Thursday, April 03, 2008

Is India heading towards a food crisis?

Rising prices are not pure indicator of crisis

Shortage of food is not only faced by India but it is a globally experienced problem. Drought in Australia has lead to international shortage of wheat and an export ban on rice from Thailand and Vietnam has pressured the international rice supply.

This situation of crisis can be debated in the context of inflated prices of food products and mainly that of staple food. Prices are likely to rise if the supply is not able to meet the demand.

In India, the rate at which the consumer preferences are changing is much less than the rate of slowdown in the production of cereals along with diversification of land towards high value agriculture. This effect is likely to create pressure on supply, but as of now, the rising fuel prices have primarily led to the spurt in food prices.

The concern is that with global shortage of foodgrains, even imports are unviable, but the FCI has assured that there are enough stocks of rice and wheat, if there is actually a situation of food crisis.

Since last two decades, Indian agriculture output is constrained by low yields, falling water table, poor infrastructure, lack of irrigation and no new technological breakthrough. Grain output has been stagnant and agriculture had been growing at a low rate of 2-2.5 per cent. The need for investment in agriculture has been repeatedly highlighted so as to avoid any shortages in future.

On the other side, increase in demand of cereals from the livestock sector for feed, the use of cereals for bio-fuel has further diversified the use of grains. Thus in the present time, high fuel costs, increasing demand for feed, use of cereals for bio-fuel along with unattended supply constraints have created pressure on supply.

In addition, worsening global supplies and rising prices have created a situation that looks like a food crisis. But in a short- term scenario, rising food prices are not the pure indicator of a food crisis. But still, the major concern is that of rising global temperature which would further impact the yields, and this trend of rising prices may not be a short-lived phenomena.

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