Sunday, December 6, 2009

The Food Crisis of India

Spiralling food price inflation associated with food crisis has became an ongoing struggle especially for the poor in India. This is nothing new. In fact it has its roots back in 1991 when neoliberal economic reforms took place. The problem somehow took a turn heading towards the worst in the recent. Various political parties and labour unions have called for a nationwide protest against the government’s failure to arrest the price rise
Food price inflation at wholesale level rose to 17.5% in the third week of November, up from the previous week of 15.6%, measured annually.

Why is this so?

(1) Malthusian theory. India is the world’s second most populous nation and the growth rate in number of people could have surpassed the growth rate of food. Most of the lands have been explored and cleared to accommodate the ever rising population, leaving not much for agriculture purposes. As such, in theory we say that the interaction between falling food supply and rising demand causes the food price to escalate

Despite the surging population, it is untrue to claim that food supply has fallen in India. In fact India is the world’s second largest producer of wheat and rice. Besides the Indian government does keep large reserves of rice and curbing rice exports should meant that food is abundance

(2) Weather uncertainty. The second half of 2009 spells the worst period for rice farmers. First food crops were hit by drought and three months after that devastated by flood. All these took place when crops are almost ready to be harvested. With such bad timing, it is of no surprise that food supplies are cut short significantly in the recent months, driving the price to all time high

There might be a possibility that areas hit by flood will suffer from more severe problem in the near future, such as fall in output per acre. This is because the structure of the soil could have been damaged by the flood. Land is no longer that fertile

(3) Government failure. Happens when government intervention to correct a market failure, not only fails to solve the problem, but instead making it worse. In this case, it is said that the action taken by the government is by imposing a curb on export to ensure self-sufficiency. Inability of domestic farmers to benefit from the high global price, will actually reduce their incentive to increase output. As such farming output will fall. The outcome will be much felt in near future. Another form of government failure is by being ignorant. For some weird reason, Indian government refused to flood the market with its large stocks of food and grain. In fact, food prices can go lower even if it is only 10 million tonnes of food released into market

It is rather difficult to tell whether government failure is present or not. On the other hand, one can also argue that if it is not because of government’s intervention, millions of domestic consumers will suffer from high rice price. This is a situation best we try to avoid since rice is a necessity and considering that big bulk of people are poor

(4) Italic Existence of black market. Black marketeer is defined as people who buy and sell certain goods in a way that violate against law such as price control and rationing. It always happens when there are shortages. These profiteers will buy rice in a large quantity and hoard it, causing an artificial shortage of rice supply. Then it will be sold off to consumers with a much higher than market price. Also, cheap rice may be smuggled into India from countries like Myanmar, Indonesia and especially China where rice production is subsidised.

(5) Traditional farming. Farmers in India are generally naïve and do not know how to employ the best production technique. They may perhaps still unaware of the existence of Genetically Modified (GM) crops which can help to raise output or might not use modern farming equipments. The combination of these factors highly likely to account for the fall in supply


Anonymous said...

I am sanjeev. I am a technical Analyst. I like to read a lot.

Kante Luis said...

thank you