India can address global food demand: Reddy

Reddy was delivering the 40th convocation address at the Acharya NG Ranga Agricultural University here on Thursday.

Stressing that the price hike had been steep in the recent months, he said the global food price index rose on an average by 10.5 per cent in 2006, 15.2 per cent in 2007 and 40.8 per cent in the first four months compared with the corresponding period of the previous year.

Citing Food and Agriculture Organisation (FAO) figures, he said that 37 countries in the world, including 31 in Africa and Asia, are currently facing food crisis.

"The present global food situation is serious,'' he said. Though it is being argued that the rapid growth of China and India is putting pressure on the global demand, Reddy said the enhanced demand could not explain the sudden spurt in prices in the last one year as both the countries had been growing at accelerated levels for over a decade. The rise in food prices has been only a fraction of that observed in many other countries, he said citing the example of wheat and rice, whose prices have doubled in many countries but was only a tenth of that in India.

China has been a net wheat exporter and India was an exporter or an importer at the margin, he said. The drought condition in countries like Australia and Ukraine partly provide an explanation for the price rise. The restrictions by some countries on food exports too have enhanced the prices in some other countries.

Though it is being argued that increase in energy costs was resulting in cost push inflation, this might not explain the huge increase in food prices, the RBI Governor said. "The prices of corn and edible oils and biofuels have resulted in the prices of these commodities going up.''

Policies should be held responsible for this diversion (of food to fuel). The 'financialisation' of commodity trade could have also influenced the spurt in prices. This apart, the recent reduction in interest rates in the US has resulted in investors seeking new avenues like the commodity markets to compensate for the low returns in the conventional investment channels, he said.

There are demand and supply side pressures on food items, Reddy said. The extraordinary increase in food prices are linked to public policy response, high energy costs and turbulence in financial markets and financial institutions.

Future prices of oil, progress in restoration of normalcy in financial markets and extent of slowdown in the US and their impact on the global economy were difficult to assess. However, the redeeming feature, according to FAO, was that wheat output was set to achieve a new record in 2008. The global production of rice would be better than previous year but the global output of edible oil would fall by three per cent. "Oil seed and edible oil prices are expected to remain firm,'' he said quoting the FAO observations.

The food consumption in India would rise and the food basket would change. "We should augment the food supplies since marginal requirements or a perception of shortfall in domestic supply can have significant influence on world prices."  The current outlook appeared positive for wheat and sugar as production has increased.

"Agriculture plays a critical role since agricultural commodities have a significant weight in price indices and in anchoring inflation expectations,'' he said, hinting that some bottlenecks affected flow of credit to agriculture. Spread of insurance against crop losses and newer forms of credit assessment should be put in place, he felt.