Warning signs on food front

The Hindu-Dec 25
The record rise in the prices of wheat and most other food items coming on top of an
unprecedented and unanticipated shift in global food supplies has prompted a sharp warning
from the Food and Agriculture Organisation. Its top official said recently that fewer people,
especially in the developing world, will be able to get food. FAO’s food price index has gone up
by 40 per cent this year compared with 9 per cent the year before, when it was already high. The
food bill of the most needy countries rose by 25 per cent to touch $107 million last year.
Compared to a year ago, wheat prices are up 52 per cent. Very recently, for the first time ever
wheat futures broke the $10-a-bushel mark, which is roughly $370 a tonne and the equivalent of
global oil breaching the $100-a-barrel level. The price of not just wheat but the prices of most
other cereals, oil seeds, milk, and meat have also gone up. But it is the inflation in wheat prices
that has become the reference point and has, in many ways, been responsible for the all-round
increase in food prices.

In an ominous parallel development, FAO records show that wheat stocks have declined to their
lowest levels since 1980, corresponding to just 12 weeks of the world’s total consumption, which
is sharply lower than the average of 18 weeks during 2000-05. An unprecedented drought in
Australia for two years in a row and unfavourable weather conditions in Argentina, Ukraine and
Southern Russia — all principal wheat producing regions — have sharply reduced global output.
Less understood but an obviously potent factor is the effect of global warming. The shift to
biofuels, especially in the United States, is an immediate, well-documented cause. Besides, in
China, India and some other developing countries, there has been a significant change in the
consumption patterns with affluent families taking more of meat, milk and vegetables than
cereals. The consequent increased demand for grains as cattle and poultry feed has aggravated
the shortage. High global food prices have figured prominently in Indian policy making. When
announced in November, the minimum support price for the winter wheat crop at Rs.1,000 a
quintal seemed appropriate, balancing the interests of the farmers and the consumers. Evidently
the government may have to pay more next April, as private trade is likely to bid up the prices.
Even as the government is pinning its hopes on achieving a production target of 75.5 million
tonnes of wheat, a great deal of uncertainty remains over the immediate direction of food prices
and the impact they will have on inflation and the quantum of food subsidies.

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Do Away With Subsidies
Times of India-Dec 20
Most state sops don’t reach targeted beneficiaries

“We spend far too much money funding subsidies in the name of equity, with neither the equity
nor efficiency objective being met”. So said the prime minister during the course of a recent
speech in Delhi. He was repeating what one of his predecessors, Rajiv Gandhi, had said several
years ago — that only 17 paise out of every rupee spent on subsidies actually reached the
targeted beneficiaries.

Manmohan Singh’s remark focuses attention on a malady that has affected our package of
economic policies over the years. Successive governments have doled out subsidies to satisfy
some vested interest or other. Perhaps, some of these subsidies had some initial economic
justification. Often, these subsidies lose all rationale after some time. But the government of the
day simply cannot muscle up enough courage to remove them because that would be politically
unpopular.

Such examples are easy to find. I have written about a couple of them in recent columns of this
newspaper. Subsidised higher education or the unrealistically low prices of petrol and LPG are a
burden on government revenues, with the majority of the beneficiaries being relatively well-off
people. And there are many others.

For instance, the subsidy on fertilisers has gradually assumed mammoth proportions over the
years. However, rich farmers benefit significantly more than small ones from the fertiliser
subsidy since they buy substantially higher quantities. Until recently, the urban middle classes
were the biggest beneficiaries of the public distribution system. Many of the really poor do not
have any fixed address, and so do find it difficult to obtain ration cards. Even if they have ration
cards, they do not have money to purchase their weekly quota of foodgrains on any one day of
the week.

Another major reason for the mounting subsidy bill has been the support given to those public
sector enterprises that run at a loss. These enterprises would have to fold up unless they receive
financial support from the central or state governments. Of course, the closure of such companies
mean that the workers employed in these units would be unemployed. While some form of safety
net to mitigate their suffering needs to be evolved, there is no rationale for continuing to operate
chronically loss-making enterprises.

Unless the subsidy bill can be drastically pruned, there is no hope of restoring the fiscal health
of the central and state governments. Perhaps, the Centre will be in a slightly better position
because the booming economy and better tax compliance have ensured a healthy growth in
central tax revenues. While this ensures some spin-off benefits to the states

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through larger transfers from the Centre, there has been a relatively small increase in the poorer
states’ own tax revenues. Since these are precisely the states which need to accelerate
development expenditure, the case for a drastic reduction in subsidies is stronger.

Of course, it is equally important to realise that all types of subsidies should not be tarred by
the same brush. Consider, for instance, the recent National Rural Employment Guarantee
Scheme. This is in principle a scheme that is targeted towards the rural poor — the relatively
well off will not enrol in such schemes. The scheme has come in for a lot of criticism because
corruption has resulted in some leakage. The correct conclusion to draw from this is that efforts
need to be made to ensure less corruption. If schemes were to be scrapped simply because of the
attendant corruption, then practically all government activity would have to be stopped.

Critics of schemes such as the rural employment guarantee scheme typically place all their bets
on rapid growth to alleviate poverty. The “growth-only” school often cites the example of China
to bolster their arguments. They point out that in the post-reform period in China, rapid growth
has resulted in huge reductions in poverty levels. They also emphasise that the Chinese
government did not adopt any particularly pro-poor stance in their policies. If anything, there
may have been a slight increase in inequality. The incidence of poverty came down because of
the so-called “trickle-down” mechanism. People from all income classes enjoyed the benefits of
growth.

What these figures hide is the vastly superior levels of achievement in the social sectors in
China before 1979, when the current phase of reforms was initiated. In the early 50s, India and
China were at more or less comparable levels in terms of most social indicators. But, by the late
70s, China had pulled very far ahead. China’s poor were much better fed, with a drastic
reduction in chronic undernourishment. As far as comparable achievements in the health sector
are concerned, China surged far ahead of India in terms of infant and child mortality as well as
life expectancy. For instance, life expectancy at birth in China was 68 years in 1981, compared
to only 54 years in India. The same differential pattern of achievements was also witnessed in
education, with literacy figures in China being comparable to the most advanced countries in the
world, while India lagged very far behind.

Walking on two legs is always better than limping along on one leg. A balanced approach to
development must incorporate policies that promote growth and prepare adequate safety nets.
The latter must involve some targeted subsidy schemes. But there can be no place for subsidy
schemes where the major beneficiaries can afford to stand on their own feet.

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Ominous portents for wheat
ET Dec 20
Part Of A Global Rise In Food Prices

IF THE record highs scaled by wheat futures ($10/bushel) during Monday’s trade on the Chicago
Board of Trade are any indication, there is no hope for softer food prices in the first half of 2008.
Although prices retreated from the peak, the global supply situation remains tight due to a
weather induced crop failure in major producing countries such as Australia and Argentina. That
apart, the mad scramble all across to stock up will only serve to keep prices firm in the near-to-
medium term. Already wheat price have nearly doubled from the beginning of the year. The
situation in the domestic market is not encouraging either: the country seems set for another year
of grain shortfall. Reports suggest that the rabi output (early next year) would be lower than last
year, as the acreage under cultivation has declined. This, despite, the higher MSP announced by
the government at the beginning of the sowing season. Clearly, higher MSP alone provides little
incentive to bring more area under wheat cultivation. To prevent a recurrence of a food crisis, the
government needs to look for more lasting solution, and that should include early completion of
delayed irrigation projects, improving irrigation in the command area and adopting low-cost
scientific irrigation methods to contain depletion of the water table. Besides, storage facilities
need to be upgraded to improve the shelf life of grain stock and prevent infestation by rodents.

High global prices of wheat and other grains such as rice and corn, will exert inflationary
pressure on the macro economy. Nonetheless, India needs to go out and procure enough grains,
the higher prices notwithstanding, to prevent a food shortage in the country. The latest offers
from commodity MNCs to supply wheat have come at $459.9-$579.6 per tonne compared to
$385-390 per tonne quoted in August. The government does not have the luxury to reject these
offers and hope for more competitive price in the future. Misreading of the global market trends
has already proven expensive for the country. With prices forecast to stay firm, the government
would be wiser to drive a hard bargain with the global traders and buy on a continuous basis till
domestic supply situation improves.

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Global food scarcity
Business Standard-Dec 20
Wheat prices have climbed to record highs around the world, as stocks have ebbed to their
lowest levels in a quarter century. The result is that global food security is in jeopardy. The
situation is unlikely to improve in the near- to medium-term, as the crop outlook is far from
satisfactory in most of the major wheat-exporting countries. Matters have got even worse
because some of the other cereals, notably maize, are being diverted to bio-fuel production as a
response to spiralling crude oil prices. The worst-affected, predictably, are the low-income, food-
deficit countries, mostly in sub-Saharan Africa, who face an unaffordable 25 per cent rise in their
food bill in just one year. India cannot remain unscathed; there has already been controversy over
expensive wheat imports, and the government has been forced to jack up wheat procurement
prices quite sharply in order to feed the public distribution system, thereby increasing the food
subsidy bill. On top of that, the lack of winter rains has affected wheat sowing in unirrigated
areas; even in irrigated tracts, farmers have not expanded the acreage under wheat despite the
record Rs 250 per quintal hike in procurement prices.

Sharp price swings are not uncommon in agricultural markets but high prices rarely last beyond a
season or two. The situation is different this time, for the uptrend in wheat prices began in early
2006, and has not only endured but tended to accentuate, leading to some of the biggest price
leaps in recent weeks. Indeed, the price surge has not remained confined to cereals, it has got
extended to milk and meat and has coincided with soaring freight rates. Climate change-induced
factors like droughts and floods are largely responsible for this state of affairs, though there are
other reasons as well. The upheaval in wheat prices, for instance, has been caused largely by a
two-year drought in Australia, dry weather in Ukraine and unfavourable growing conditions in
Russia, besides untimely rains in the US. Most of these are wheat-exporting countries.
Consequently, world cereal stocks are projected by the UN’s the Food and Agriculture
Organisation (FAO) to drop this year by 17 million tonnes to 142 million tonnes, the lowest level
in 25 years. So are, of course, the stocks of other cereals traded in the global food bazaar. It is no
wonder then that FAO has warned of a fall in the per capita consumption of cereals, especially in
the least developed countries, where the bulk of the world’s 852 million hungry people lives.

While India continues to import wheat at today’s record prices — in the process fanning the
global price rise — it has no escape from taking measures to boost domestic output, which in the
case of wheat has been either stagnant or growing slowly in recent years. One inevitability will
be even more attractive prices for farmers. Food price inflation is going to be the inevitable
result, and/or a sharp spurt in the food subsidy bill. It is not going to be a free lunch for anyone.

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We don’t have a choice
Business Standard-Dec 20
If raising farmer incomes is our goal, farming must seek innovative production and delivery
methods.

At a meeting on the side of the global climate change conference in Bali, experts once again
drew attention to issues about agriculture that can no longer be ignored. Will self-seeking, vote-
bank politicians listen?

New industries, roads and urban areas aren’t the only things robbing the world of productive
farmland. More serious is the threat embedded in the very state of our agriculture. As the experts
pointed out, soil erosion and other forms of land degradation are eating up five to seven million
hectares of farmland every year. Some 30 million hectares have been lost to water logging and
salinity already, and the depredation continues to claim 1.5 million additional hectares each year.
Besides, there’s the methane effect on climate. The very act of growing rice, which feeds more
than half the world’s population, emits some 50-100 million tonnes of this harmful gas into the
atmosphere yearly, making agriculture even more vulnerable.

What’s the world doing about it? What are we in India going to do about it? Do our politicians
realise that the problem is graver than the flippant game they play of nailing opponents for
immediate political gain?

In a recent position paper outlining its strategy for the period from 2007 to 2015, the Manila-
based International Rice Research Institute (IRRI) states the problem even more bluntly. It asks
people to accept the fact that arable land available to agriculture will only keep shrinking.

In the next 25 years, 55 per cent of Asia’s population will be urban-based, against one-third at
present, due not only to continued population growth but also to increasing rural-urban
migration. This means more land will be needed for housing, factories and roads, as well as to
grow new varieties of crops to suit new lifestyles, and that has to come out of land available for
rice. The chop will inevitably fall on the most productive agricultural land.

Thus, to keep pace with demand, even more rice will have to be produced from a shrinking land
area, with less water, less cost and probably less available labour. At the same time, yields from
rain-fed land must go up to compensate for the inevitable loss of favourable irrigated land.

But rice alone won’t be able to lift farmers out of poverty. Continuous rice cultivation is no
longer relevant or profitable, says IRRI. Besides, yields are falling off. From 2.5 per cent a year
during the first two decades of the Green Revolution, the growth in rice yield has declined to
about 1.1 per cent a year since the late 1980s. Farmers must look to diversify into higher-value
crops requiring less water, as well as livestock, to earn the income that will make them stay on
the farm. Even within rice, there’s an increasing need to move into value-added products, such as
nutritious rice. Farms must also learn to do with fewer workers to stay viable.

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What IRRI and other experts are saying makes one thing very clear. We must be sober enough to
accept the realities of the new agricultural situation, within the compulsions of altered economic,
demographic and climatic parameters, and not to indulge in cheap, emotional politics over petty
land grab issues that only serve to misguide farmers. Those who want to shield farmers from
these new realities and keep them entrenched in their traditional role and present marginal state
are actually their enemies.

The pressures and the challenges should be obvious to everyone: How to make the best of a
worsening situation: shrinking land area, self-defeating farming practices, diminishing water
resources, falling incomes and adverse climatic conditions. It’s not going to be easy. It’s beyond
the powers of farmers. It’s beyond even the powers of governments alone. It requires the
deployment of technology, scientific research and marketing forces on a scale that demands a
bigger and more active involvement of the private corporate sector alongside governments and
individual farmers. In this matter of utmost importance, the three shouldn’t be looked upon as
enemies with mutually exclusive interests.

As IRRI points out, technological progress in rice cultivation has slowed substantially since the
early 1990s. Recovering some of that momentum is, therefore, the primary goal of the institute’s
new strategic plan. In the changed agricultural situation, developing “climate-friendly” varieties
that can withstand extreme conditions of drought or submergence has become more important,
and genetic improvement has become a key necessity.

Agriculture, thus, has entered an area where big investments are called for, as much in seed
development, mechanisation and post-harvest processing as in linking scientific advances with
the real-world problems of both farmers and consumers. If raising farmer incomes is our goal,
farming must get out of its age-old trap and seek innovative production and delivery methods.
We’ve got to involve the corporate sector. The danger signals are out and we don’t really have a
choice.
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