The Hindu Business Line : The blame game

Global food inflation does not stem from growing consumption in Asia; rather, it has its origins in the huge subsidies paid out for biofuels in the US and the EU.

More often than not, the US administration lives in a world of its own, generally removed from ground realities as we know them, and surely far away from the realities of the so-called Third World. It should, therefore, surprise none that two of the most powerful persons in the US administration — President George W. Bush and the Secretary of State, Ms Condoleezza Rice — should blame what they perceive as rising affluence in two of world’s most populous nations, China and India, for the unprecedented spurt in food prices across the world. Seldom in recent history have food prices been the subject of agitated discussion within the US, the land of plenty. Food has always been so cheap that an average family in the US is known to spend less than 15 per cent of monthly budget on food (against over 50 per cent in India).

Munificent agricultural subsidies help keep growers well supported and consumers happy. If even affluent Americans are feeling the pinch of rising food prices — rice, wheat, edible oil, milk and meat — what can one say about hundreds of millions in Asia and Africa living on the proverbial ‘less than $1 a day’? Of course, China and India are today two of world’s fastest growing major economies. A growing number of people in these two countries enjoy higher disposable incomes that encourage them to consume more and more goods and services, with food topping the list. The two countries are the world’s largest producers of wheat and rice, are largely self-sufficient in food, and are not overly dependent on the world market. Indeed, and ironically, as far as India is concerned, despite rising output, the per capita availability of grains today is lower than it was 15 years ago.

It is not as if the world has suddenly found itself seriously short of food. The reality simply is that there has been an unfortunate combination of circumstances on the demand and supply sides — weather-induced output shortfall, higher costs of food production and transportation because of record crude prices, increasing diversion of traditional food crops for biofuels, strong demand growth in major economies including Asia and, last but not the least, huge flow of speculative funds into agri-commodities traded on the bourses. Governments, the US included, are in a bind on how to reconcile the conflict between domestic compulsions to fight high food prices and international trade obligations. To fight food inflation and protect the poor, governments have taken action, varying from prohibiting exports (India has banned rice exports) to stopping diversion of grains for biofuels (China). It would be a cruel joke on the poor millions of Asia and Africa to suggest that growing affluence in China and India is causing worldwide food inflation. A single decision by the US and the EU to immediately stop state-subsidies for biofuels has the potential to send food prices crashing down to reasonable levels. But will they do it?

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