Jan 26, 2011

Food price speculation will deepen hunger in India

AUTHOR AND columnist Alex Preston wrote in New Statesman (13 August 2010): “I was a trader at ABN Amro in March 2007 when the bank launched the first product that allowed retail investors to speculate on rice prices. In 2008, at the height of the food crisis, a marketing email went out from ABN pointing out that rice inventories were at an alltime low. Now, we were told, was the moment to invest in one of the world’s most important food crops, before prices rose further. This at a time when streetchildren in Haiti were eating cakes made of mud and hundreds of millions across the globe were threatened with starvation.”

A few months later, global prices of rice, wheat and corn touched an all-time high. By early 2008, food riots had taken place in 37 countries. While Goldman Sachs was accused of profiteering as millions went hungry, the UN Special Rapporteur on the right to food, Olivier De Schutter, categorically pointed to speculation in food prices as the main reason behind the surge in 2008 global food prices.

The government’s eight-point action plan reminds one of the dark days of the Bengal Famine.

In India, however, a five-member committee on future trading headed by Planning Commission member Abhijit Sen that submitted its report in April 2008, failed to link commodity trading to the rise in prices. The composition of the expert committee, all of them known to be sympathetic towards free markets, suggests that anything better could not have been expected. But two years later, following a steep hike in onion prices, futures trading is back in the news. And this is where I think the stern warning from the UN Special Rapporteur had been conveniently glossed over.

What is worrying is that the rise in vegetable prices is being used as an opportunity for business. Apart from the Federation of Indian Chambers of Commerce and Industry (FICCI), the Planning Commission and the Ministry of Commerce are bending backwards to bring in policies reminiscent of the Bengal Famine. Planning Commission Deputy Chairman Montek Singh Ahluwalia has called for freeing farmers from the Agricultural Produce Market Committee (APMC) laws. He wants them to be allowed to sell their produce to the intermediary that will give a better price. The eight-point action plan that the government announced is also aimed at dismantling mandis (market yards) and thereby according control over farm trading to private companies. This is exactly what was in vogue during the time the Bengal Famine occurred.

Although this is what the corporate sector wants, it has grave implications for the country. In the past few weeks global prices have started rising again and have crossed the 2008 food index. Not because of APMC, but speculation. Secondly, futures trading in agriculture is being promoted under the premise that it helps farmers realise a fair price for their produce. In reality, it works the other way around. Doing away with mandis is the first step to destroying the food procurement system that has been responsible for not only ensuring food security but also keeping food prices under check.

For a country that has emerged only four decades ago from a ‘ship-tomouth’ existence and is home to one-third of the world’s one billion hungry, what Ahluwalia is suggesting is fraught with unforeseen dangers. Instead of dismantling what MS Swaminathan has referred to as a ‘famine-avoidance’ strategy, India needs to remove the aberrations in the food supply system and refrain from allowing private trade to take control. Otherwise, the time is not far when we too will be grappling with food riots.

From Tehelka Magazine, Vol 8, Issue 4, Dated Jan 29, 2011

1 comment:

Dwarikanath said...

Dear Devinderji,

It's quite understandable that speculation is adding fuel to the price rise. But why abolition of APMC will not benefit the farmers? when they are free to sell whoever they want(whoever gives best price)be it private players or be it mandis. Abolition of APMC may make our Mandis more competitive and reduce the political influence on it.

I've seen how mandis exploit poor farmers. But then you would argue we should improve the Mandis not close them. But do you think our political parties are sensitive or responsible enough to do this?

Please throw some light if I am wrong!!!