WEF and challenges of global food inflation
Updated on Wednesday, January 19, 2011, 15:57 Print Email Bookmark and Share
WEF and challenges of global food inflation
Ajeet Kumar

Mounting food prices have been posing threats with serious socio political ramifications, as governments in China, India, Brazil, Russia etc. are taking firm action to tackle inflation in their respective countries.

The Food and Agriculture Organisation (FAO) has warned that its food price index has crossed over its previous crest of early 2008, when internal disturbances broke out in Haiti, Bangladesh and in some of the African countries over food shortage.

But the most different aspect of the current scenario - that it includes nearly all agro and non agro commodities- indicates the motivating forces that go beyond the plight of drought and flood.

Although there are different reasons of high prices of different food items, but the congregation of these contributing reasons is well known. Some analysis is, however, essential, especially of how the factors act together. Without it, not only the crisis may reappear in one form or another, but the policy failure it underlines will be with us for decades.

Analysts however trace the start of the crisis to the long term trend of increased demand for food. The repercussions of that growing demand – largely the result of population growth, urbanization, and rapid economic development in East and South-East Asia in particular – were augmented by recent droughts, sluggish supply response, and the decline in the US dollar, soaring energy prices, and concerns over amplified requirement for bio-fuels.

The consequences of these factors on food prices were in turn worsened by government export barriers and market assumption. It is most likely of no coincidence that worldwide food prices mounted in the wake of the international economic instability triggered by the 2008 crumble in the US properties market. Bargain hunters looking for possession in commodity market with increasing prices may well have judged the sprains in global agriculture markets and reorganised their orientation towards agriculture products.

The repercussion also has entrenched, wider causes, including slow and slipping agricultural yield in many developing countries. Especially in the least developed countries, the segment was more fruitful 50 years before than it is nowadays.

Most strikingly in the field of productivity, the yearly expansion of coarse grains production in many least developing countries declined from 3-to-6% in the 80s to just 1-to-2% now.

Sluggish yield has its indigenous causes, which are not only physical but also policy-related, institutional, and financial in nature.

This perturbing tendency is only being supported by climate change and, ironically, efforts to lessen climate variance, such as the rising usage of arable land for afforestation.

Government plan and policies are also major reasons for the sluggish yield due to which task of key institutional support measures have more or less been eradicated. Most of the measures comprise government-backed expansion services, marketing institutions, and sops for seeds, pesticide, herbicides and fertilizers. Access of more competitive agro commodities on global market has also dejected farmers. Emerging market’s agro products have become less competitive in international market owing to export subsidies in developed countries.

According to a latest analysis by the Food and Agriculture Organization (FAO), heavy subsidies in developed countries have flooded developing countries market with imported agro products.

Undeniably, most of the developing countries which were once leader in the production of certain agro commodities have become net food importers of these.

As far as investment in agriculture sector is concerned, it is more or less very frustrating as the transport and logistical infrastructure desirable to allocate agro commodities are still pathetic in developing economies.

Also, international institutions like IMF and World Bank’s attitude towards investment in developing economies agriculture is not satisfactory. In the recent years, aid to developing country`s agriculture has been truly declined. These international bodies are now mainly focusing on social-sector and emergency aid rather than taking help of science, technology and innovation in agriculture.

Why don’t they understand that urgent measures can tackle only emergency need? But for the longer term, agriculture crisis must be addressed at both the national and international policy level to enhance inclusive growth.

At global level, there is a need for coordinated response of speculation and bargain hunting in food prices. Under this coordinated response, government in a particular country should intervene in market and curb speculation which is mainly responsible for spiraling food inflation.

Equally, global coordination could decrease the cascading impact of restrictions on food exports. A more cooperated act and scheme can be also implemented to tackle middle men roles. This would also support integrated agricultural production for food and fuel.

Addressing the under-capitalization that restricts food production and yield in many developing countries may be a medium term priority. Availability of cheap and trustworthy credit for marginal farmers and better public investment in infrastructure and irrigation will be necessary for achievement of this medium term priority.

By more public and private investment in rural development and agriculture, not only 4 billion small holders could prosper, improve their own nutrition and incomes, but will also strengthen national food security and economic growth as well.

More rigid stand of developed countries on their bio-fuel blending targets, and on import of ethanol and bio-fuel from developing countries must be reviewed and relaxed. Heavy facilitation of subsidies to domestic bio-fuel and feedstock producers in the developed countries is also posing threat for emerging economies’ food security.

Identically, diversion of food commodity to promote bio-fuel production in terms of reduced energy bills at the cost of dynamic agricultural sector should not be supported. Longstanding agricultural export subsidies and domestic support policies in developed countries have always been a contentious issue as they detract developing countries’ agriculture widely.

Increase in agricultural yield at international level mostly in developing countries is crucial in tackling the enhancement of both food consumption and land use for non-food purposes.

Emerging economies must develop a plan and policy that generates the correct sops for investment in agriculture and delineates the proper amalgamation between food grains and export oriented crops. They should attune their national trade policies to encourage agriculture production, remove taxes on agro inputs, and grant sufficient and required training and scientific knowledge to farmers.

In line with domestic level, these efforts must be supported at international level through augmented development assistance and investment in agricultural and rural development by minimizing alterations in the global agro commodities market.
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