbing in the previous three years on rising production in China and Thailand. OECD countries may see more inflation from food compared with 2007-08 because of rising meat prices, a "significant" part of the diet in developed economies. It is pertinent to note here that rice is the most important food crop in the developing world and a staple for more than half of the global population.
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Actually, the problem is poverty. Even at relatively low prices a decade ago there were still 800 million people hungry. High prices, economic crises and various natural disasters go on adding fuel to the flame
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It is well known a fact that paying increasingly for food imports can strain the resources of countries where economic growth lags and foreign exchange earnings are limited. But the ongoing situation cannot be termed as a smooth one especially when food import bills continue to strain economies and recent increases in food imports have been particularly significant among many of the countries that are most vulnerable to food insecurity. For developing countries as a whole, the volume of gross food imports grew at an annual rate of 5.6 percent - far higher than the 1.9 percent annual growth in developed countries! The position is that: economies that recorded strong overall economic growth, increased food imports more quickly. Clearly, rapid growth in the agriculture sector had the opposite effect. Where agricultural value added per capita grew more quickly, food imports generally did not.
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Another crucial factor should not lose sight of on this score: developing economies that suffer from widespread hunger tend to depend heavily on agriculture for employment and incomes and on exports of agricultural commodities for foreign exchange revenues. An export of rice by Nepal does not mean that the internal demand is more than met! A number of African economies rely increasingly on food imports and are forced to spend a high proportion of their foreign exchange earnings to purchase them. The nature and degree of involvement in global trade by LDCs are associated with levels of hunger and food insecurity. It is quite pertinent to mention here that over the past 30 years the LDCs spent, on average, an increasing share of their limited foreign exchange earnings to import food - in the early 1970s, these most vulnerable spent around 43 percent of their export earnings on commercial food imports, while the other developing countries spent around 36 percent. What s more to note here that since that time the average share for the LDCs increased to 54 percent but declined to 24 percent for the other developing countries.
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The high degree of correlation between food imports, involvement in international trade and food security has been quite evident. It has rightly been established by recent studies conducted on this score that 'food insecurity is highly correlated with a composite index based on three indicators related to the structure of their international trade - the share of food imports in total merchandise exports, the share of food aid in food imports, and the share of total food imports in calories available for consumption.'
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Under the facts and circumstances the reality must not be denied in such an assessment in as much as food production responds relatively slowly to changes in demand, since it takes some time for farmers to increase plantings, harvests or herd sizes. What is more: expansion of domestic production also get hindered by inherent weaknesses [low productivity, inefficiencies in supply chains / marketing systems needed to reach urban consumers, lack of competitiveness with imported supplies] in domestic food production plus distribution systems. That is to say, when incomes and demand rise rapidly, imports can scale up more quickly than domestic production. So, rapid farm growth comes to the rescue by increasing the availability of domestic foods and thus reducing the demand for imports. This is more so as the LDCs are also major recipients of food aid and the reality reflects that when less food aid flows to countries that suffer from food shortages!
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Spending a high proportion of foreign exchange resources on food imports clearly reduces the ability of the food-insecure countries to invest in other areas, which, in turn, could stimulate development and at the same time reduce their long-term vulnerability, social unrest, among others. The fear expressed rightly is that 'food-insecure countries might import even more food to cover shortfalls in domestic production and ensure food security if they were not constrained by limited export earnings.' As people who are well-fed remain more productive, policy makers should focus on helping developing countries boost production. There is no short cut solution to this age old problem bothering the globe!
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The upshot: agricultural prices have risen sharply in the past two years and the same are forecast to remain high in the medium term. Higher food prices continue to remain as a great concern to the policy-makers as they affect consumers, while at the same time they offer a unique opportunity for farmers as higher agricultural prices could improve farmers' incomes [ if freed from the clutches of middlemen and money lenders] and contribute to foster farm investment . This is especially relevant for Kazakhstan, Russia, and Ukraine, the main agricultural producers in the CIS. To note side by side: at least 13 million hectares of unused farm land - abandoned during transition - could be returned to production, with no major environmental cost. There are no policy measures restricting the return of this land to production, as rightly noted by the recent EBRD- FAO study on 'Fighting Food Inflation'. Very correctly, the world food situation is currently being rapidly redefined by new driving forces - income growth, climate change, high energy prices, globalization, and urbanization. We keep our fingers crossed.
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Source: The Financial Express
The Writer, a noted Management Economist, is attached to the Department of Business Administration, Gauhati University, Assam