Thursday, 13 January 2011

Please Sir, I want some more


Onions in India. Cabbage & pork in South Korea. Chilli Peppers in Indonesia. Frighteningly, wheat globally. Riots have already started in Algeria , and is sure to spread. Food price inflation is hitting the world again. Millions of children will echo Oliver Twist's begging in those immortal words which are the title of this post. Are we going to see a repeat of 2008 ?

This blogger is no expert on food economics. But the issue of food prices is close to his heart and he has posted on the awfulness of food price inflation here before. All inflation is bad, but food price inflation is especially awful. For it ceases to be an economic problem of supply and demand and becomes an issue of survival for half the world's population. It sparks a humanitarian crisis. And it will inevitably lead to unrest and riots. The world cannot afford inflation in the price of food. Certainly not the high double digit inflation that it is seeing.

The issue is a complex one. World food supply and demand is in a precarious balance. In the short run, any disruptions in supply, usually due to natural calamities leads, to a massive spike in prices. This year the wheat crop has failed in Russia and Australia. But the issue of enhancing supply is a longer term one. The gains due to scientific revolutions in crop breeding, use of fertilisers, and the like has started to taper off. No new breakthrough is coming.

The use of large cultivable land to grow bio fuels, especially in the United States is another contributor to pressures in supply. Cultivable land is finite. Any use for other than food growing, will result in lower food supplies.

On the demand side, there has been an inexorable rise, which is actually a good thing. A chief cause has been the economic development of China and India. Higher levels of nutritional requirements are a happy result of economic development and has led to continuous increase in demand. The same will happen in Sub Saharan Africa.

A third cause for inflation is the price of oil. Oil prices affect not only in food transportation, but also in price of fertilisers. Oil is a key input cost in the growing of food. And we know where oil price is - last at $93 a barrel.

A fourth cause is awful government policies. Because agriculture is an emotive subject, every government under the sun has an unbelievable maze of subsidies, freebies, giveaways that completely distort the economics of food production and consumption. And the immediate reaction to even a perceived shortage is a banning of exports - Russian ban on wheat exports are a direct cause of the rise in wheat prices. India and Pakistan are playing silly games with banning onion exports.

I am afraid food prices are going to be high for the foreseeable future. This is an inevitable equilibrium point, I believe. With high prices, will hopefully come more investment, more capacity creation, technological breakthroughs, etc etc . In other products this will happen quicker. Agriculture, because it is heavily distorted by government action, will see this much much slower. But even after this, the price levels will remain higher. This has profound implications for the world's poor - even today, hunger is not because of lack of food. Its because of lack of affordability.

Like every opinionated commentator, this blogger has his points of view on what ought to be done. It is the intention that this subject will feature repeatedly over the coming weeks. Meanwhile I invite you to ponder over the problem and share your ideas. I believe this is one of the most pressing problem facing the world today.

15 comments:

kiwibloke (in Dallas) said...

Famous last words
If they can't have onions, let'em have garlic

Anonymous said...

hahahaa....Kiwibloke..kalaasal kament :)

Ramesh said...

@kiwi - Perfect place for the comment - Dallas of the huge everything, including people !!! :):)

@Gils - Amen :)

Sandhya Sriram said...

I was wondering if there could be a NGO effort to consolidate wasted food across the economy. whether it is the wheat rotting in the FCI Godowns or the food we waste at our houses, parties, marriages and all that and we could find a way to hygeinically take it back to places where there is a need. maybe not a solution to the problem but definitely a drop in the ocean

the other part is the lack of any political will on how to make agriculture more remunerative. My grandfather was a school teacher but also managed his fields in the village. when it came to my father's generation, he was a banker and had left his fields to his sister's husband to manage in the village and support him financially whenever he has a need. the generation of my cousins and me are not even bothered to look back at our fields. why should farming be at the lowest end of the value chain. There is inadequate research, inadequate education, most non remunerative even if some one takes a formal education on this... it is all going in the reverse direction.

Very Sad State and there is not even an economic voice being raised on the topic let alone public or political.

RamMmm said...

Isn't this typically cyclic? Abundance and insufficiency.

A lot of our produce, as referred in the comments of your earlier referred post, perishes in transit or in godowns. And add to that silly politicking. IMO, Sharad Pawar must be kicked out of his job. He spends his time more in ICC trivia and the sugar lobby than do something as an Agriculture Minister.

And Sandhya captures above why there is a subsidy (and needs to be) in agriculture.

mahesh said...

Hi Ramesh,

Have some thoughts on this topic as I cover it for work under Retail the only one which strikes me is:

- A co-operative movement like Amul which will get together raw material for farmers (seeds, fertilisers, labour etc) and consolidate, grade and sell produce to retailers if possible without middlemen

Mahesh

Deepa said...

There are some lovely comments up there, so I won't add much to it. But the discussion reminds me of an episode of 'tea with the economist'. There was this scientist who was talking about how we were hunter gatherers and then evolved over time. We put more demands on the nature and so far did manage to increase productivity and make ends meet. But he said, now our evolution and growth is not in sync with nature. It sort of says that we are bursting at the seams. On a micro level it is very cruel but on a macro level, we've brought it upon ourselves.

Ramesh said...

@Sandhya - Reducing the waste has to be a big part of the solution, especially in India. Yes, agriculture is not a glamarous profession and many will not take it. But that's OK. If there is money to be made, some will come there. The trouble right now is that there isn't money to be made.

@RamMmm - Yes waste is a problem. Sharad Pawar isn't alone. Most Agriculture Ministers with the shining exception of C Subramaniam in the Green Revolution days, have done precious little.

@Mahesh - Yes cooperative movement is a great form of organisation for farmers. The trouble is it is very difficult to create and maintain. There is only one Kurien in this world.

@Deepa - Yes, we are taxing nature, but we can't go backwards. Technology is the route to going forward and disputing Malthus.

hemarao said...

It is so true. Having atleast two square meals a day is any living being's human right I think. How can one be deprived of filling his/her stomach for lack of money which is man-made? Not fair at all!
And on the other hand, we have tons of rotting grains across the green belt for lack of storage facilities! The Supreme Court and the Govt are fighting tooth and nail to decide who needs to take a decision and who needs to act on it! What a shame indeed.

Kapil said...

Maybe something of this sort is the answer..http://www.economist.com/node/16886442. Higher production, lower wastage and may vegetarianism wins the day :)

Ramesh said...

@Hema - Totally agree. Its such a tragedy that in this world of plenty, half the population goes hungry. It is a basic human right and it defines us as humans if we don't let anyone starve.

Ramesh said...

@Kapil - Hey; lovely to see you hear. Yes, the Brazilian model is an excellent model and clearly one to be emulated. Vegetarianism, I don't have much hope for , however.

ambulisamma said...

Nothing add but i do maintain a policy not to waste,the lots and lots wasted in storage, commuting and the rest in households could feed atleast half of the world.

Vishal said...

So much of food for thought, Ramesh! there are so much of waste of food on one side of the table while there are others who starve till death. I am not sure how this can be controlled as this has to do more with financial position of the consumer and discipline in ensuring optimum usage. To me, new break-through is very very important, althought other causes are also important.

rads said...

Read this somewhere recently: For the first time in the history of mankind ‘Need’, ‘Comfort’ and ‘Luxury’ are sold at the same price in India!
Onions Rs.65, Gas Rs.65 and Beer Rs.65
on the other hand even rickshaw pullers living in a hut can't do without a mobile...its a shame we had to come to this...we're developing n yet not developing...n i think this cud be said bout many other still developing countries..

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