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Centad: Food has generally been used as a political tool
from time immemorial. To what extent does the food supply
depend on trade in South Asia and what are the major
threats arising from unstable global food prices and can
trade provide the solution?
Ramesh Chand: Dependence of South Asia on trade to meet
food requirement varies considerably across countries. The
data around the year 2000 shows that the share of import
to total food demand in the region was around 4 percent in
India, 5 percent in Nepal, 8 percent in Pakistan, 18 percent
in Bangladesh and about 44 percent in Sri Lanka.
The biggest problem with dependence on trade to meet
food requirement is high volatility in international prices
and uncertainty of global market to meet food deficiency in
difficult times. Given the low purchasing power of consumers
and high level of poverty in the region, a large percent of
population in South Asia is vulnerable to price shocks due to
supply uncertainty. These countries should depend upon trade
only to meet their requirements at the margin and to cope
up with fluctuations in domestic supply. Heavy dependence
on trade for food can prove dangerous even for countries
with relatively higher income.
Centad: The regional demand for food is very high. India
being the largest producer of food and the net exporting
country in the region, can it meet the growing food needs
of the region?
Ramesh Chand: Beside India, Pakistan and Sri Lanka are
also net food exporting countries. In value or monetary
terms, surplus of India’s food export over its food import is
much higher than the deficit of South Asian countries in food
trade. However, net export of food measured in monetary
terms conceals several things. For food security, composition
of food export is very important. As food security is primarily
considered in terms of availability of food staples like cereals,
pulses and edible oils, it is pertinent from food security angle
to find out whether India can meet the growing needs of the
region for food staples. India is expected to remain surplus
in rice for some more years and it can meet the deficiency
between demand and production of rice (non-basmati) in
South Asia. India can also meet the region’s demand for maize. In the case of wheat, India is just self sufficient with
occasional deficit and surplus. India itself is a big importer of
edible oil, and its deficiency in pulses is rising. Thus, except rice
and maize, India is not in a position to meet regional demand
for other staples. Among other foods, India’s milk and egg
production are growing at a decent rate and the country can
easily meet the demand from other South Asian countries.
Centad: The recent rising prices of agricultural commodities
were seen as ‘double edged prices’. At one end, you have the
consumers being worst hit by the prices and the other producers
making the gains. Who according to you were the losers and
gainers from the rising food prices?
Ramesh Chand: Whenever the price of any product goes up,
producers are the gainers and consumers are the losers. It is
reverse when the price declines. This logic applies to food in a
somewhat different way in developing countries in South Asia.
In these countries, all producers of food are not producing
surplus food. A very large number of households (farmers)
produce less food than what their families consume. So, though
they are producers, in fact they are net consumers. Because of
this reason, the impact of high food prices on producers gets
complicated. When food prices increase, only those producers
gain who have net surplus of food. Those producers who consume
more food than they produce are not benefited by high prices;
rather, they lose because of high prices of food. However, the fact
remains that high prices stimulate production. The ideal option
in which both producers and consumers gain is increase in food
production through technological improvements.
Centad: The current rising prices have taken a reverse turn recently.
What according to you contributed to the sudden spurt in prices
and do you see this as a cyclical pattern or an aberration?
Ramesh Chand: The sudden spurt in food prices during
the year 2007 and first half of 2008 was caused by a large
number of factors. The first relates to imbalance in demand and
production. For many years, global cereal production increased
at a lower rate than population and annual utilisation was
met by drawing from stocks and reserves. This reduced the
level of stock to a dangerously low level by the beginning of
2007, which created a feeling of serious scarcity in global
market. The second most important factor was crude oil price,
which affected food prices in many ways. It increased the price
of fertiliser and other chemical inputs and raised the cost of
operations of farm machinery. Increase in crude oil prices also
increased pressure on raising biofuel production, which uses
grain and oilseeds as feedstock. This diversion of food output
and diversion of area from food crops to energy crops reduced
already low availability of cereals and other food for use as
food. After reaching a peak level around May and June, food
prices have fallen in the recent months. The possibility of food
prices going down to pre-2005 level is very remote. Though
global food prices would continue to oscillate over time, they
are going to oscillate around much higher average than the
average of any long run period in the past. I also feel that in
the long run, food prices would move around a rising trend.
Centad: Stability in food prices is critical for any country or
region. There is a talk of building global food reserves. The
recent crisis in financial sector is going to make it further
difficult for food aid and build up of stocks. How do you
envisage a stability in food prices, which benefits both the
consumers and producers at the global and regional level?
Ramesh Chand: Stability in prices is possible at the
country level and not at the global level. The reason is that
countries often moderate fluctuation in their own market(s)
by transferring domestic fluctuations to international market
through import and export. Building global reserve is a good
idea to face supply shock, likely to be caused by unforeseen
events like climatic change, catastrophic events or shock
caused by economic and financial systems. Beside global
stock, something concrete needs to be done to raise regional
and national food stocks and to develop coordination among
countries to use these stocks to face the abnormal situations.
Similarly, food aid and domestic safety nets are also quite
important to protect the groups of consumers and countries
vulnerable to price shocks. The sustainable solution to high
food prices is to raise productivity and production through
efficient use of inputs and improvement in production
technology. Unfortunately, between developed and developing
world, production of staple foods like cereals is on a rising
trend in the former and it is showing a decline or stagnation in
the latter. This is going to increase dependence of developing
countries for food security on developed world unless serious
efforts are made to raise production in developing countries.
When volatility in international prices is high, domestic
stability measures through stocks and market intervention are
more beneficial than trade for consumers and producers over
a period of time.
Dr. Ramesh Chand is ICAR National Professor and
Theme Area Leader for markets and trade at NCAP, India and
can be contacted at rc@ncap.res.in
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