Editorial: Global food scare

It is not often that grocery stores in the developed countries have to resort to rationing rice, bread, milk, eggs and the like. But that is what is reported to be happening today in the US, the world's biggest producer and exporter of food, as also in Japan, the world's largest food importer. Though the immediate reason for such an unusual situation is believed to be panic buying by consumers, the underlying cause is supply constraints which have found a reflection in sharply rising prices. The problem can be traced back to last year's global commodity price explosion, which had pushed up the prices of most food products (and of non-agricultural commodities too) to record levels. Global food stocks had dwindled and exports supplies had shrunk. A unique feature of this situation was that it did not distinguish between rich and poor countries, and hurt consumers equally badly in both. In the US, which is used to inflation of no more than 3 per cent at most times, bread prices rose in 2007 by about 12 per cent and milk by 29 per cent. The rise in the prices of wheat and rice, the staple food of in the developing countries, was equally steep "" rice prices doubled "" leading to food riots in several countries in Africa and elsewhere. Corn prices have in fact gone up even more than wheat, and have almost matched the record for rice.

This inflationary phase lasted longer than past price surges, bucking the long-term trend whereby the bearish phase for agricultural prices usually lasts longer than the duration of bull runs. The chief reason was the prolonged droughts in some major food producing countries, notably Australia, and more frequent cyclones and harsh weather cycles in many parts of the globe, adversely affecting crop output. The fact that traditional grain exporters like Ukraine imposed export curbs did not help matters, while the diversion of up to 20 per cent of US corn production to ethanol plants added to the overall problem. Strangely, this price balloon burst with a bang in the third week of March when global commodity prices witnessed one of the biggest weekly drops, of as much as 9.2 per cent. Though prices have remained volatile, they have mercifully not gone back to the pre-March peaks.

Nevertheless, the adverse impact of the commodity boom on food availability and prices, especially at the retail level, has tended to linger even after international prices have dropped back to more reasonable levels. This is borne out by the current situation in the US and Japan though global prices of wheat, rice, oilseeds and some other products have clearly softened. The uncertainty about availability seems to be prompting the frantic rush to retail stores, and may be the result of curbs put on food product exports by several traditional food-exporting countries which have tried to build up domestic stocks in order protect their domestic consumers. Restrictions on rice exports by China, India, Thailand, Vietnam and some others are cases in point.

Lastly, and significantly, the looming threat to global food security that recent developments point to comes not so much from concerns about food production as from the rising prices of crude oil, which are prompting the diversion of vital grains to biofuel production. This has severely distorted the global market of this coarse cereal, which constitutes a key food item as well as feed crop in several parts of the world. While a global food scarcity is a scary phenomenon, especially for poor countries with large populations, India can fortunately draw comfort from the fact its domestic food scene is looking far more comfortable now, after the rabi harvest, than it has been for the past few years, even though food prices are still a matter of concern. Though India is now being accused, along with other countries that have imposed export curbs, of turning hoarders, it is far easier to live with that tag than to face the prospect of slipping back to ship-to-mouth existence once again.