By the end of March, international prices of wheat and rice had surged to about twice their levels a year ago, and maize prices were higher by almost one-third. India escaped the worst, but many African countries were hit by food riots because of the soaring global cereal prices. This year, there is no reason for complacency. Cereal output is expected to be 2.6% higher (2.16 billion tonnes) than last year’s. On the other hand, demand is expected to be higher by around 3%, mainly driven by industrial usage (biofuel production).
Pricey commodity: Increased production can ensure food security.
The food crisis triggered its own blame game in which almost all countries, including India, took part. Among all the arguments advanced, the most absurd was the one by US President George W. Bush that the current crisis is driven by spiralling demand caused by Indians and Chinese suddenly eating more. Although not in the same words, the argument was also made by German Chancellor Angela Merkel.
Nothing could be farther from the truth. International evidence has pointed to per capita cereal consumption falling in developing countries, particularly so in India and China where increased incomes have led to a shift in consumption away from cereals to other food products such as fruit and vegetables. Cereal consumption per capita in India declined from 13.4kg per month in 1993-94 to 12.1kg per month in 2004-05 in rural areas. For urban areas, the decline was from 10.6kg per month in 1993-94 to 9.9kg per month in 2004-05. Moreover, the Indian and Chinese economies have been growing at more than 8% for the last five years and not only in the last two, when cereal prices came under inflationary pressure.
The reality is that global supply and demand imbalances in cereals were partly created by unfavourable natural conditions such as droughts in many cereal exporting countries (Australia and central Asia) and partly by diversion of cereals for biofuels mainly in the developed world, particularly the US. With the situation improving and global cereal production expected to rise, supply concerns are not so serious. Nonetheless, despite increased supply response, international stocks are expected to remain low — around 405 million tonnes (mt) — primarily because of increased consumption by the developed world.
While the demand for food is expected to follow its normal trend, the big increase in demand for cereals is coming from biofuels. Demand for foodgrain for biofuels is expected to be 100mt of which 95mt is for maize alone. Of this, around 81mt is going to be used by the US. This year, almost one-third of the US maize production is expected to be utilized for biofuel production, up from only 6% in 2005-06. The incentive given by the US for ethanol production may only see an accentuation of the trend.
But how sensible is the idea of using maize for biofuels to fill car tanks when a large part of Africa and parts of Asia are unable to fill their stomachs? A litre of bio-fuel requires as much maize as an average African eats for an entire year (the reference to Africa here is not for anything but the fact that in many African countries maize is the staple diet for the poor). With most of the developed world, including the European Union and US, subsidizing biofuel use, the pressure on cereals for industrial use may only rise further. This is certainly not being helped by the spiralling price of oil, which is expected to touch $150 a barrel.
The real issue that remains for developing countries, especially for India, is to look at the domestic front. The only way to insulate oneself from the global volatility in foodgrain prices is to ensure self-sufficiency in food production. We may have benefited from the fortune of good monsoons in the last two years and will hopefully benefit this year too. However, what should worry our policymakers is that between 1997-98 and 2004-05, our foodgrain production increased by less than 1% per year. This was less than the rate of growth of the population. We survived the severe drought of 2002-03 because of the surplus foodgrain stocks of 2001. However, this may not always happen. Managing food security through increased production has to be a priority if we want to insulate ourselves from the global food crisis. It is time to usher in the second green revolution.
Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi. Farm Truths looks at issues in agriculture and run on alternate Wednesdays.
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