A different food obsession

If you thought the worst of food inflation was behind you and hoped 2011 would bring genuine relief, you were mistaken. If anything, conditions ? global and domestic ? could get worse. The signals pointing to further upside risks to food prices are real. While the demand side grows robustly, driven primarily by rising consumption needs of the developing world, represented largely by Asia, weather aberrations have played havoc with food production elsewhere. Too much wet weather in Canada was followed by drought in Russia and the Black Sea region. More recently, while Australia reels under unprecedented floods, South America, especially Argentina, faces the ravages of La Nina-induced dry weather. These supply-side concerns have sent out strong bullish signals to the world market, where everyone is scurrying to cover their food requirements.

Quick to spot the tightening market fundamentals, speculative capital has moved into the bourses, taking long positions in many food commodities. With globalisation of the food market, the price signals are almost instantly transmitted around the world. Many economies, even if emerging, are no more insulated from global influences. There is nothing on the horizon to suggest that the price situation will ease, let alone improve markedly. No wonder, the UN Food and Agriculture Organisation cautioned recently that food prices may head higher. Most countries, especially food importing ones, are truly worried. The Indian situation is worse. Despite rebound in kharif crop production (rice, pulses, coarse grains, oilseeds, sugar) and massive fine cereal stocks with the government, food has become unaffordable for a vast majority of the poor. Unseasonal rainfall has damaged vegetable crops in some parts of the country. At the end of December 2010, rabi planted area (mainly rice, coarse cereals, oilseeds) was lower than it was a year earlier, which suggests that the new crop is unlikely to be large enough to dampen food prices. . If anything, some crops, such as wheat, are vulnerable to weather shocks. New Delhi must recognise that food inflation, already at elevated levels, hurts the poor the hardest. The policymakers have nearly exhausted all the weapons in their armoury for inflation control with but little success. The scope for further tightening of monetary, fiscal and administrative measures is limited.

?The only way forward is to address with great seriousness and urgency the much-neglected supply-side. Strengthening the farm production base and raising productivity must now become a national obsession. This calls for visionary and committed leadership as also the political will to implement programmes and schemes covering mainly input supplies, irrigation, agronomy and rural infrastructure. There is a glaring lack of research and commercial intelligence within the government to help it form a price outlook or offer a timely price prognosis for commodities. Decision-making within the government must become more market-savvy. This calls for a certain level of de-bureaucratising, and taking the industry and trade on board in policy formulation. ?

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