Download Agrarian and food crises in India

Jayati Ghosh
The global food crisis
 2008 was last recent peak of food prices when global crisis
was announced.
 When prices declined in second half of 2008, international
attention wavered.
 Revival of concern after global food prices started rising
again from early 2010 in particular.
 Intimately connected with financial speculation which
affected global trade prices.
 Massive – and unprecedented – changes in global trade
prices of basic food grains and important cash crops
especially over past four years.
1990M1
1990M6
1990M11
1991M4
1991M9
1992M2
1992M7
1992M12
1993M5
1993M10
1994M3
1994M8
1995M1
1995M6
1995M11
1996M4
1996M9
1997M2
1997M7
1997M12
1998M5
1998M10
1999M3
1999M8
2000M1
2000M6
2000M11
2001M4
2001M9
2002M2
2002M7
2002M12
2003M5
2003M10
2004M3
2004M8
2005M1
2005M6
2005M11
2006M4
2006M9
2007M2
2007M7
2007M12
2008M5
2008M10
2009M3
2009M8
2010M01
2010M06
2010M11
Global commodity price indices (Jan. 1990 = 100), 1990 to 2011
700
600
500
400
300
200
100
0
Maize
Rice
Petrol
Soy
Wheat
FAO Food price indices
400.0
350.0
300.0
Food Price Index
250.0
Cereals Price Index
200.0
Oils Price Index
Expon. (Oils Price Index)
150.0
100.0
50.0
There is a clear break in food price trend in 2005
Food Price Index, 1990-2005
125
Food Price Index, 2005-11
230
120
210
115
190
110
105
170
Food Price Index
100
Expon. (Food Price
Index)
150
95
90
85
130
110
80
90
2005 2006 2007 2008 2009 2010 2011
Some supply factors are and will continue to be
significant
 Short-run factor
 diversion of both acreage and food crop output for biofuel
production
 Medium term factors
 rising costs of inputs
 inadequate credit to cultivators
 falling productivity because of soil depletion
 inadequate public investment in agricultural research and
extension
 impact of climate changes on harvests
Price movements since 2007 could not have been
created by real supply and demand changes
 Scarcely any change in global supply and utilisation over
this period
 output changes were more than sufficient to meet
changes in utilisation in the period of rising prices, while
supply did not greatly outstrip demand in the period of
falling prices.
 Stock holding has remained stable at around 23 per cent
of utilisation.
 Claim that increased demand from China and India has
led to rising prices is completely unjustified, because both
aggregate and per capita consumption has fallen in both
countries.
The strange case of global wheat prices
Global wheat prices
400
350
300
US average of soft and hard red
Argentina
250
Linear (US average of soft and hard red)
Linear (Argentina)
200
5/2012
4/2012
3/2012
2/2012
1/2012
12/2011
11/2011
10/2011
9/2011
8/2011
7/2011
6/2011
5/2011
4/2011
3/2011
2/2011
1/2011
12/2010
11/2010
10/2010
9/2010
8/2010
7/2010
6/2010
5/2010
150
Supply (production) and demand (utilisation) cannot
explain price movements
Global production,
utilisation and price of wheat
750
Exports and closing stocks
of wheat
as % of global utilisation
400
35.0
400
350
700
350
30.0
300
300
650
Utilisation (m
tonnes)
600
200
550
2011/12
2010/11
2009/10
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
500
Price ($ per
tonne)
25.0
250
200
150
15.0
100
10.0
Exports to
utilisation (%)
Closing stocks to
utilisation (%)
20.0
150
100
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
250
Production (m
tonnes)
Price ($ per
tonne)
Speculation and commodity futures markets
 Function of speculators is to predict future market patterns
and thereby reduce the intensity of change - that is, reduce
volatility and stabilise prices!
 Similarly, commodity futures markets are supposed to
reduce risk for cultivators and purchasers:
 allow better risk management through hedging by different
layers of producers, consumers and intermediaries;
 enable open-market price discovery of commodities through
buying and selling on the exchanges;
 and therefore lead to lower transaction costs.
Financial deregulation and commodity speculation
 In 2000, the Commodity Futures Modernization Act
deregulated commodity trading in the United States, by
exempting over-the-counter (OTC) commodity trading
(outside of regulated exchanges) from CFTC oversight.
 Unregulated commodity exchanges allowed all investors,
including hedge funds, pension funds and investment
banks, to trade commodity futures contracts without any
position limits, disclosure requirements, or regulatory
oversight.
 The value of such unregulated trading was around $9
trillion at the end of 2007, more than twice the value of
the commodity contracts on the regulated exchanges.
Financial deregulation and commodity speculation
 “Swap-dealer loophole” in the 2000 legislation allowed
traders to use swap agreements to take long-term positions
in commodity indexes.
 Emergence of commodity index funds that were essentially
“index traders” focused on returns from changes in the
index of a commodity, by periodically rolling over
commodity futures contracts prior to their maturity date and
reinvesting the proceeds in new contracts.
 Such commodity funds dealt only in forward positions with
no physical ownership of the commodities involved.
Financial deregulation and commodity speculation
 As US housing finance market imploded, finance searched
for other avenues of investment to find new sources of
profit, like commodity speculation .
 By around June 2008, when the losses in the US housing
and other markets because intense, it became necessary for
many funds to book their profits and move resources back
to cover losses or provide liquidity for other activities.
 Commodity markets became like other financial markets,
prone to information asymmetries and associated tendencies
to be led by a small number of large players.
Figure 1
Financial investment in commodities and global GDP, 1998–2010
25
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
20
15
10
5
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Notional value of outstanding OTC equity-linked derivatives as a share of global GDP (left axis)
Notional value of outstanding OTC commodity derivatives as a share of global GDP (left axis)
Commodity assets under management as a share of global GDP (right axis)
Source: UNCTAD secretariat calculations based on BIS, Barclays Capital and UNCTADstat database.
Very recent tendencies in commodity derivatives markets are of
concern once again
 Financial regulation has been halting, inadequate and
ineffective.
 In US, swap-dealer loophole persists, position limits set
very high, etc.
 Crucial provision in Dodd-Frank bill in US has been struck
down by US Court
Assets of financial speculators in commodity markets have
increased from $65 bn in 2006 to $126 bn in March 2011
Commercial & financial traders market share
Chicago Wheat markets 25 June 1996
Commercial
Financial
Commercial & financial traders market share
Chicago Wheat markets 24 June 2008
Commercial
Financial
Implications of financial speculation on global food
markets
 Inherently “wrong” signalling devices became very
effective in determining and manipulating market
behaviour.
 The result: excessive price volatility of commodities
over 2007-10 – not only the food grains and cash crops,
but also minerals, metals and oil.
 Continuing denial among the international institutions
that “count” like OECD, IMF – but UNCTAD has
noted significance and even World Bank now accepts it.
This had very adverse effects on both cultivators
and consumers of food
 Confusing, misleading and often completely wrong
price signals to farmers that caused over sowing in
some phases and under cultivation in others.
 Because of global food value chains, direct cultivators
do not get the benefits of higher prices.
 High pass through of rising global prices on consumer
prices in developing countries, but low pass through of
falling prices on consumers.
 So both cultivators and food consumers lose out
through extreme price instability. The only gainers are
the financial and marketing intermediaries who are
able to profit from rapidly changing prices.
Jan/11
Nov/10
Sep/10
Jul/10
May/10
Mar/10
Jan/10
Nov/09
Sep/09
Jul/09
May/09
Mar/09
Jan/09
Nov/08
Sep/08
Jul/08
May/08
Mar/08
Jan/08
Nov/07
Sep/07
Jul/07
May/07
Mar/07
Jan/07
Nov/06
Sep/06
Jul/06
May/06
Mar/06
Jan/06
Wheat prices in Bangladesh and Pakistan
($ per kg)
0.5
0.45
0.4
0.35
0.3
World trade wheat price
Bangladesh retail price
0.25
Pakistan retail price
0.2
0.15
0.1
Jan/06
Mar/06
May/06
Jul/06
Sep/06
Nov/06
Jan/07
Mar/07
May/07
Jul/07
Sep/07
Nov/07
Jan/08
Mar/08
May/08
Jul/08
Sep/08
Nov/08
Jan/09
Mar/09
May/09
Jul/09
Sep/09
Nov/09
Jan/10
Mar/10
May/10
Jul/10
Sep/10
Nov/10
Jan/11
Wheat: Global trade and Indian retail prices
($ per kg)
0.5
0.45
0.4
0.35
0.3
World trade wheat price
Delhi retail price
0.25
Mumbai retail price
0.2
0.15
0.1
Jan/11
Nov/10
Sep/10
Jul/10
May/10
Mar/10
Jan/10
Nov/09
Sep/09
Jul/09
May/09
Mar/09
Jan/09
Nov/08
Sep/08
Jul/08
May/08
Mar/08
Jan/08
Nov/07
Sep/07
Jul/07
May/07
Mar/07
Jan/07
Nov/06
Sep/06
Jul/06
May/06
Mar/06
Jan/06
Rice prices in Sri Lanka and Philippines
($ per kg)
1.1
1
0.9
0.8
0.7
World rice price
0.6
Sri Lanka retail price
Philippines retail price
0.5
0.4
0.3
0.2
Domestic food output has been affected by
agrarian problems in India
 Prolonged crisis of viability of cultivation, with rising input prices,





falling productivity of soil and volatile output prices.
Inability to repay debt or access fresh debt has led to spate of
farmers’ suicides across the country – more than 200,000 since
1996.
Shift to cash crops from food crops.
Lack of institutional credit, so farmers forced to use higher interest
informal credit sources
Inadequate public research and extension relevant for farmers, so
they are dependent on MNCs and local companies for knowledge,
inputs, etc.
Public procurement to ensure adequate prices for food crops has
been run down, farmers are affected by market conditions that are
very volatile, with little power over purchasers
India’s nutrition indicators are worse than many
Sub-Saharan countries
 In 2005-06,
 33 per cent of women and 28 per cent of men had Body Mass
Index (BMI) below normal
 46 per cent of children below 3 years were underweight
 79 per cent of children aged 6-35 months had anaemia, as did 56
per cent of ever married women aged 15-49 years and 24 per
cent of similar men
 58 per cent of pregnant women had anaemia.
 This refers to period before global and Indian food prices really
started rising – no major survey of health conditions since then.
 Some states like Madhya Pradesh, Bihar and Jharkhand have
even worse indicators close to bottom of African table.
Declining calorie consumption in period of high
growth
Number of hungry people is rising
Inequalities in Calorie Intake
Percapita Calorie Intake Rural,
2009-10
Percapita Calorie Intake Urban,
2009-10
Source: Compiled from NSSO Reports, Various Rounds
All India average per capita Calorie intakes for both Rural and Urban Sectors
are lower than the minimum levels required (2400KCal in Rural Sector and
2100KCal in the urban Sector).
Inequalities in Calorie Intake
Fall in Rural Calorie Intake from
1993-94
Fall in Urban Calorie Intake
from 1993-94
States
Change in Calorie
Intake
States
Change in Calorie
Intake
Haryana
West Bengal
Rajasthan
Uttar Pradesh
Madhya Pradesh
Punjab
Bihar
Karnataka
All India
Orissa
Gujarat
Assam
Andhra Pradesh
Kerala
Tamil Nadu
Maharashtra
-311
-284
-279
-243
-225
-195
-184
-170
-133
-73
-12
-9
-5
-1
41
112
West Bengal
Madhya Pradesh
Haryana
Uttar Pradesh
Bihar
Rajasthan
Orissa
All India
Assam
Maharashtra
Gujarat
Karnataka
Punjab
Kerala
Andhra Pradesh
Tamil Nadu
-280
-228
-200
-191
-175
-170
-165
-125
-105
-88
-44
-39
-27
-25
-17
41
Source: Compiled from NSSO Reports, Various Rounds
In 1993-94, Punjab Haryana and Rajasthan had over 2400Cal per capita Calorie intake
for the rural regions while Rajasthan Haryana West Bengal were some of the states that
had over 2100Cal per capita Calorie intake for the urban regions.
By 2009, all states have come under the minimum requirement levels.
Inequalities in Calorie Intake
Average Per Capita Expenditures (Total And Food) Over Time
Source: Compiled from NSSO Reports, Various Rounds
Expenditure on Food has increased at lower rates than total Expenditure,
leading to a fall in the proportion of the former to the latter.
Rural Sector has higher proportion of food expenditure out of total
expenditure, and has witnessed lower reduction as well.
Policies required for food security
 Ensure viability of food cultivation of small farmers and




reduce the pass-through of volatile global prices in
domestic market.
Increase role of public procurement and distribution in an
accountable way.
Food Security Act with universal public provision of
minimum quantities of affordable food for every person.
Targeted scheme are not enough – they have too many
errors of unfair exclusion and unjustified inclusion.
Cash transfers cannot be a substitute for food provision,
they should be an addition.
Gracias por su atencion!
Thanks for your attention!