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Updated: March 2, 2013 01:18 IST

Deciding who gets to eat

Brinda Karat
Comment (25)   ·   print   ·   T  T  
The Hindu

By allowing futures trade in food and diversion of farm land for commercial purposes, the UPA government 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 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. Stocks of 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 last Economic 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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world organisations like FAO,world bank etc should play greater role
in halting the developed nations like USA and Europe from diversion of
food crops towards creation of vehicular fuel rather than supplying it
to million impoverish people in poor country which go every night to
sleep without bread.
In India,thousand of young people are living agriculture
activity,primarily agriculture is no more profit making business due
to dependence on monsoon and lack of proper policy incentives from
government..

from:  anoop kumar bhardwaj
Posted on: Feb 26, 2013 at 18:28 IST

Roopesh Raj - you are only partially right. Communism may be gone as a
theory, but this is about common sense. I live in the US, a
capitalistic society, where there are still government programs like
food stamps, free or subsidized healthcare and welfare money.

Futures trading benefits a few wealthy traders, but does nothing for
the common man. Also, when you convert farmland to build houses, where
do you grow your crop. The farmer, the realtor and brokers rake the
moolah in real estate deals, but how do you feed 1200 million people,
when there is no land to grow food? Common sense, perhaps?
We do not have to ape the west in everything. One size does not fit
all, and it is best to come up with home made solutions for issues
like inflation and food security. Brinda Karat is absolutely right -
she has highlighted a looming problem that will haunt not us, but
future generations too.

from:  Rama Seshadri
Posted on: Feb 26, 2013 at 17:58 IST

In democracy the ultimate power rests with the people. Since those
flawed policies were placed by the persons elected by the very same
people. Isn't it the onus of the people for the contemporary dismal
condition prevailing now..

from:  N Thangadurai
Posted on: Feb 26, 2013 at 17:46 IST

Must read for those who may be looking at commodity markets as great investment
options. I for myself have decided long ago that i will never invest in this blood
money. Thanks hindu and brinda.

from:  shraddha
Posted on: Feb 26, 2013 at 17:24 IST

May not every farmer have been habituated to cultivate only food grains as most of these agricultural commodities depend also on the climatic conditions. On Vanilla send and rubber commodities, the prices are so speculative and had come down drastically within few months of time which has resulted huge loss for farmers who cultivated lots and lots of Vanilla beans in Southern India especially in Karnataka. Now, same way even rubber growers are getting worried as farmers denied fair prices season after season. Vanilla beans as well as rubber can be stored for long time and they are export driven as well.

from:  Subramanya GT
Posted on: Feb 26, 2013 at 16:34 IST

Few learned branded this article a dogma, communist rant. Get out of your glass houses and get to see the world outside. If the world out of the shopping malls were heaven, communists by now would have been extinct. It is not a heaven, India contributes the largest share of hungry people in the world. That is no mean deal. The blind rulers who rants even in their sleep "Aam Aadmi" is doing everything to erase them off from the face of the earth. Lakhs of farmer suicides, malnourished kids, anemic human beings, but rhino skinned would not to notice. They are free to continue their rants.

from:  Roopesh P Raj
Posted on: Feb 26, 2013 at 16:30 IST

Though there are fluctuations in international food prices, through PDS India is ensuring food security to vulnerable sections of society. But this may not be possible with cash transfer scheme where in payments may get delayed.
It is necessary that we have to increase cash crop production, especially those which are used as raw material in production of bio-fules. We are moving towards "Black Revolution" to attain self-sufficiency in bio-fuels because they are viable replacement for petrol and crude oil.

It is high time that government have to encourage intensive way of agriculture where high yields are possible in smaller areas of land.

from:  Madhav
Posted on: Feb 26, 2013 at 16:10 IST

The article of Brinda Karat picks up holes in the UPA's policies which
hardly address the owes of poor farmers.As the Marxist party,takes to
streets the anti-people policies of the centre, through various forms of
campaigns, and jathas, the perspicacious leader's analysis in the print
media with scores of details, exposes the gross mishandling of food
crisis by the ruling dispensation. Will the UPA, pay heed to the views
to reach the aam addmi who are rendered poor,hungry and destitutes in
view of its policies?.

from:  C.Chandrasekaran
Posted on: Feb 26, 2013 at 15:43 IST

Excellent article! A timely one too when india is standing at the crossroads of modernization. Commodity trading is good only when it is regulated. Mimicking USA is not an option for India as we have a long way to go as far as "rules" and "regulations" are concerned. USA can afford to take risks in commodities with its strong currency, military and diplomatic influence. India has none of the above. So its better we keep ourselves to ourselves for a while instead of trying to get the so called "International Goodwill".
I simply couldn't understand ignorance in few comments here which mentions there is no link between whats happening in USA and in India. People must understand that when collapse of a small country called "Greece" can be catastrophic to the whole planet's finance system, so does the collapse of the commodities. This is a globalised world where everything is interlinked.

from:  John
Posted on: Feb 26, 2013 at 15:23 IST

Very apt article with many pertinent points. Though I agree with Mrs
Karat, but I just wonder when they have such clear vision and policy
what went wrong in West Bengal and Kerala (and they cant blame not
getting enough time.. they got sufficiently long period to destroy the
economy of the state)?

from:  Rajeev Tewari
Posted on: Feb 26, 2013 at 14:37 IST

government policies of supporting the poor, meanwhile taking their lands and forcing them to food uncertainty are contradictory. the article is analytically and factually sound putting stress on the government's sluggishness and out of line strategies. their is an urgent need to pay heed to the food security and consolidating its position in terms of availability of food. blaming others(world causes) later will not correct if any mishappening occurs.

from:  atul
Posted on: Feb 26, 2013 at 14:28 IST

Allowing FDI in retail & at same time ending PDS in favour of cash handouts...Is there a conspiracy to divert PDS subsidy into hands of big MNC retail giants like Walmart etc??? Govt expects to give Rs1000/month/family for buying from BIG RETAIL @ Rs10,000/month/family???

from:  Shaleen Mathur
Posted on: Feb 26, 2013 at 13:08 IST

A very well written analytical article based on facts and figures. Good
to know that there are still politicians in this country who know their
subjects!

Well, government needs to set its priorities- business or people.
Looking at the MDG and other social indices- India is not doing that
good, as some would want us to believe. High time the governments and
political parties give attention to people rather than to hollow
development in stock markets and narrow agenda.

And yes no need for us to follow the inverted policies of US.

from:  Gaurav
Posted on: Feb 26, 2013 at 12:20 IST

It is timely and very pertinent article by Ms. Brinda Karat at a time
when our government is trying to go on a merry go round in the so
called global economy which is already showing its disastrous
consequences in most parts of Europe and America. Ms. Karat, Can you
and your party take these issues very strongly in parliament and
elsewhere to stem the rot?
The biggest danger to Indian economy is in the fact that the
government is being run for the last two terms ( including the current
one) by the bookish economists and not by leaders who feel the pulse
of the people they represent. This has led to a huge economic and
social imbalance in India which has created two distinct classes of
people: the haves and have-not's. Food and nutrition management in
India is in shambles as it has been for quite a long time and there is
no solution in sight.
Will there be light at the end of the food tunnel in India so that
each citizen can rest assured of 2 meals a day at least?

from:  Shivaram Nayak
Posted on: Feb 26, 2013 at 11:58 IST

Brilliant Article highlighting the plight of the farmers due to flawed
Government policies and benefiting the traders in excess.Prices of
essential commodities have soared exponentially in the past years
affecting common badly due to total mismanagement of the grain stock.It
is beyond anyone's understanding though why govt. is so keen on
exporting most of the excess wheat when millions of people daily are
deprived of one good meal.

from:  Ankit Trivedi
Posted on: Feb 26, 2013 at 11:47 IST

With government trying to replace Public Distribution System with the cash transfer schemes, Food trade in the disguise as futures and rise in food Inflation, I think all roads are blocked for the one third people of the country who are pressed by poverty. The food security bill perhaps begins in the next fiscal also not seems to guarantee it can reach to common man from the upper echelons. Its high time for reforms in the policies adopted by the govt.

from:  Shiva Kumar Adama
Posted on: Feb 26, 2013 at 11:32 IST

This future trade in agriculture commodities will only make rich all
market savvy investors and speculators at the cost of illiterate Indian
farmers who are already bearing the risk of monsoon failures and drought
condition. It will equally harm Indian poor by much inflation in daily
needs.Gov't should move very cautiously and not jeopardize already high
inflated market conditions.

from:  BS
Posted on: Feb 26, 2013 at 10:49 IST

A long awaited article, highlighting the ills of speculation , privatisation especially the unabated greed to make money and depriving the masses of their share...
Sadly the opposition BJP appears to be the mirror copy of the UPA as far as economic policies are concerned and the Left which has been vocal about these issues has lost power...
Time we apply brakes on this reckless capitalism... however it looks like we're at a point of no return.

from:  Milind
Posted on: Feb 26, 2013 at 10:24 IST

Though India is self sufficient in food production yet the largest
number of malnourished persons are living in India. It's pity that
people are dying of hunger and we are exporting food to other
countries. There is a huge stock of food rotting in the open and still
problem of food inflation persists. It is policy flaw and apathy of
the government to take some in containing food inflation. Government
is giving excuse of high international food prices for the high food
inflation in India. Yet it has not taken any firm step to increase
indigenous production to reduce the dependence on the imports. In all
these flawed government policies will have long term repercussions.

from:  Akshay Dhadda
Posted on: Feb 26, 2013 at 10:20 IST

(1) We need to have in place a well managed public distribution system
(PDS). If we wish to control food inflation, we must have proper
storage, transportation and distribution of our food grain stocks.
Unfortunately, this is not being done. In our country storage of huge
stocks of wheat and rice is mainly managed by Food Corporation of
India, (FCI) but it is far from satisfactory. FCI is a white elephant.
It has become a breeding ground for corruption. Would some one take
steps to revamp FCI’s operations and discipline FCI’s officials? (2)
As regards, fuel prices and food inflation, all parties have to agree
to abandon populist policies and ensure that subsidized fuels and food
reach the poor through a revamped and better managed PDS. Political
and administrative will is required to do this. (3) Sale of land for
non-farming use cannot be avoided but can be better managed if we can
curb activities of corrupt middlemen and government officials. But
here again, who will bell the cat?

from:  Narendra M Apte
Posted on: Feb 26, 2013 at 10:10 IST

I deeply thank Ms. Brinda Karat for a deeper inside into the flaws
of the future trading in food items. Future markets are based on
the speculations. Our farmers are mostly illiterate and cannot
compete with the big fund investing minds of the corporate world in
this science of speculations who are well equipped with market-data
and technical know-how.An associate economic professor at UNCTAD
pointed out "enormous, humongous" amounts of money are traded on
commodities."Over $400bn [of paper money] is traded – that's 20-30
times the physical production of the commodity." (report from The
Gaurdian,29/11/12). Such a huge investment clearly indicates this
commodity future market is highly profit yielding and it is not
necessary to highlight this will come at the cost of farmers. Our
government needs to have a deeper loolook at the negative sides of
the commodity market in food items and let the positive sides
outweigh it- to control inflation & for an inclusive growth.

from:  sanatomba thangjam
Posted on: Feb 26, 2013 at 09:46 IST

UPA government is so much favorable to business and industry, that both PM and FM completely ignore the interests of common man's food and farmers' net income. Both of them believe like the Republicans of America that if corporates grow with their magic number of GDP, it will trickle down to the common man which is flawed policy as professed by Obama during his Presidential campaign. If Congress or the UPA do not learn the lessons, in 2014 people will show the door.

from:  MVJRao
Posted on: Feb 26, 2013 at 08:07 IST

As usual an irrational rant against the U.S. food policies which have NOTHING to do with food prices in India. India does not import food from the U.S, nor is it a major consumer of corn or beef which is what is affected by U.S. diversion of corn to biofuels. By constantly bashing the U.S. for India's own home grown problems, these people are discrediting themselves. No wonder no sensible person takes their juvenile shrill ranting seroiusly.

from:  K. Raghunathan
Posted on: Feb 26, 2013 at 06:42 IST

Lets have global food chains.

Lets industrialize production.

Lets colonize other countries!.

from:  mahesh kuthuru
Posted on: Feb 26, 2013 at 06:32 IST

Dogma seems to be the key note of the article. The bias towards communism could not be more glaring. It would be better if increasing productivity in agriculture took centre stage and developing necessary infrastructure for proper storage emphasized. The definition of poverty has undergone change over the years. Today it is possible for any individual to earn two square meals per day unless he or she chooses not to exert himself or herself.

from:  R.Vijaykumar
Posted on: Feb 26, 2013 at 06:32 IST
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