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Home > English > Alternatives International Journal > 2013 > March 2013 > Deciding Who Gets to Eat

Deciding Who Gets to Eat

Friday 1 March 2013, by Brinda Karat

By allowing futures trade in food and diversion of farm land for commercial purposes, the government (of India) is fuelling the price rise

International agencies are warning of high food prices on a global scale in 2013 if urgent action is not taken. But our government shows little concern. The President’s address to Parliament had only a cursory mention of inflation. “Inflation is easing gradually, but is still a problem,” he said. Still a problem? Surely the suffering of people from the relentless price rise inflicted on them by the flawed policies of the United Progressive Alliance (government) deserves more recognition and redress. Perversely, the government is intensifying the very policies which cause price rise.

Even the World Bank, whose neoliberal policy impositions are responsible to a great extent for global food inflation, has warned that “high and volatile food prices are becoming the new normal.” The FAO warns that “despite decline in international food prices in the latter quarter of 2012, they remain close to all time highs. Stocksof key cereals have tightened.” Among the reasons are the diversion of land from food grains production, speculative trade, low public investment in agriculture and depleted stocks. This critique is as valid for India as it is for the more developed countries.

Food vs. fuel

While the severe drought in the United States, Russia, the Ukraine and elsewhere is also cited as a reason for a likely fall in the production of wheat and a consequent increase in food prices, the FAO has warned that the continuing diversion of land to produce crops for the bio-fuel industry in the U.S., Europe and the growing trend of companies to buy land in developing countries like Africa for growing such crops, will lead to “increasing hunger worldwide.” By subsidising corn production for bio-fuels, the U.S. pulls out corn from food supply, raising prices. Cars and fuel it would seem are more important than people and food.

Food shortages are also ideal scenarios for rampant speculation. Speculation in futures trade in food commodities was one of the crucial causes for international prices skyrocketing in 2008. The impact was disastrous for import dependent countries. In the aftermath of the ruination of millions of families across the world, the G20 countries, including India, had resolved to take remedial measures. In 2010 in the U.S., the “Wall Street Reform and Consumer Protection Act” suggested a set of regulations to curb speculation. To implement the law, the Commodities Futures Trade Commission in the U.S. imposed “position limits” on the proportion of the market that could be held by any one institution so as to curb the capacity to manipulate prices. Even though the limit was as high as a quarter of the market, it was challenged in court by financial market associations.

A U.S. district federal court recently ruled that no such limitations can be imposed, holding that the CFTC has been unable to prove any link between speculation in food commodities and high prices! The CFTC has decided to appeal against this and it will be interesting to see the arguments it puts forward to establish the linkages. Perhaps home-grown loyalists to the U.S. views can take a few lessons from even the limited interventions of the CFTC. But, in any case, the regulations have been put on hold. In the European Union, the regulatory regime which was to be implemented by the end of 2012 has also been postponed.

The speculators, in the meanwhile, have been back in business. Barclays Bank has admitted that it made a profit of $548 million and Goldman Sachs made up to $400 million in 2012 from speculation in food including wheat and maize. Glencore, one of the biggest companies in the business, was pretty clear of its priorities. “The U.S. drought is good for Glencore” said its Trade Wing Chief, meaning thereby that its $2.5 billion pre-tax profit could be further augmented by speculation on the shortages created by the drought. The recent UNCTAD report linking speculative capital with the price rise in food stated that “over $400 billion is traded in food commodities, that is 20-30 times the physical production of the actual commodity.” The crux of the issue is that high speculation in futures markets pushes up spot prices of the commodity being traded. That is why there is a rising global demand for prohibition of futures trade in essential commodities.

Is it any different in India? The government often uses high global prices of food to camouflage its own failure. In fact, the reasons for price rise in India are entirely domestic and self-inflicted.

A comparison of the Consumer Price Index for BRICS countries shows that India has the dubious distinction of the highest year on year inflation at 11.17 per cent, with China at the lowest of 1.9 per cent, South Africa at 5.75 per cent, Brazil at 6.15 per cent and Russia at 6.54 per cent. Data provided by the Ministry of Commerce and Industry shows a rise in the wholesale price index of food between 2011-2012 and January 2012-2013 of 11.88 per cent. Some striking examples are the rise in the price of cereals by over 18 per cent, vegetables by 28.4 per cent, pulses by nearly 19 per cent and sugar by 13 per cent. These are the wholesale prices. The increase in retail prices would be even higher.

Sugar decontrol is imminent, which will be followed by a further rise in sugar prices. The deregulation of petrol and now diesel prices has a cascading impact on increasing inflation, including in food. Petrol prices have been raised 19 times since 2009, registering an increase of 120 per cent. The price of diesel is up by 67 per cent.

Land use

Mimicking the U.S., India too is ignoring the lessons of the global crisis. Large tracts of agricultural land are being handed over to the private corporate sector, including for real estate. This is in addition to the ongoing policy of incentivising production of export driven cash crops instead of food grains. The lastEconomic Survey itself reports this fall in gross area under food grains by roughly 5 million hectares if we compare the decade preceding the neoliberal reforms in the 1980s to the two post-reform decades of the 1990s and the 2000s.

Self -reliance and self sufficiency in food grain production — which require an alternative policy framework — are now discarded policy pursuits for this government despite their crucial role in protecting Indian consumers from the volatility of international prices.

Market manipulation

In India, futures trade in agricultural commodities includes around 25 sensitive food items like wheat, sugar, chana, desi urad, edible oil, mustard seeds, a variety of spices and even potatoes and onions. In the light of the warnings of global food shortages, it is essential for the government to delist food items from futures trade and also to resist the growing pressure to lift the current ban on rice futures. It should learn from the most recent and scandalous example of the highly speculative trade in guar (the gum of which is used as a thickening agent in some foods and also as a sealant for shale gas). In the year ending October 2012, the price had shot up 1000 times yielding profits worth Rs. 1,290 crore to identified companies indulging in speculation. But producers of guar, mainly farmers from Rajasthan, received no benefits as they had already sold their crop. Although the trade has since been suspended, prices are still volatile. Such blatant manipulation of the market invites no punishment in liberalised India.

Unlike some other developing countries, India has sufficient stocks, over 6.62 crore tonnes of food grains as on February 1, 2013, three times the norm set for this quarter which is 2 crore tonnes. Given the anticipated shortage in world markets, big companies, foreign and domestic, have started putting pressure on the government to “liquidate” the stocks by allowing liberal exports. The value of exports of food grains in 2012 was $20 billion or over 1.8 lakh crore rupees. While wheat was exported at global prices of between Rs. 1,800 to 2,000 a quintal, the support price the Indian farmer received was at least one third less at Rs.1,285. The export of rice also was at prices far higher than the MSP. Thus the government helped traders and exporters make profits while denying farmers a fair price.

The liquidation of stocks for exports which help traders not farmers is taking place at a time when India is home to a quarter of all malnourished people in the world. The stocks should and must be used to ensure an amount of food grains not less then 35 kg per family at subsidised rates through a universal public distribution system

It is equally necessary in view of the anticipated global shortage of food grains to use the stocks judiciously as a buffer against hoarding and black marketing. Reckless exports of food grains are not in India’s interests.

(Brinda Karat is with the Communist Party of India (Marxist) and a former Member of Parliament)

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