‘Dal’onomics 101: All you Wanted to Know but were Afraid to Ask

Toor_Dal_Tur_dal

The consumer price inflation number is released every month by the ministry of statistics and programme implementation. For the month of May 2016, among all items that constitute the index, the price of pulses rose the fastest. The price of pulses(dal) rose by 31.6% between May 2015 and May 2016. This after rising by 16.6% between May 2014 and May 2015.

Hence, over a two-year period the price of pulses has risen by around 53.4%. This is as per the consumer price index, the rise in price at the actual retail level might be more. The only other items that saw double digit inflation, over the last one year, were vegetables and sugar.

Of course, this rise in price must have upset the monthly budget of many homemakers. Nevertheless, the rise in price of pulses is not something new. It is now a part of our lives. The question is why is this happening?

In the budget speech made in February, earlier this year, the finance minister Arun Jaitley had said that: “Monitoring of prices of essential commodities is a key element of good governance. A number of measures have been taken to deal with the problem of abrupt increase in prices of pulses.
has approved creation of buffer stock of pulses through procurement at Minimum Support Price and at market price through Price Stabilisation Fund
.”

On the face of it, this sounds a sensible thing to do. Up until February, the government maintained buffer stocks for rice and wheat. The idea was that it could do the same for pulses as well. If prices went up, some of the buffer stock could be released in the market and prices be stabilised.

The trouble is what works with rice and wheat doesn’t necessarily work with pulses. With an assured procurement of rice and wheat by the government, India produces much more rice and wheat than it needs. As the Economic Survey of 2015-2016 points out: “It is increasingly clear that there is over-production of cereals, especially in some states. Reducing this over-production—a manifestation of this exit problem—is difficult.”

What is the trouble with the government procuring pulses as well? The dietary patterns as they evolve seem to favour increased protein and pulses are a major source of protein, in a country, where a significant portion of the population is vegetarian.

The trouble is that the production of pulses hasn’t been going up. In 2013-2014, the total production of pulses stood at 19.25 million tonnes. In 2014-2015, this fell to 17.15 million tonnes. The target though was at 20.05 million tonnes. The expected production in 2015-2016(as per the third advanced estimate) has fallen even further at 17.05 million tonnes.

The failed monsoon over the last two years is the obvious explanation for this. Also, what does not help is that a major portion of pulses are produced in unirrigated areas unlike rice and wheat. As the Economic Survey points out: “The production pattern for pulses is very different from other crops. Not only is most of the land dedicated to growing pulses in each state unirrigated, but the national output of pulses comes predominantly from un-irrigated land. In contrast, a large share of output in wheat, rice and sugarcane – in Punjab, Haryana and UP – is from irrigated land.”

Hence, for a pulses production to increase a good monsoon is necessary. In this scenario of falling production of pulses, the government decision to build a buffer stock hasn’t really helped. In early March 2016, the ministry of agriculture told the Rajya Sabha that the government has decided to build a buffer stock of pulses amounting to 0.15 million tonnes. One third of the amount had already been procured.

This meant that the overall supply of pulses to the open market fell further, driving up prices. Given the huge gap between demand and supply, even a small fall in supply, can drive up prices.

The following table shows the total amount of pulses that have been imported over the years.

Chart 4.6: India’s Imports of Pulses, 2004-05 to 2014-15India's Imports of Pulses, 2004-05 to 2014-15In 2014-2015, the total amount of pulses imported stood at 4.57 million tonnes. As can be seen from the table, the total amount pulses imported has gone up dramatically over the years. Between April 2015 and February 2016, the country imported 5.56 million tonnes of pulses. (Source: Commodity Profile of Pulses, May 2016).

Myanmar remains a major source for import of pulses. But despite the imports, the prices of pulses continued to rise. As the report titled Price Policy for Kharif Crops—The Marketing Season of 2016-2017 points out: “India being the largest producer, consumer and importer of pulses in the world, its domestic demand-supply volatility has high impact on international trade.

This means that Indian demand drives up prices in international markets. So, even if we are able to import pulses to meet demand, the prices continue to remain high. As the Economic Survey points out: “Given that India is the major producer and consumer of pulses, imports cannot be the main source for meeting domestic demand. Therefore, policy must incentivise movement of resources towards production of pulses.”

One reason why farmers do not like to grow pulses despite such high prices is that unlike rice, wheat and sugarcane, there are no steady buyers. This means that farmers have to sell their produce in private markets where they can get a price even lower than the MSP. And given this, lack of predictability about a price, farmers prefer to grow rice and wheat.

In an ideal world, the way out of this would be develop a proper agricultural market where market forces would do their work. But in India, what is likely to happen is that the government will procure more and more pulses, like rice and wheat, in the years to come.

As the report titled Price Policy for Kharif Crops—The Marketing Season of 2016-2017 points out: “The long-term measures include increasing productivity, bringing more area under pulses cultivation by diversifying from paddy and wheat alongside providing adequate facilities for assured procurement, creating buffer stock of pulses and their distribution through Public Distribution System (PDS).”

This is a bit of a chicken and egg story. As the government procures more pulses, the supply in the open market will fall, pushing up prices, until the government releases pulses into the open market. This is how things will operate, with spurts in prices of pulses, until enough farmers know about the fact that the government is procuring pulses as well, along with rice and wheat. This knowledge will then lead to more farmers cropping pulses and a gradual increase in production, in the years to come.

Also, the yields of pulses in India is very low in comparison to other countries. As the Economic Survey points out: “India has low yields comparable to most countries. On an average, countries like Brazil, Nigeria, and Myanmar have higher yields. Some states do much better than the all-India average, but even the key pulse producing state of Madhya Pradesh has yields (938 kg/ha) barely three-fifths that of China’s (1550 kg/ha).”

Price stabilisation of pulses also requires an improvement in the yields.

The column originally appeared in Vivek Kaul’s Diary on June 24, 2016

Why India should be growing dal and not sugarcane

Toor_Dal_Tur_dal

Dal prices, in particular tur dal (also known as arhar dal or pigeon pea) prices, have been on fire. The price of tur dal even crossed Rs 200 per kg sometime back. As I write this, the price of tur dal is still hovering around Rs 200 per kg.

This trend has prevailed over the last few years where dal prices have reached astonishingly high levels at various points of time. Why is that the case? The reasons are both from the demand as well as supply side.

As rural incomes have gone up over the last few years, the demand for dal as a source of protein has gone up. The supply hasn’t been able to keep pace. Over and above this, short term weather trends have led to massive spikes in dal prices.

In 2007-2008, India produced 3.08 million tonnes of tur dal. In 2014-2015, the total production was down to around 2.78 million tonnes, which was lower than the production in 2007-2008. The total production in 2013-2014 had stood at 3.34 million tonnes.

Hence, between 2013-2014 and 2014-2015, there was a significant fall in production of tur dal. Economists Ashok Gulati and Shweta Saini in a column in The Indian Express estimate that the “the consumption of tur hovers between 3.3 to four million tonnes.” Hence, there is a clear gap between the demand for and the supply of tur dal.

What has not helped is the fact that the yield has more or less remained flat. In 2007-2008, 826 kg of tur dal was produced per hectare. By 2013-2014, this number had risen to only 859 kg per hectare, at a rate of less than 1% per year (around 0.7% to be precise).

As Dharmakirti Joshi and Dipti Deshpande economists at Crisil Research point out in a recent research note titled Every third year, pulses catch price-fire: “Pulses account for about 20% of area under foodgrain production, but less than 10% of foodgrain output. Also, over time, production of pulses has failed to catch up with demand. Output has grown less than 2% average in the last 20 years, while acreage has grown even lesser at 0.8%. Not surprisingly, yield rose only 0.9%.”

There are fundamental reasons behind why tur dal prices in particular and dal prices in general have been on fire. Over and above this there is a more recent reason as well. The monsoon this year was at 86% of its long period average. And this did not help either. As Joshi and Deshpande point out: “Pulses are highly risk-prone crops because most of the production is rain-dependent. Barely 16% of total pulses area is covered by irrigation and hence the crop is highly vulnerable to monsoon shocks.”

Also, the current incentive structure of the government is in favour of growing rice, wheat and sugarcane. As Gulati and Saini point out: “The government needs to create a crop-neutral incentive structure for farmers, which is at present skewed in favour of rice, wheat and sugarcane. Much of the subsidies on fertilisers, power, and irrigation go to these crops. These subsidies amount to more than Rs 10,000/ hectare. If the same amount were given to pulse growers, they would be incentivised to produce more.”

The government declares a minimum support price for rice and wheat and actively procures grains through the Food Corporation of India and other agencies.

It declares a minimum support prices for dal as well, but doesn’t actively procure it. Given this, while the farmer is sure of the government buying the rice and wheat that he produces at a certain time, the same certainty doesn’t exist in case of dal. As Joshi and Deshpande point out: “Production is also risky because of inadequate post-harvest storage facilities, absence of assured marketing outlets (unlike wheat and rice) and lack of government assurance for purchase under public distribution.”

The irony is that with economic incentives like assured procurement by the government lead to the farmers producing water intensive crops in water-scarce areas. As TN Ninan writes in The Turn of the Tortoise—The Challenge and Promise of India’s Future: “Punjab and Haryana need to change their choice of crops and reduce growing water-hungry rice…Growing sugar cane, even more water hungry than paddy, in water-scarce Maharashtra is equally contraindicated—especially since the country happens to be surplus in sugar most of the time, and exporting sugar amounts to exporting water.”

As Ninan further points out: “The high cane prices make the crop attractive to farmers who otherwise might have grown less water-intensive crops, especially in stretches where water is not abundant. But one price distortion leads to another, and then another.”

With this entire structure in place enough dal doesn’t get grown. As Gulati and Saini point out in another column in The Financial Express: “Pulses need much less water, are nitrogen-fixing, and therefore do not need much chemical fertilisers either. They can thus save on large input subsidies (power, irrigation and fertilisers), much of which are normally cornered by rice, wheat and sugarcane as these crops have high irrigation cover and higher fertiliser consumption.”

So even though growing dal needs lesser water not enough dal is grown because the prevailing economic incentives go against it. And this anomaly is not going to go away anytime soon.

The column originally appeared on The Daily Reckoning on Nov 30, 2015

Elections with tur dal tadka

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Dal prices have been on fire. The bureaucrats and politicians have been caught napping once again. In the recent past, tur dal prices have crossed Rs 200 per kg. The prices of other major pulses have also crossed more than Rs 100 per kg.

The governments (central as well as state governments) have gone on an overdrive and blamed the hoarders for the price rise, as they have often done since the 1960s. A statement released by the ministry of consumer affairs, food and public distribution late last week pointed out that 74,846.359 tonnes of pulses have been seized from hoarders after 6,077 raids.

It is not surprising that the central government wants to push down the price of various pulses in general and tur dal in particular, given the on-going state assembly elections in Bihar. Media reports suggest that the high dal prices have become an election issue in Bihar, with leaders of both the NDA and the Nitish+Lalu+Congress combine accusing each other of not doing enough to control dal prices.

But is hoarding the really the only reason for high prices? The ministry of agriculture publishes a document titled Commodity Profile for Pulses. This document dated March 2015 had clearly pointed out that the total production of various kinds of dal would fall by 6.8% to 18.43 million tonnes in 2014-2015. The production had stood at 19.78 million tonnes in 2013-2014.

The production of tur dal was expected to be at 2.75 million tonnes, a fall of 13.2%.  The production for 2013-2014 had stood at 3.17 million tonnes.

The Commodity Profile for Pulses dated September 2015, revised these numbers. The total production of dal was revised to 17.2 million tonnes, a fall of 13% from 2013-2014. The production of tur dal was revised to 2.78 million tonnes, a fall of 12.3% from 2013-2014.

The point here is that the government knew at the beginning of this financial year that the production of tur dal in particular and total dal production as a whole, had fallen in 2014-2015. It was but logical that hoarders would get into the fray.

This possibility should have been tackled at that point of time. By the time the government woke up to this possibility it was too little and too late. The damage of escalating dal prices had already been done.

Further, imports have been bandied around as a solution to the escalating prices. In a press release dated October 19, 2015, the ministry of consumer prices, food and public distribution stated that the “government would further import 2000 tonnes of Tur dal and 1000 tonnes of Urad dal and tender will be floated by MMTC immediately.”

As mentioned earlier the production of tur dal has fallen from 3.17 million tonnes in 2013-2014 to 2.78 million tonnes in 2014-2015. Also, a poor monsoon this year may also have had an impact on tur production. Tur is mainly grow during the kharif season and a very small portion of the total area under production has access to irrigation. The monsoon this year was at 86% of its long period average.

So what does this mean? The production of tur dal during the course of 2014-2015 was around 0.4 million tonnes lower than 2013-2014. In an article in The Indian Express Professor Ashok Gulati of ICRIER estimates that the yearly consumption of tur dal in India is in the region of 3.3 to 4 million tonnes. Trying to plug this huge gap between falling production and consumption by importing a few thousand tonnes of tur dal is not going to help much.

In fact, the global market for pulses is not very big. In 2014-2015, India imported a total of 4.6 million tonnes of dal, of which 0.58 million tonnes was tur dal. A little over half of India’s tur dal imports came from neighbouring Myanmar and the remaining came from Africa. Also, it is worth mentioning here that India is the biggest producer of tur dal in the world. So imports really cannot help beyond a point.

Further, pulses are an important source of proteins especially for vegetarians. In this scenario as per capita income goes up, the demand for pulses will continue to go up.

As the 2013-2014 annual report of ministry of consumption, food and public distribution points out: “demand for pulses has been increasing steadily mainly due to increase in population and preference for enhanced protein requirements in food.”

A discussion paper titled Taming Food Inflation in India released by the Commission for Agricultural Costs and Prices (CACP) in April 2013 and authored by Ashok Gulati and Shweta Gulati refers to the same reason. As it points out: “[The] study finds that the pressure on prices is more on protein foods (pulses, milk and milk products, eggs, fish and meat) as well as fruits and vegetables, than on cereals and edible oils, especially during 2004-05 to December 2012. This normally happens with rising incomes, when people switch from cereal based diets to more protein based diets.”

This trend of increased consumption of proteins has been around for a while. What all this clearly tells us is that the government failed to see this crisis coming, even though the data as well as the trend suggested it very clearly.

Further, the trend of increased protein consumption will continue, as people earn more and eat better. This can be only solved by producing more pulses within the country.

The government of India actively procures wheat and rice through the Food Corporation of India and other agencies. This creates its own set of problems. As the CACP report points out “Assured procurement gives an incentive for farmers to produce cereals rather than diversify the production-basket.”

The economic incentive the way it is currently structured encourages farmers to produce more of rice and wheat and not other crops. This is something that needs to be set right.

In the short run, the good news is that the area on which pulses have been sown in this kharif season has gone up to 11.6 million hectares from 10.3 million hectares last year.

As far as tur dal is concerned the area under production has gone up by 4% to 3.74 million hectares. While the number is higher in comparison to 2014-2015, it is not as high as earlier years. Between 2010-2011 and 2013-2014, the number varied between 4.42 million hectares and 3.90 million hectares. The yield in 2010-2011 was 655 kg per hectare. This had jumped to 813 kg per hectare in 2013-2014.

With an increase in area under production, prices are likely to fall a bit in the days to come. Nevertheless, if dal prices in general and tur dal prices in particular, need to come down dramatically in the years to come, then the yield as well as area under cultivation need to go up. And this is easier said than done.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared in The Asian Age/Deccan Chronicle on October 28, 2015

‘Dal’onomics 101: Why dal prices have been going up

Toor_Dal_Tur_dal

One of the first things that gets taught in any basic course on economics (or Economics 101) is the substitution effect. This is a scenario where high prices of one commodity pushes consumers into consuming another commodity. If lamb meat prices are too high, consumers move to eating chicken. If coffee prices go up, consumers may move towards drinking the more affordable tea.

In the rational world of theoretical economics this makes tremendous sense. But things are a little different in real life. Take the case of the recent rapid rise in the price of various pulses, tur dal in particular.  The prices recently crossed Rs 200 per kg. The annual increase in price has been more than 100%. In this scenario is the Indian consumer substituting tur dal for something else?

The most logical thing to do would be to consume other pulses like urad, moong, etc. But the prices of other pulses have also risen at a very rapid rate, though not as fast as tur dal. Further, it is also a matter of taste. If the consumer is used to a certain kind of food, it is not so easy to switch to something else overnight.

As economist Subir Gorkarn writes in a recent column in the Business Standard: “Unquestionably, there is some substitution going on between different pulses, but large parts of the country are predominantly tur consumers, while, in others, rising incomes create a long-term, superior-good shift towards tur.”

There have been several media reports talking about how chicken is now cheaper than dal.

It has been jocularly suggested on the social media that chicken being cheaper than dal will lead to regular dal eaters moving to regularly eating chicken. Only if it was as simple as that.

While chicken may be cheaper than dal, it still costs more than Rs 100 per kg and hence, cannot really replace dal as an everyday staple. Dal-chawal or dal-roti is an everyday staple for many Indians. And this cannot be replaced by chicken, unless it starts to cost what dal used to up until a few years back.

Also, it is worth remembering here that dal is a huge source of protein. Further, as incomes go up and people eat better, the demand for food high on protein tends to go up. Data from ministry of agriculture points out that the production of dal has gone up from 14.76 million tonnes in 2007-2008 to 19.77 million tonnes in 2013-2014. In 2014-2015, the total production fell to 17.2 million tonnes. The yield has gone up from 625 kg per hectare in 2007-2008 to 798 kg per hectare in 2013-2014.

Despite an increase in yield as well as production, the troubling point is that the per capita availability of pulses has come down over the long run. A 2014 research report titled India’s Pulses Scenario authored by the National Council of Applied Economics Research (NCAER) points out: “Pulse production has recorded less than one percent annual growth during the past 40 years, which is less than half of the growth rate in Indian human population. Consequently per capita production and availability of pulses in the country has witnessed sharp decline.”

“Per capita net pulse availability has declined from around 60 grams per day in the 1950s to 40 grams in the 1980s and further to around 35 grams per day in 2000s.  However, in the past four years, there has been significant increase in consumption averaging around 50 grams due to somewhat higher production,” the report further points out.

This largely explains why despite an increase in yields as well as overall production, dal prices have gone up over the last few years, with huge spurts in between. How can this be corrected?

A recent newsreport in the Mint points out that a part of the correction has automatically happened through the substitution effect. People are eating more eggs than they were in the past.

Between 1961 and 2013, the per capita availability of eggs has jumped from 7 to 58. At the same time consumption data provided by the National Sample Survey Office suggests “a declining trend in the consumption of pulses—from 11.8 kg per person per year in 1987-88 to 8.4 kg per person per year in 2009-10.”

During the same period “the consumption of eggs went up from 6 per year to 21 per year in rural India and from 17 to 32 in urban areas.”

This is something that the World Health Organisation also suggests when they say: “There is a strong positive relationship between the level of income and the consumption of animal protein, with the consumption of meat, milk and eggs increasing at the expense of staple foods.”

Nevertheless, what about the vegetarians? A significant proportion of Indians are vegetarians and that also needs to be taken into account. They need to eat dal for their protein needs.

The area under production of pulses over the decades has more or less been stagnant. In 1980-1981, the area under production had stood at 22.46 million hectares. This has increased marginally over the years to 24.79 million hectares in 2013-2014. In fact, the number was at 22.09 million hectares in 2008-2009.

The yield in 1980-81 was at 473 kg per hectare. It has since jumped to 798 per kg hectare in 2013-2014. This is an increase of around 1.6% per year. The Indian population has grown at a faster rate.

Further, as the NCAER research report referred to earlier points out: “Most of the increase in pulse production in recent years has been in gram. Low pulse yield in India compared to other counties is attributed to poor spread of improved varieties and technologies, abrupt climatic changes, vulnerability to pests and diseases, and generally declining growth rate of total factor productivity.”

Take the case of tur dal. Between 2007-2008 and 2013-2014, the total production increased from 3.08 million tonnes to 3.34 million tonnes. During the same period the production of gram jumped from 5.75 million tonnes to 9.79 million tonnes. So once one adjusts for the production of gram, the production of other pulses hasn’t gone up by much though their demand has.

A major reason for the area under production of pulses remaining stagnant can be explained the way economic incentives are have been structured for Indian farmers. The incentives are heavily skewed towards production of rice, wheat and sugarcane. And that explains why we have excess stock of these food products.

If prices of pulses are to come down in the years to come, the area under production needs to go up. For that to happen, the economic incentives the way they are currently structured, need to change. And that’s ‘dal’onomics 101 for you.

The column was originally published on Swarajyamag.com on Oct 28, 2015

Why food prices will continue to remain high in the coming years

Vivek Kaul

Buried somewhere in the Reserve Bank of India‘s first quarter review of monetary policy released yesterday is the following paragraph:
The stickiness in inflation, despite the significant growth slowdown, was largely on account of high primary food inflation, which was in double-digits during Q1 of 2012-13 due to an unusual spike in vegetable prices and sustained high inflation in protein items.
In simple English what this means is that despite economic growth slowing down inflation continued to remain high because of high food inflation. The Reserve Bank of India (RBI) has not seen the last of food inflation and there are several reasons why food inflation will continue to remain high in the days to come.
Below average rainfall: The immediate reason for the food prices continuing to remain is the below average rainfall this monsoon season. As the RBI said in the first quarter review of monetary policy:
During the ongoing monsoon season, rainfall up to July 25, 2012 was 22 per cent below its long period average (LPA). The Reserve Bank’s production weighted rainfall index (PWRI) showed an even higher deficit of 24 per cent. Further, the distribution of rainfall was very uneven, with the North-West region registering the highest deficit of about 39 per cent of LPA. If the rainfall deficiency persists, agricultural production could be adversely impacted.
The availability of water can make a huge difference to the agricultural output in India. Areas fed by canals form only around 40% of the total arable land in India. The remaining 60% are dependent on rains. With deficient rains this year the current khareef crop is likely to be impacted with production not being enough to meet demand. This will lead to food prices going up in the days to come.
Rural India is eating better: The various social schemes being run by the current United Progressive Alliance (UPA) government have put more money into the hands of rural India. The income of rural India has more than doubled in the last five years. One thing that seems to have happened because of this is that people are eating better than before. Economists are of the opinion that as income of people rises above the subsistence level of $1000 per year, a substantial portion of the new money is spent on food. People eat more and better quality food. At the same time they also move from cereal based diets to more protein based diets. In major parts of the world this means that people start consuming more meat. But India has a lot of vegetarians and hence consumption of other high protein food items like dal, milk and other dairy based products has gone up, pushing their prices up. This is likely to continue in the months and years to come given the social commitment of the current UPA government. If the proposed Right to Food Act goes through you could see a further increase in food prices.
The Japan syndrome: As a densely populated country industrialises, the area under agriculture tends to go down. This phenomenon was first observed in Japan, and has since then been observed in South Korea, Taiwan, and very recently China. As Lester R Brown points out in Outgrowing the Earth: The Food Security Challenge in an Age of Falling Water Tables and Rising Temperatures “First, as a country industrialises and modernises cropland is used for industrial and residential development. As automobile ownership spreads, the construction of roads, highways, and parking lots…takes valuable land away from agriculture…. Secondly as rapid industrialisation pulls labour out of the countryside, it often leads to less double cropping, a practice that depends on quickly harvesting one grain crop once its ripe and immediately preparing the seedbed for the next crop…Third, as incomes rise, diets diversify, generating demand for more fruits and vegetables. This in turn leads farmers to shift land from grain to these more profitable high-value crops.”
This is a long term phenomenon which is clearly playing out in India right now. Just drive around towards the outer limits of the city you live in and you will realize that what was once agricultural land has been taken over to build malls, apartments, offices etc. This leaves less area to grow vegetables, cereals and other crops, pushing up their prices in turn. Depleting aquifers: A huge amount of increase in the irrigation of crops across the gangetic plane, India’s agricultural heartland have substantially depleted the aquifers or the underground water tables. As a report by DWS Investments points out “Dramatic increases in the irrigation of crops across northern India have substantially depleted the region’s groundwater. Between April 2002 and August 2008, aquifers lost a total of more than 54 cubic kilometers per year. That decrease in groundwater is even more than double the capacity of India’s largest reservoir.”
While this data is around four years old there is no reason to believe that the situation could have improved in the last four years. It could only have got worse. This is something that Brown agrees with in his book Outgrowing the Earth. He writes “the extensive overpumping of aquifers in India will deprive farmers of irrigation water and will also reduce grain production”.
Climate change also threatens food security: As the following table points out Indian agriculture has very low productivity when it comes to other parts of the world. Even Bangladesh does better than us when it comes to producing rice.
Comparing productivity of Indian agriculture with the world (kg/ha)
Country Paddy Country Wheat Country Maize
World 4,223 World 2,829 World 5,010
Bangladesh 4,012 China 4,608 Agentina 7,666
Brazil 3,826 Egypt 6,478 Canada 8,511
China 6,422 France 6,256 China 5,151
India 3,303 India 2,704 India 2,440
Indonesia 4,705 Italy 3,568 Italy 9,144
Japan 6,511 Spain 3,470 Turkey 6,838
USA 8,092 United Kingdom0 7,225 USA 9,458
Source: Agriculture Statistics at a Glance /Kotak GameChanger Report
Even this production is threatened now because of rising global temperature which beyond a certain point tends to reduce the amount of crop produced. As Lester Brown told me in an interview I did for the Daily News and Analysis (DNA) a few years back “For each degree celsius rise in temperature above the norm during the growing season, farmers can expect a 10% decline in wheat, rice, and corn yields. Since 1970, the earth’s average surface temperature has increased by 0.6 degrees Celsius, or roughly 1 degree Fahrenheit.”
As the earth’s temperature rises it has led to glaciers melting. “Nowhere is this of more concern than in Asia. It is the ice melt from glaciers in the Himalayas and on the Tibetan plateau that sustain the major rivers of India and China, and the irrigation systems that depend on them, during the dry season. In Asia, both wheat and rice fields depend on this water. China is the world’s leading wheat producer. India is No 2 (The US is third.) These two countries also dominate the world rice harvest. Whatever happens to the wheat and rice harvests in these two population giants will affect food prices everywhere. Indeed, the projected melting of the glaciers on which these two countries depend presents the most massive threat to food security humanity has ever faced,” said Brown.
Cars and people are competing for grains: As the price of oil keeps going up, the world has started to look for alternate sources of fuel to run cars and other forms of transport around the world. One such fuel is ethanol which is made from corn and sugarcane in different parts of the world. In Brazil, a lot of cars run on ethanol, which is produced using sugarcane. So if oil prices go up, ethanol becomes more viable as an alternate fuel. And this pushes up the price of ethanol input, i.e. sugarcane. With lesser sugarcane available to produce sugar, the price of sugar also goes up. The United States uses corn to make ethanol. So oil prices going up leads to corn prices going up as well. As Brown put it “If the fuel value of grain exceeds its food value, the market will simply move the commodity into the energy economy. If the price of oil jumps to $100 a barrel, the price of grain will follow it upward. If oil goes to $200, grain will follow. From an agricultural vantage point, the world’s appetite for crop-based fuels is insatiable. The grain required to fill an SUV’s 25-gallon tank with ethanol just once will feed one person for a whole year. If the entire US grain harvest were to be converted to ethanol, it would satisfy at most 18% of US auto fuel needs.”
Given these reasons the food prices are likely to remain high in the months and years to come. And the Reserve Bank of India can fiddle around with the interest rates as much as it wants to, but there is no way it can control food prices.
(The article originally appeared on www.firstpost.com on August 2,2012. http://www.firstpost.com/economy/why-food-prices-will-continue-to-rise-in-the-coming-years-400532.html)
(Vivek Kaul is a writer and can be reached at [email protected])