Back from fork to the farm

Back from fork to the farm
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First Published: Wed, Apr 02 2008. 12 22 AM IST
Updated: Wed, Apr 02 2008. 12 22 AM IST
It’s the farm that’s deciding what gets onto the fork, unlike what it was until a few years ago. Stories about furious trading in agricultural commodity markets as soon as some driblet of information emerges are not new. But they have begun to take an entirely different meaning in the age of not-so-cheap commodities.
Consider this one. Soon after the US department of agriculture (USDA) released a report on Monday stating that corn acreage in the country is likely to fall by 8%, corn prices raced upwards at the Chicago Board of Trade, one of the biggest commodity exchanges in the world. The price settled at $5.67 a bushel. It used to be barely $2 a bushel a few years ago, bothering only the farmers who complained of low prices. On Monday, it perturbed many; industries ranging from fertilizers, seeds, food processing, ethanol producers to the fast food outlets around the corner watched the markets nervously.
In a sense, the wheel has come full circle. Until a few years ago, it was demand from end-users that dictated what crops (and how much) would be planted. With demand broadly concentrated in a few sectors such as livestock and poultry feed and food, things were by and large “contained”. Agriculture, it seemed, depended on industrial demand for survival.
No longer. The story began to get complicated early in this decade. With a diversified use pattern, the side that faces the boot has changed. It’s industry that’s hostage to agricultural output. Monday’s events were part of this changed scenario. Nothing illustrates this better than the projected change for this year in acreage of soya bean, the crop that mirrors corn, by an upward 18%. Since 2004, corn and soya bean acreage have followed opposing cycles. This is partially due to demands of the two biofuels they yield; ethanol (corn) and biodiesel (oil from soya bean).
Farmers now decide what to plant, based in turn upon the demand for these two products. This leaves a whole lot of industries running for cover or making a killing.
As a result, it’s not only demand for food from China and India that’s fuelling this frenzy, the changed industrial use pattern in the West, too, has contributed to the price spike in these commodities. It also complicates inflation management. This year, corn shortage will cause a spike in one set of prices, the next year any soya bean shortage will affect another set of prices.
Is the commodity inflation story more complicated than believed so far? Write to us at views@livemint.com
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First Published: Wed, Apr 02 2008. 12 22 AM IST