Tuesday, June 17, 2008

The failed harvest of food policy

http://www.himalmag.com/2008/june/cover_food_policy.htm

Any way you cut it, the food crisis in Southasia and around the world is bordering on the critical. And the culpability extends all the way from the Chicago Board of Trade to the power corridors of New Delhi, as organised greed takes control of our lives and diets.

By : Aseem Shrivastava

ABU TAHER KHOKON

A spectre haunts India, that of stagflation. But if, as appears increasingly true, globalisation has triggered the problem, it also offers a possible consolation: the problem is global. Certainly, the rest of Southasia is in the same situation, since food and energy prices worldwide show no signs of falling. And given how much pride Indians take in repeating the mistakes of the West, even as they suffer from the same problems, it will perhaps pacify some to know that the larger world shares their fortune.

Stagflation is the name that economists give to an economy that is slowing down at a time of rising prices (stagnation + inflation). For the first time, certainly since the liberalisation of the early 1990s, economic growth in India is decelerating just when record inflation is ripping through the budgets of the poor and the salaried classes alike, giving painful headaches to the ruling coalition in this election year. This is not what economists are typically trained to expect: normally, prices rise with growth and falling unemployment, and they fall with a recession and rising unemployment. Even in the West, to get both rising inflation and growing unemployment simultaneously was long an anomaly, at least till the oil-price shocks of the 1970s.
According to the latest data released by the Indian government, inflation is currently at almost eight percent per year – the highest in four years. Retail prices have risen much more, though it is important to remember here that services – including health and transport – are not included in calculations of the Indian inflation rate.

The rise in food prices is even more serious. The retail price for rice, for instance, has gone up by 20 percent over the past year alone, and the prices of certain pulses have risen by the same percentage. Most disturbingly, prices of edible oils – in which India was self-sufficient a decade ago, but which it now largely imports – have gone up by 40 percent during that past year. In all, the ruling coalition currently has good reason to be anxious, especially in this election year.

Few statistics are helping out the mood. Recently released data indicates that industrial production increased by just three percent between March 2007 and March 2008; the corresponding period the previous year enjoyed a rate as high as 14.7 percent. The slowdown in the capital-goods sector – through which investment is made in heavy machinery and machine tools involved in the production of other machines, and which is always an early warning signal since it most accurately indicates business expectations – has been quite dramatic: from 16.3 percent growth in 2006-07 to just 2.1 percent in 2007-08. Almost as portentously, the consumer-durables sector, growing at 5.3 percent in 2006-07, has decelerated to -3.1 percent this year. Finally, there is a perceptible fall in the rate of growth of all of the key infrastructure industries, including coal, electricity and petroleum-refinery products. Against this backdrop, Finance Minister P Chidambaram’s repeated reassurance that “the India growth story is here to stay” has a hollow ring to it.

Dependent economy
The slowdown of the Indian economy has resulted, at least in part, from the volatility in global financial markets. This downturn has also been due to the onset of recession in the US economy, which has resulted in falling demand for Indian goods and services. Thus far, the Indian growth story – with the export-oriented sectors of information technology (IT) and business process outsourcing (BPO) leading the way – had been untested by an American recession.

Now, times are changing, and alarmingly fast. Ever since the bursting of the housing bubble in the sub-prime crisis in the US in August 2007, questions have been raised about how it would impact on the growth of the Indian economy. In March, such fears were exacerbated by the financial crisis and the resulting credit squeeze, when one of the largest investment banks in the world, Bear Stearns, all but went bankrupt, and had to be bailed out by the Federal Reserve, the US central bank. The scenario has become discernibly bleaker with the sudden acceleration of inflation during the past few months, thanks mainly to a growing commodities bubble (whereby speculative funds have been attracted away from falling financial assets like bonds and equities, towards relatively imperishable commodities like grain and oil) and the steadily rising price of oil. All of these are forces that would have had significantly less impact on a more ‘selectively’ globalised economy. But given how widespread the economic ‘opening up’ in India has been, touching almost every area of contact with the global economy, it is no surprise that as Wall Street catches a cold, India too must sneeze.

What might a more ‘selectively’ globalised economy have looked like? For one thing, it would have had safety nets for the large, vulnerable poor populations of Southasia, precisely to protect their basic needs in an emergency such as the kind that now knocks at the door. Concretely, in India’s case, it might have meant not surrendering to the pressures of the IMF, the World Bank and the WTO, and preserving most of the food system as it had evolved since 1947, and beefing up (rather than thinning out) the system of food procurement. There would have been a big buffer of domestic food supply available to withstand global inflation, much like the government had boasted of till recently. Other protective mechanisms, like subsidised public housing, health and education, would have also featured in an economic policy framework more sensitive to popular needs. In the event, government after Indian government has pandered to the whims and fancies of globally influential technocrats serving narrow corporate interests in the West. Everything is either already privatised, or well on the way to being so. The public continues to pay the price.

India’s integration into the global economy has certainly come at a heavy cost: an enormous growth in the dependence of the Indian economy on the fortunes of American and other rich economies. This is not because India, without access to the markets of other countries, is condemned to be a small economy. Rather, this is because the development of a home market for products with a mass consumption base has simply not been considered a priority for the successive governments of liberalising India. While the US recession is causing significant falls in demand for Indian exports (adversely affecting both Indian growth and employment), the extent of the impact is more widespread. Even areas such as summer tourism are feeling the pinch. Thanks to the rise of the rupee against the dollar, which has made Indian goods more expensive for Americans to purchase, up to two million workers in India – in areas such as textiles, leather and handicrafts – have lost their jobs within a span of just a few months, according to the Union Commerce Ministry. The heat is being felt in far-flung places such as Moradabad and Surat.

In turn, the situation is being exacerbated by the credit squeeze, resulting from decisions taken by the Federal Reserve. This is making it more difficult for Indian companies to raise capital abroad, adversely impacting both capital inflows into India and Bombay’s stock-market index, the Sensex. Growth is also being pulled down by rising input costs in all industries, thanks to the rise in the price of key products such as steel, cement and oil. Company heads have expressed their annoyance at the government’s recent decision to impose price controls in these key industrial sectors. But these same executives have also been complaining of rising interest costs on the debts they have incurred during their expansion period over the past several years, with the Reserve Bank of India having repeatedly raised interest rates during the intervening period in an attempt to rein in inflation. Finally, industrial investment is being slowed down by unprecedented uncertainties in the global economic climate.

In short, the Indian economy has been drawn willy-nilly into the gathering maelstrom of crises that are sweeping the global economy. It too is now enmeshed in one of the most uncertain of times in the annals of capitalism.

Skyrocketing food prices
According to the UN’s Food and Agriculture Organisation (FAO), between March 2007 and March 2008, worldwide cereals prices grew by 88 percent, oils and fats by 106 percent, and dairy by 48 percent. The FAO food-price index as a whole rose 57 percent in just one year, with most of the increase coming in the past few months. According to the World Bank, in the 36 months ending February 2008, world wheat prices rose 181 percent, and overall world food prices increased by 83 percent. The Bank now expects most food prices to remain well above 2004 levels until at least 2015. The most popular grade of Thai rice sold for USD 198 a tonne five years ago, and USD 323 a tonne a year ago; in late April, this price reached USD 1000. Meanwhile, price increases are far greater in local markets: in Haiti, for instance, at the end of March the market price of a 50 kg bag of rice doubled in a single week.

Dollar falls, rupee rises Oil prices are now at an all-time high, having crossed the USD 100-a-barrel mark earlier this year (doubling from USD 50 just over two years ago), and currently trading at over USD 130 a barrel. Some analysts are now foreseeing a climb beyond USD 200 before the end of 2008. Successive Indian governments, however, have shielded domestic consumers (and, politically speaking, themselves) from the impact of rising global oil prices by issuing bonds to the three major public-sector oil companies (the Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation). These companies are then tasked with keeping the market price of oil in check, in the expectation that they will get back the outstanding debt with interest in the future. This is certainly a clever way to make the public pay for oil-price increases – by postponing the day of reckoning, at times almost indefinitely.
But why are oil prices rising so rapidly? Of course, it is true that the steady rise in the price of oil over the past few years has had a lot to do with the arrival of the era of ‘peak oil’, when demand is outstripping supply at an alarming rate. In addition, this has been greatly aggravated by energy demand from the breakneck expansion of the Indian and Chinese economies. Another important reason for the recent spurt in the price of oil, however, has been the greater attention that oil futures have received of late from powerful speculator firms. This has been one of the fallouts of the bursting of the housing and credit bubbles in the US since the middle of 2007. After all, in an era of excess ‘liquidity’, made possible by financial deregulation, money needs to be invested somewhere. And, if financial assets no longer seem safe, commodities such as oil offer one route of escape.

It is also inevitable that if the dollar falls (as has happened ever since the euro was launched six years ago) oil prices must rise. The reason for this is that the oil market has been a dollar-denominated one since even before 1971, when the dollar became the world’s de-facto reserve currency. As such, a falling dollar implies an inevitable rise in oil prices.

More to the point, however, is to ask why the dollar has been falling so steadily. Quite simply, it is because US-based firms have less and less to sell to the world, while the world has a lot to sell to the American consumer. America has lost its competitiveness in recent decades, largely to China and the rest of East Asia. This growing imbalance in world trade (present for over two decades now) has meant a ballooning trade deficit, meaning an excess of imports over exports. Washington, DC has paid for this by selling US treasury bonds – for long one of the most reliable financial assets available – to foreigners. But increasingly, the realisation has grown that the US is not in a position to redeem its USD 12.8 trillion external debt. This is almost tantamount to saying that, in order to pay for goods produced by China, the US has merely been printing the required quantity of dollars. Clearly, this was not a sustainable state of affairs.

It goes without saying that no economic power holding dollar debts (assets denominated in US dollars) – least of all China, with its USD 1.5 trillion in foreign reserves – wants the American currency to collapse all at once. At the same time, every significant player is keen to make the most of the reality of falling US competitiveness, as well as the underlying long-term weaknesses of the American economy. Amidst American calls to revalue the Chinese yuan (in order to boost imports from, and lower exports to, the US), the Chinese themselves have publicly announced that they will be reducing their purchase of US treasury bonds, and will be moving their massive foreign-currency reserves away from dollar-denominated assets into other currencies, such as the euro and the yen. With China and others having now begun to do so, the American currency has lost still more value. What cannot go on forever will not go on forever.

No lifejacket
What are the implications of all of this for India? We have already seen how the rise of the rupee vis-à-vis the dollar has meant loss of exports, employment and growth to India, given its enlarged dependence on the US market. As the dollar continues to slide, more of the same can be expected. (While data in mid-May indicates that the rupee is again falling against the dollar, this is unlikely to be a long-term trend.) Jobs will be lost not just in textiles and leather goods, but also in IT and BPOs. The falling dollar will also facilitate US exports to India, as Indians find it cheaper to buy US goods and services.

This could have particularly significant consequences in the area of food purchases, with negative implications for Indian farmers. As in many other developing countries, after all, those in the Indian agricultural sector are currently being forced to compete with imports in the open economy – something that has been forced upon India by the West, through the auspices of the World Trade Organisation, the International Monetary Fund and the World Bank. One has to bear in mind that multilateral institutions ensure that loans underwritten by them come back with handsome rewards. Up to a quarter of the Indian budgetary expenditure every year is earmarked for interest payments to foreign creditors. This year alone, this sum was as high as about 25 percent of the budget, or close to INR 2 trillion (USD 50 billion), though very few talked about this in the post-budget discussions. This is a classic mode of operation of debt-leveraged imperialism: loan money to a country till it gets into a debt trap, whereby it has to contract new loans to pay back old ones. The World Bank and the IMF are the key underwriters for these loans, and they make sure that a developing country spends its budget such that it first services the debt every year to its creditors abroad, and only then thinks of allocating its public budget under different heads.

The debt burden, coupled with such restrictive legislation as the Fiscal Responsibility and Budgetary Management Act, 2003, which binds the central government to a balanced budget, leaves fewer official options for the funding of longstanding needs of public investment in agriculture. Irrigation, power supply, technical-extension services for agriculture – all of these have languished in the era of ‘liberalisation’. Over 60 percent of India’s population derives its livelihood from agriculture, but the sector has attracted a paltry five percent of plan funds from the central government during the post-reforms era. Unsurprisingly, yields have stagnated. In the case of key cereals, productivity can be half that of China’s, and far lower than the West.

The gathering agrarian crisis in India and Southasia (and a fate increasingly shared by much of the developing world) is thus ripe ground for the takeover of agriculture by the world’s leading transnational agribusinesses. Going by past experience, these groups will seek to mechanise and industrialise the world’s agriculture, through more intensive use of fossil fuels, and then use it to experiment with and launch genetically modified crops that are banned in the West. The end result of this process is, they hope, to multiply already overflowing profits.

The impact on the availability of affordable food is particularly telling in the present predicament. Under guidance from the World Bank, since the late 1990s, more ‘precise’ targeting of families below the poverty line has been attempted, to ensure fairer distribution of scarce food. However, as has been widely noted, the location of the poverty line is a politically convenient one, often recording families to be above the poverty line even though they are well under the minimum daily nutritional requirement stipulated by the UN. This in turn severely underestimates the true number of poor. According to recent reports by the crusading journalist P Sainath, as per government records, less than one percent of people living in Bombay’s huge Dharavi slum are considered ‘poor’, and that there are only 141 poor people between Dharavi and Colaba, in south Bombay.

Likewise, successive governments have all but undone the public distribution system for producing food to the poor. Famine is not the only manifestation of food deprivation; malnutrition is rising discernibly, with almost half of India’s children at present considered malnourished. In every social strata below the ‘Incredible India’ elite, families are having to accept reductions in the quality or quantity of their daily food intake. Even middle-class households in urban areas have had to cut back on the amount of green vegetables bought at the grocer, often settling for the potato as a substitute.

It is no coincidence that the setbacks to growth in India are occurring at a time of historically unprecedented global rise in the prices of key commodities such as food items and oil. Furthermore, it is unreasonable to expect that, in a globalised economy, India can be insulated from the fortunes of the rest of the world, particularly the economies of the US, the EU, Japan and China. This is even less likely when successive governments have not taken responsible steps towards maintaining and strengthening safety nets for the Indian poor in the insecure world that has been created by globalisation. On the contrary, under the dictates of the World Bank and the IMF, Indian governments have been busy dismantling the set of institutions and policies that were instrumental in enabling the poor to survive prior to 1991. In this way, India has entered the stormy sea of globalisation without a lifejacket.

Triumvirate agriculture
One must notice the method in this madness. The phenomenon of food being taken away from the plates of the world’s poor is the natural side-effect of the policy package imposed on poor countries by the triumvirate of the IMF, WTO and World Bank, which have been spearheading corporate globalisation since the end of the Cold War. In order to secure the business and financial interests of Western corporations, these institutions have aggressively pushed a set of policies on poor countries that are inimical to the interests of the latter’s populations.

What happens when you prise open a poor country’s food market, by coercing it to remove import tariffs and forcing its domestic grain to compete with the heavily subsidised grain being produced in the US and the EU? The answer is simple: you permanently cripple a hitherto modestly self-sufficient subsistence agriculture. You also make the life of small-scale farmers impossible, forcing them to be cash-dependent, and effectively compelling their countries to buy grain from gigantic transnational grain traders.

The 30 countries that make up the Organisation for Economic Cooperation and Development (OECD) – those that purport to accept the free-market economy – collectively continue to subsidise their agriculture to the tune of nearly a billion dollars a day. The food crisis and the current prospect of famine in certain parts of the developing countries is the direct consequence of policies carried out by the ‘developed’ with such audacity. Furthermore, even within the rich countries it is not the entire farming community that is being subsidised; indeed, small-scale farmers in these countries are being rapidly ushered out of the sector.

Just how devastating the imposition of IMF-World Bank-WTO economics can be to a vulnerable country’s ability to feed its population is starkly highlighted by the story of what has happened to rice farmers in Haiti over the past few decades. Rice has long been a staple in Haiti, and till the late 1980s Haitian farmers produced about 170,000 tonnes of rice a year. This met roughly 95 percent of domestic consumption requirements. Haitian rice farmers received no government subsidies; but, in common with other rice-producing countries, their access to local markets was guarded by import tariffs.

Then, during the 1990s, the situation changed dramatically. In 1995, in order to meet the exigencies of a foreign-payments crisis, Haiti had to contract a loan from the IMF. One of the conditionalities that the IMF imposed was to cut its tariff on imported rice from 35 percent to 3 percent, the lowest in the Caribbean. The result was a massive import of US rice at half the price of domestically grown rice. Thousands of rice farmers in Haiti lost their lands and livelihoods; today, three-quarters of the rice eaten in Haiti comes from the US.

It is important to note that US rice-growers were not necessarily more efficient than their Haitian counterparts. Rather, rice exports were being heavily subsidised by the US government. In 2003, US rice growers received USD 1.7 billion in government subsidies, an average of USD 232 per hectare of rice grown. That money – the bulk of which went to a few large-scale landowners and agribusiness corporations – allowed US exporters to sell rice at 30-50 percent below its actual production cost. In the process, Haiti was coerced into abandoning state protection of domestic agriculture, while the US was able to use government protection schemes to take over the Haitian rice market. There are many such instances elsewhere, and food riots erupting in different parts of the world (including Haiti) exemplify this crisis. Food riots by textile-mill workers were also sparked off near Dhaka in April, in protest against the enormous increase in food prices. Forty percent of Bangladesh’s 144 million people live on one dollar a day or less. Clearly, the ‘poverty line’ – a starvation line at the best of times – itself is in danger of getting washed away in the torrential food-price hike of recent months.

For its part, India has been turned from a country that was self-sufficient in food into a net importer of cereals. Indeed, economics of the triumvirate of institutions are designed to make otherwise largely food-self-sufficient poor countries dependent on imports and credit from the rich countries. This is no outlandish suggestion: during the 1990s, it was an explicit goal of the Agreement on Agriculture, under the WTO, to create markets in the developing world for the surplus grain being produced in the OECD countries. The argument was that such food would be cheaper for consumers in poor countries, but the fact that it was being highly subsidised did not seem to matter. Instead, this was seen as a small price to pay to allow transnational agribusiness to take control of the world’s agriculture.

In consequence, the day is perhaps not far off when all of the world’s agriculture will have become industrialised along the lines desired by a handful of powerful corporations. By no means is this set of changes inevitable, or the best way to resolve what is likely to be a long-term crisis of food and hunger. Much depends on the kind of initiatives that are undertaken by governments in developing countries, in particular, on what sorts of investments are undertaken in agriculture. Particularly crucial in this regard could be drawing on indigenous knowledge of organic farming methods, in light of the reports of chemicalisation of soils and salinisation of groundwater in Green Revolution areas such as Punjab and Haryana.

Pricing crisis
Almost the entire world is today in the grip of a historically high inflation spiral, something that has not been witnessed since at least the 1970s. World grain reserves (enough only to feed the world for 26 days, according to the UN’s World Food Programme) are at their lowest point in a generation. In India, food reserves are said to be better than they were, say, a year ago, and yet incomparably lower than what had been reached some six years back, when the government’s procurement policy was still effective. Today, many wheat farmers have sold to private traders simply due to the poor terms set by the Indian government, which has later imported wheat at a much higher price. There are perhaps significant grain reserves in private hands in India today, but there is no simple way of knowing how much.

Shortages are evident even in the West. Rationing has appeared in Western countries for the first time since World War II. In the US, consumers at certain large chain stores were shocked to find that they were only allowed to buy one bag of rice at a time. Purchases of flour and cooking oil have likewise been limited at stores throughout New York, New England and the West Coast, even affecting the ‘breadbasket’ states of the Midwest.

There are several factors behind the current food crisis. First, there is a significant change in the demand side of the world market. The middle class has grown in emerging economies, especially in China and India, which has added to the number of people in a position to demand meat. It takes about 700 calories of grain to generate 100 calories of beef, so the rise in the demand for meat has put pressure on grain supplies. This cannot be a complete answer, however, as the global middle class has been growing for at least a decade, whereas most of the rise in prices has occurred only during the past couple of years.

Second, the rapid increases in the price of oil have to be considered in any explanation of the inflation in food prices. Modern industrial agriculture is highly intensive in its use of fossil fuels. For instance, it takes roughly 10 calories of fossil-fuel energy to produce one calorie of food energy. Without petroleum products, it is not possible to produce the fertilisers and pesticides that are widely used to enhance agricultural productivity; meanwhile, use of fertilisers in ‘third world’ agriculture has increased by over 50 percent during the past decade. Perhaps most importantly, a rapidly growing fraction of the world’s food is being traded internationally, which means that the freight costs of food rise directly with any increase in the price of fuel.

The third significant factor is the run of unusual weather in many parts of the world, put down to rapid climate change. Australia, one of the largest wheat exporters in the world, has had a succession of bad harvests, as has Ukraine, another large producer. Meanwhile, floods last year in places such as Bangladesh and North Korea had disastrous effects, as have years of low rainfall in the western United States.

Finally, the decision since 2006 by George W Bush’s administration to aggressively push for biofuels is seen by many to be perhaps the main trigger for the recent rise in food prices. At that time, the US government started giving subsidies to farms to grow corn to make ethanol, for use in automobiles, with the aim being to reduce dependence on West Asian oil as much as to reduce carbon emissions. The side effect, however, was to raise corn prices, making farmers plant more corn and, as a consequence, less soya and wheat. The final effect was a surge in the price of all grains worldwide, since more than 20 percent of American corn fields were reallocated for the purpose. Apart from the fact that fuel for the SUVs of the rich trumped basic food for the poor, it turns out that producing a gallon of corn ethanol uses up most of the energy that the gallon itself ultimately contains.

Hoarders and speculators
The timing of the global inflation in food prices is uncanny. Barely had the Bear Stearns collapse driven financial markets into a panic, than food prices accelerated their already upward trend. This has left behind the plausible hypothesis that investors are desperately searching for alternatives for their huge speculative capital, in a deregulated era of excess liquidity. In an effort to stimulate economic growth over the past several years, the US Federal Reserve has simply allowed far too much money to be created, often in ways which it has not been in a position to supervise or regulate. This needs to be understood as a condition unprecedented in history. When this excess money cannot be easily multiplied through investment in financial assets or speculative mortgage-backed securities, where does it go? One of the natural areas of gravitation is the relatively less perishable commodities, such as oil, cereals and other agricultural products. Simply put, this leads to hoarding of essential commodities.

Speculation in commodities, including within India, has become a key area for financial investment in recent years. This has been helped along by governments around the world having been led to deregulate markets in grain and commodity futures – agreements between two parties to transact at a pre-determined price at a future date. In India, in April 2003, the previous National Democratic Alliance (NDA) government, led by the BJP, lifted the ban on forward trading in 54 commodities, including agricultural commodities.

The de-regulation did not stop there. Many observers now believe that the Forward Contracts (Regulation) Amendment Ordinance, 2008, promulgated in February, is the primary cause of the recent price rise in India. The bill seeks to remove outright the ban on forward trading in commodities, on which restrictions have applied since 1952. It also legalises complex instruments such as ‘commodity derivatives’ (which enhance profit-making possibilities from speculation) and ‘options’ (to buy and sell certain stocks of commodities). Options are speculator-oriented instruments not in the interests of poor consumers or producers, because they give their holder (not the producing farmer) the freedom to buy and sell grain at a pre-determined rate.

Speculation is bad enough when engaged in by small-scale traders. But when big corporations and hedge funds are regularly involved in multi-million-dollar trades in grain and energy futures, governments inevitably become paralysed. In India, Finance Minister Chidambaram can be heard on an almost daily basis railing against small traders who are hoarding grain; but he is not heard demanding information on how much grain is being held by big global players in India such as Cargill, Archer Daniels Midlands and others. This should be publicly accessible information. Of course, to give out information regarding global grain stocks would be tantamount to giving away the game, from the private traders’ perspective. After all, the game thrives precisely on uncertainty and asymmetries of information. What is known, however, is that the limit for the amount of grain that can be stored for private trading was recently raised from 10,000 to 50,000 tonnes.

Frustration has certainly been rising that more was not done to head off the current situation. “We are paying for 20 years of mistakes,” the UN Special Rapporteur on Food, Olivier de Shutter, said in early May. “Nothing was done to prevent speculation on raw materials, though it was predictable investors would turn to these markets following the stock-market slowdown.” For that matter, frustration has also risen over a perceived failure of regulation to deal with the situation once it became clear what was taking place. Wondered Praveen Khandelwal, secretary-general of the Confederation of All-India Traders, “Why is it that despite so much hue and cry about rising prices of essential commodities not a single big industrial house has been booked under any anti-hoarding law?”

Such sentiments are not misplaced. World food prices are being increasingly controlled and manipulated by a handful of powerful grain traders, operating through centralised institutions such as the Chicago Board of Trade. According to a recent UN report, thanks to the lobbying efforts of transnational companies, coupled with the aggressive conditionalities applied by the IMF and the World Bank on poor countries (including India), the past two or three decades has seen “a significant increase in the concentration of power of transnational agro-businesses that had come to dominate not only marketing and consumption, but also the production and supply of food inputs.” The researchers go on to suggest that the problem was being exacerbated due to “the strengthening of the intellectual property rights and the extension of those rights to cover agricultural inputs. The consequences had largely been at the expense of small farmers and consumers, especially the poor.”

In an effort not to lose the electoral battle before it is begun, the present United Progressive Alliance (UPA) government has recently been busily implementing a whole set of ad-hoc measures to tackle the country’s food-price rise. Some are supply-side measures, while others are intended to attack the demand side. For instance, alongside the legislation discussed above, it has placed a ban on forward trading in certain commodities, including in soybean oil, rubber, chickpeas and potatoes. Rice exports, other than basmati, have been banned, adding to the list of countries that have undertaken a ‘starve-thy-neighbour’ approach. Import duties on items such as edible oils have also been removed, with significant impact on communities such as the coconut-growers of Kerala. Prime Minister Manmohan Singh has said more than once recently that the Indian policy towards biofuels – ultimately to be planted on 12 million hectares, out of a total 142 million total arable hectares – will also have to be reconsidered.

Much of this seems too little too late, not to mention contradictory with other legislative initiatives. It is true that a good chunk of the explanation for the price rise is to found in global trends. But global trends would have had much milder consequences in India with a caring, watchful economic policy, one mindful of the enormous dangers that globalisation poses to vulnerable communities at home. Kowtowing to corporate interests and loyally carrying out the commands of the Bretton-Woods institutions in almost every major sector of the economy has only made it certain that India would suffer the same fate as the rest of the world.

Terminating the trade fetish
Food and energy prices do not show signs of coming down anytime soon. Even before the ongoing bout of inflation, three-quarters of Southasia was having trouble making ends meet, and about half was suffering from serious malnutrition. Now, after the onset of food-price inflation, for the first time since Independence hundreds of millions of poor Southasians could be staring at the terrifying prospect of famine in the near future. At the moment, this appears to be a near certainty, unless governments in the region have the courage to radically change the character of current economic policies, and to put an end to the abysmally short-sighted treatment given to agriculture in the years since the end of the Cold War and the advent of globalisation. Of course, the moral responsibility for starvation deaths and famines in the near future will lie at the doorstep not only of governments, but also the IMF, the World Bank, the WTO and the interests that guide their agendas and policies.

Above all, if there is to be any serious reckoning with the food-related catastrophes on the way, there has to be a fundamental rethinking of government economic policies the world over. In the post-Cold War era of corporate globalisation, one-sided policies have been pushed on vulnerable countries in the name of market efficiency. Now, the harvest is there for all to see.

Even otherwise balanced writers on the topic have been led in recent years to advocate ‘trade for trade’s sake’. Amartya Sen in 2002 described any concern with self-sufficiency of food production in a poor country as a “fetish”, one that was quite beside the point in a world open to trade. But there is nothing anachronistic about poor countries attempting to be self-sufficient in food. On the contrary, given the ecological perils and threats of war we are faced with today, in time it should come to be seen as a major achievement. But will governments wake up to their moral responsibilities – and, for that matter, their political futures – anytime soon? Or will the world’s food supply fall hostage to the organised greed of global finance and agribusinesses entirely, not to mention the slipshod shenanigans of pundit economists?

In India, from a sense of alarm appropriate to an election year, the government has in recent week been busy procuring wheat, raising its purchase price from INR 750 to INR 1000 a quintal. All of this is an attempt to draw the farmer away from the private trader – the latter of whom has been accumulating stocks over the past year, since the government has been offering far more in the import market than to its own farmers. Procurement has reached a record of almost 20 million tonnes, in comparison with 11.1 million tonnes last year. This is also due to a record harvest of almost 77 million tonnes. The situation with rice is a bit less comforting, with the Indian buffer having fallen from past levels in recent months. What is certain is that over the long term, per-capita availability of foodgrain has fallen quite dramatically in India since 1991. Today, each family has available to it, on average, 132 kg less food per month. Availability of pulses has also halved, compared to 1951 (32.5 gm a day compared to 60 gm in 1951). There is quite evidently a problem of production, in addition to a problem of distribution.

The main reasons behind the failure of agriculture to keep up with population growth have to do with the breakdown of food sovereignty in the country over the past 15 years. Relenting to constant pressure by the US government and the WTO, successive Indian governments have not only withdrawn support to domestic farmers (growing wheat, rice, pulses, oilseeds, etc), they have removed import duties and tariffs on key items, allowing into the country heavily subsidised food produced by US agribusinesses. A system of unfair trade has now been all but institutionalised. The air is thick these days with talk about how genetically modified foods, produced by transnational agribusinesses, are the answer to the food crisis. But if such claims are taken seriously, and one of the main contributors to the food crisis – profiteering global agribusinesses – are elevated to the status of saviour, the crisis will never end. The accompanying table includes some numbers that should help clarify the picture as to who is deriving the benefits from high food prices.
Profit increase for some of the world’s largest grain traders
Company Profits 2007
(USD million) Increase from
2006 (%)
Cargill (US) 2340 36
ADM (US) 2200 67
ConAgra (US) 764 30
Bunge (US) 738 49
Noble Group (Singapore) 258 92
Marubeni (Japan) 90 43
Source: www.grain.org. Compiled from corporate reports.

A region’s hunger
Over the past year, affected poor communities around the world have been out in their hundreds of thousands on the streets in dozens of countries, protesting the rise in food prices. The armed forces have even been called out in many countries. India and Southasia are likely to see more than their share of political unrest in the months to come, unless governments and the technocratic decision-making establishment draw humble lessons – and are willing to change course radically.

Bangladesh, as a result of three major natural disasters (not unrelated to climate change) in four months, is this year suffering a shortfall of up to three million tonnes of rice and over 1.5 million tonnes of wheat. In Pakistan, food prices are rising at an annual rate of 20 percent; according to the World Food Programme, large numbers of people in that country run the risk of falling back into poverty on account of the food-price rise. In addition, the World Bank has listed Pakistan among 33 countries that are being put politically ‘at risk’ from the food crisis. Several development agencies have also pointed out that much of western Nepal is imperilled by the rise in food prices. In many villages, people are resorting to eating aromatic and herbal plants, since no foodgrain is available. In Sri Lanka, the World Food Programme points out that tens of thousands of displaced people in the eastern part of the island are at risk of starvation, because of the tightening of the food situation.

What is to be done? In India, in particular, with elections breathing down the necks of politicians, the ruling coalition has an opportunity to realise that, for once, political opportunism and public interest coincide entirely. Will it stay loyal to its global corporate constituency, or will it show political sagacity and a bit of morality? We shall know the answer soon.

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