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Food prices not a long-term worry
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Saturday, 03 April, 2010, 08 : 00 AM [IST]
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High prices of pulses, food grains, sugar and vegetables have become a politically sensitive issue over the past several months. A good winter harvest and a drop in international prices may provide some relief in the next few months. However, the big worry in several quarters is whether foods will also stabilize at a higher level as other commodities such as oil, metals, gold etc. The concern is not misplaced as prices of agricultural inputs such as fuel and fertilizers have increased substantially. The food price index maintained by the Food and Agriculture Organisation, a UN agency, was at a level of 169 in February—lower than 2008 but higher than all previous years. Going by the current trends, the world food demand is expected to increase by 42 per cent by 2030 and 70 per cent by 2050. This increase will happen as consumption patterns change in the developing world with increasing incomes.
However, this doesn’t imply that we are doomed to perennially high food prices, say experts. The high prices in 2008 were because of a combination of factors. Consumption increased in line with global growth but supply was constrained due to multiple factors.
Major wheat exporting areas—Argentina and Ukraine witnessed a drought during the period. At the same time, because of the biofuel policies a lot of agricultural land was used for growing fuel instead of food. Bothered by high prices some governments intervened, in some cases with outright bans or taxes on exports. A similar combination is unlikely to recur.
In fact, the FAO in its recent report on world agriculture estimates that over 2009-18, food prices are expected to be higher by 10-20 per cent in real terms, compared to 1997-2006. These increases are not much, says Dr S Chandrasekhar, development economist, Indira Gandhi Institute of Research and Development. The jump in food prices over 2009-10 was more due to the poor monsoon in India. India is a major food importer and when it is known that it will be importing in a big way, international prices adjust accordingly.
So far, the 2010 monsoon is expected to be normal—which should take care of the near term expectations. The El-Nino weather phenomena, which was blamed for poor rains last year , is now dissipating and rains are likely to be as usual, say experts. Moreover, from a longer term view, a real increase of 10-20 per cent over a decade is is not that high. Even the higher end of the FAO estimate means an annual increase of less than 2 per cent. Meanwhile in spite of the slowdown, India’s GDP is expected to grow at over 7 per cent.
In the longer run, this would mean that a smaller share of the total income would be spent on food. In the Indian context, investments in agriculture would also help. Marketing infrastructure has to be a priority, says Sudheendra Kulkarni, chairman of the Observer Research Foundation. Proper storage and transport infrastructure can reduce waste and provide an element of stability as well, he notes.
-- Source: Deccan Chronicle
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