The Hindu Business Line : A buffer for the consumer

First it was India, then China; and now it is Russia. Countries are constantly fighting inflation, especially food inflation. Despite their enviable economic growth rates, there is serious concern in the BRIC nations over rising food prices in their domestic markets. Inflation hurts the poor the most; and these countries are home to millions of poor people. As social unrest simmers, governments are desperately trying to rein in galloping food prices, but with limited success. Be it wheat, corn, pulses or oilseeds, globally, major food commodity prices have been soaring relentlessly, largely because of rapid diversion of traditional food products for the biofuels sector. As a result, demand-supply fundamentals of many a farm-based feedstock are tightening. Worse, excessive liquidity in the global economy has resulted in diversion of speculative funds for investment in commodities, with concomitant impact on market prices. Very simply, too much money is chasing commodities in limited supply.

Taking cognisance of the socio-political implications of rising food prices, since mid-2006, India has initiated a series of trade and fiscal measures including banning of exports, freeing up imports, reducing and in some cases totally abolishing, import duties. China has dealt with a similar problem by augmenting supplies through additional imports, reducing duties and prohibiting diversion of grains for biofuel use. In Russia, retail price controls have been imposed. As domestic markets integrate with global markets, they are no longer insulated from global influences. Ironically, industrialised economies, led by the US and followed by the European Union, are major producers and exporters of a range of food commodities. Rising food prices, no doubt, benefit growers in these industrialised countries; but the number of beneficiaries is rather small. Less than 3-4 per cent of the population of the US or the EU is engaged in agriculture. Rising food prices mean a transfer of wealth from a large number of consumers (who pay a high price) to a small number of producers. The price situation is slowly getting out of control, especially for poor nations dependent on food imports.

Clearly, protection of consumers’ interests and insulating them from the hazards of open market price action has moved to the top of the policymakers’ priority list. Every government has the sovereign right and is duty-bound to take hard decisions to protect stakeholders’ interests. One of the surest ways to support poor consumers is to step up investment in food production and subsidise food supplies. New Delhi needs to take a really hard look at all the options available to it; and initiate appropriate action. Very simply, economic growth and social security must go hand in hand.

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