HOW OUTSIDE AGRICULTURE FACTORS ARE CONTRIBUTING FOR RISING IN FOOD PRICES?

The food prices are significantly rising. The data of various agencies show that the reasons behind these crises are factors outside agriculture. These food price shocks lead to severe impacts at both global and domestic levels. Hence, there is a need to have appropriate measures to tackle them and maintain the stability in food prices. There are many other background issues and know the history and outside agriculture factors contributing for rising in food prices.

BACKGROUND ISSUES 

Global food prices are subject to year-to-year volatility and periodic sharp hikes. Countries manage year-to-year volatility by changing their trade and domestic policies, but the sharp and steep price hike leads to a severe crisis. The periodic sharp spikes can arise in the following ways: Food shortage, Trade disruptions, a rise and spread in hunger and poverty levels, depletion of foreign exchange reserves for net food-importing countries, a strain on a nation's fiscal resources due to an increase in spending on the food safety nets, and a threat to peace, and even social unrest in some places. Understanding the real causes behind these shocks and implementing appropriate measures to tackle them are necessary.

History of these food price shocks:

The data of some agencies such as the Food and Agriculture Organization of the United Nations, the World Bank, the International Monetary Fund, etc. imply that the world has witnessed third food crisis since the Green Revolution in the early 1960s.

The first shock appeared during 1973-76 due to a rise in the food price index in nominal terms as compared to the real terms. This led to an increase in the nominal prices of commodities

After that period, the food prices in real terms followed a declining trend and were at the lowest in 2002. After 2002, the nominal and real prices of food started increasing and culminated in the food crisis of 2008 due to the global economic crisis. After 2014, the global prices started coming back on track but the food prices did not move back to their previous levels. The prices remained settled during 2015-19 but, food prices again witnessed an upward trend by the third quarter of 2020. These rising food prices led the food price index to the highest level. Hence, the three food price crises that occurred in 1973-76, 2007-12, and 2020 show common characteristics. Are: All three crises did not happen due to any shortfall in agricultural produce but, they were led by factors outside agriculture. The time interval between the consecutive crises is reduced while the severity of the shock is increased.

The recent food crisis:

Certain factors led to the recent food crisis. They are:

Disruptions caused by the Covid-19 Pandemic.

Russia-Ukraine War.

The other important factors of the crisis are related to the trade patterns

and usage of food commodities:

 Vegetable oil and cereals: The current rise in prices started with vegetable oils and then spread to cereals. The data reveals that 38% of the vegetable oils are traded, and 25% of the wheat is traded to meet global demand. Similarly, other cereals are also globally traded. Hence, trade disruptions are higher for globally traded commodities.

Biofuel needs: Another factor that led to a hike in food prices is the diversion of food for biofuel needs. It has increased from 1% in 2003 to 11% in 2011 and 15% in 2021. When crude oil becomes expensive, it becomes economical to use oil seeds and grains. Food crops are also used to produce biofuels because it is mandatory to increase the share of renewable energy sources.

Implications for India:

The share of agriculture in export and import was 13% in 2020-21. Therefore, the impact of any changes in global prices becomes visible in domestic prices as well.

India has been moderating the effects of the transmission of global prices to domestic prices with the help of trade policies and other instruments.

When international prices rise, India looks for cheaper imports and when the international prices are low, India liberalizes imports and keeps a check on exports. India is also maintaining a buffer stock of food staples that have been proved to be very useful in maintaining the stability of food prices. The importance of agriculture exports has been increasing and India will be required to export 15% of its domestic food output by 2030. This will help in maintaining the position of India as a credible and reliable exporter in the international market.

Ban on Wheat exports:

India has recently banned the export of wheat. Some experts view this move as a setback because India has been a reliable exporter and this will hamper its image. While some experts believe that India's contribution to the export of wheat was not very significant hence, it is not going to make any big difference.

• Due to Russia-Ukraine Crisis, there is a global demand for around 50 million tonnes of wheat exports because Russia and Ukraine are the biggest exporters.

If India had not banned the export of wheat, it would have resulted in a food shortage within the country.

Way Forward:

India should follow a policy of strategic liberalization as done in the past to keep a balance between the interests of the producers and the consumers.

The new green revolution technology is required to keep the real prices of food commodities under control.

There is a need to strengthen the global agricultural research and development hence, more spending on global research and development is required.

Biofuel protocols contribute to the occurrence of food price shocks hence, it should be considered by the agencies how to manage the diversion of food crops for biofuels.

Climate change factors are going to impact the global supply and will lead to supply shocks. Hence, there is a need to ensure reasonable stability in food prices and supply.

According to UN-India, there are nearly 195 million undernourished people in India, which is a quarter of the world’s hunger burden.  Roughly 43% of children in India are chronically undernourished. People Below Poverty Line in India decreased to around 22% in 2011-12. The Poverty percentage was calculated using the Tendulkar methodology. India ranked 76th in 113 countries assessed by The Global Food Security Index (GFSI) in the year 2018, based on four parameters—affordability, availability and quality, and safety. so food prices are very important to tackle the nutrient deficit of India and ensuring effective food distribution system enabling automation and preventing leakages at fair price shop is very important to tackle food poverty in India.