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Raghavan Sampathkumar
The bourses went berserk, money markets tumbled and the whole world has been brought down to its knees to speechlessly witness yet another tsunami sweeping across the financial markets. As erstwhile investment behemoths who vociferously advised ‘good’ practices to others sunk silently, many, the AAA rated too, ran for cover to weather the wrath of the storm that ‘gustaved’ not only the US but triggered off ripple effects and panic worldwide. Governments swiftly floated gigantic rescue plans costing astronomical amounts of tax payers’ money trying to get the markets back on their feet and to reinstate the mood of the investors - the most unstable and illusive element in the world that never ceases to puzzle even the eminent intellectuals. The most striking features beyond anyone’s imagination here are firstly, the degree of urgency and second, the sheer scale of magnanimity in bailing out busted banks and bankrupt investors as Governments worldwide called for concerted efforts and to everyone’s surprise translated that rhetoric phrase successfully into action in a historically short timeframe. If this is something laudable, there are some other issues crying for more or at least the same level of attention from the very Governments for decades – hunger and poverty. Arguably these things need to be put into familiar words particularly at this time for immediate connect and better understanding by those who control the vital but deadly duo of modern life – money & power.
To start with, it is high time for introducing the ‘AAA’ in the food system? It is not ‘AAA’ credit rating system that lost its sanctity and divine power to foretell potential bankruptcies but another ‘AAA’ standing for– Availability, Accessibility and Affordability.
Availability is a function of production, stocks/reserves and consumption. It was three or four decades ago under the aegis of green revolution, Governments worldwide joined together to lift food production levels up considerably and saved millions from hunger driven death. Since then hardly any real progress has been achieved globally in agriculture in terms of innovations to sustain the yield and productivity levels in tune with the population growth and other developments (say biofuels) which could have helped prevent any crisis like the present one. Decades of low food prices shunned investments into agriculture. Public R&D system got crippled while private money was pumped only into those crops with commercial interests such as cotton and maize, driven by ROI concerns understandably, leaving too little done for food crops. Growth in food grain production has not been appreciable as yields slumped in major producing areas (Australia, Canada, Argentina and Kazakhstan for wheat and Thailand, India, Pakistan and Vietnam for rice) particularly in the last couple of years due to the unsavoury blend of natural production cycles and inclement weather caused by climate change phenomenon.
Now stocks, both food and securities are sending chills down the spine of millions across the globe. Though global food production had been crawling up slightly for an awfully long time, a severe blow came recently from biofuels, an ostensible panacea that the rich countries vehemently promoted to cleanse their carbon crimes. Ill-conceived policies without factoring in the multitude of impacts in the global food system pushed for ambitious fuel blending targets that can never be attained without robbing millions of tonnes of grains off human consumption. Biofuels backed by colossal subsidies from rich nations have eaten voraciously into the grain reserves built up over decades to tide over any unforeseen shocks in global food supply primarily to safeguard the vulnerable, food deficit countries.
With globalisation and international trading, the investors with speculative expertise for whom commodities made a yummy recipe as an alternative asset class as traditional investments in instruments like equities started losing sheen and they flooded the markets with loads of money only to jack up the difference in prices between cash and futures markets to levels unseen before. In another dimension, by taxing or banning food exports (a complete reversal from earlier trade policy perspective) major food traders, under enormous domestic pressure, further strangled the world supplies. As a result, the stocks to utilisation ratio of foodgrains (read cereals) plunged to 16 percent last year, the lowest in 45 years.
Whether the stock are low or high, accessibility has remained a burning issue particularly for the socially and economically under privileged? Defunct or near-deformed food supply and distribution systems in many of the developing and least developed countries do not justify the painstaking efforts to bring food at their doorsteps. The actual challenge for them is much greater in internal transport to make it reachable for the people in need within their borders. Vested interests playing havoc through acts of hoarding and illegal siphoning out of public food stocks had for long been and continue to be major roadblocks between the hungry and their due share of food. For example, the PDS (Public Distribution System) of supplying foodgrains to the people below poverty line (BPL) in India has been under severe criticism for being plagued with corruption and malpractices in its ground-level implementation right from the criteria of determining BPL families, quantity allocations and to monitoring. It needs a vigilant and determined Government not to yield to these counter-productive forces at the peril of the poor, which unfortunately not commonly seen in many countries that are already beleaguered by internal conflicts, racial or communal wars.
Another feature closely linked to accessibility is the affordability, which too contributes directly or indirectly in the price dynamics of food, after all it is the most basic of all human needs. Production shortfalls due to natural or man-made calamities, significant diversion of stocks to uses other than human consumption, speculation-driven commodity trading, ad hoc reactive policies like export restrictions and structural inefficiencies internal in food distribution systems together contribute enormously to the volatility of food prices. As often pointed out by economists, high food prices are not always bad as they are necessary to help investments flow into agriculture and to improve the incomes of primary producers provided the inefficiencies further in the value chain are alleviated. However, affordability becomes an issue in the light of purchasing power, i.e. when the quantum of surge in prices outpaces the incremental gains in average income. This is particularly critical for the two thirds of the world’s population living in developing & least developed nations and spend on an average nearly half or more of their monthly household income on food. It is not much of a problem whether too little food is being produced at present globally or too little is available but certainly how affordable it is in view of these billions at the bottom. Leaving the statistics on individual price movements for the moment, in general, neither low nor high prices are necessarily problematic but the scale or degree of variability between the peak and trough otherwise called volatility is certainly a troubling issue. Evidently prices of commodities before peaking during mid-2008 swerved similar to the ECG screen of a patient who suffered a severe cardiac malfunctioning throwing the livelihoods of millions of poor mercilessly to the brink of obliteration before begun to fall since last few weeks. So did the status of living of these people but for the fact that it never ever witnessed any rise.
Like a tripod all the aforesaid AAAs are crucial when it comes to feeding the six billion plus mouths now and in future.
Finally here comes the magical number ‘700’ for a gruelling comparison of two different instances from the financial and food markets that had nothing but a dire trouble and this number in common.
The world just witnessed the might of a country in mobilising a mammoth US$ 700 billion overnight to rescue its crumbled financial market. So did its transatlantic counterparts along with many others across the globe with an unprecedented conviction, pace and unanimity. On the other hand, continued appeals, requests and submissions to the hundred odd Governments worldwide for US$ 700 million (a paltry 0.1% of the above sum) by the UN WFP (World Food Program) had not been dealt with such a seriousness or empathy shown in the case above.
Now it requires some hard questioning: If bailing out imprudent, bankrupt investors and banks that scripted their own demise is of great importance, then why the same amount of commitment and urgency cannot be shown to serve the 923 million poor one additional meal a day? When raised by the civil society organizations recently in a forum on food & trade in Delhi the reply was ‘everything depends on the costs associated with the situation’. Well, are the costs of failing to restore confidence and sentiments of investors in the financial market greater than millions of people dying out of hunger? Are these people destined to be written off as bad liabilities? If it is not political will - in fact the sheer lack of it - or diplomatic apathy, what is really stopping these bureaucrats from coming together to help the deprived? These questions remained unanswered and it continues to be, unfortunately. The poor certainly do not need Titanic but they deserve at least some life boats.
Finally, to put everything precisely in financial lingo, it’s now payback time while in agri-food terminology, the world is reaping bitter harvest for what it actually forgotten to sow – the seeds of innovation. Both the arguments ultimately point to the common root causes of the crises – yesterdays’ complacency, sheer negligence, imprudence or blindly believing on the self-regulating capability of markets preached by pro-liberalisation experts whatever it may be called. It’s now high time to rejig the bottom lines and bring ‘AAA’ central to policy making in the global food system to avoid being where the world is now again in future.
October 30, 2008
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