The great grain robbery

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As global wheat and rice crop fails, India should weigh its options carefully

MUKUL SHUKLA
MUKUL SHUKLA
Senior Journalist

WHEAT FARMERS in the Volga basin, Ukraine, Kazakhstan, Italy and France are cursing the skies for shrivelling up their standing crop. Aussie farmers are fighting locusts, Canadians are getting desperate at the continuing wet spell. Floods have washed away the rice crop in Pakistan, while farmers in the rice bowl of People’s Republic of China (PRC) are praying to the water gods for mercy.

This situation throws up a grand opportunity for India, which is sitting on a stockpile of over 20 million tonnes of wheat. Even though food inflation has been running at over 10 percent for the past several months, New Delhi has not released the excess wheat in the domestic market to cool off inflation. So its shipping wheat to the international market seems out of the question. But officials maintain, “We are waiting for a better price discovery,” before deciding to ship.

As for rice, PRC’s early output may decline 10 percent from the same period last year according to China Grain Reserve, counterpart of India’s FCI in procuring and storing grains at administered prices. In the most severely flood-hit areas of PRC, output may drop as much as 20-30 percent.

PRC makes up 35 percent of global rice production. The world’s biggest rice grower and consumer imported 1,74,000 tonnes of rice in the first half of 2010, up 44.3 percent year-on-year. Exporters feel rice exports from Pakistan, the third-largest shipper, may plunge 22 percent after floods destroyed crops, while the UN says damage to infrastructure may hurt farmers for years. Exports may drop to 3.5 million tonnes after floods damaged up to 20 percent of the crop, said Malik Jahangir, chairman of the Rice Exporters Association of Pakistan. The nation doesn’t need to import, he is quoted as having said, even as Pakistan’s entire granary, from the upper Indus basin of Jhelum to Panchnad and Sukkur, lies under water.

In 1972, when the then Soviet Union’s wheat crop failed, it bought up all the surplus wheat in the US. Dubbed “The Great Grain Robbery”, Russia’s purchases sent grain prices through the roof. Food prices around the world rose 50 percent in 1973. India, which had then nationalised wheat trade, found that wheat disappeared from its warehouses because of huge premium in the market. Wheat became scarce despite bumper crops. Acceleration in prices led to increase in cost of edible oil, poultry feed, sugar, tea, dairy products and everything

Despite there being no monetary remedy to supply-side disequilibrium, the State uses the same trick to curb food inflation
Despite there being no monetary remedy to supply-side disequilibrium, the State uses the same trick to curb food inflation

Some of the old traders are wondering if it’s happening all over again. If they are on the mark, then the sharp increase in prices of everyday essential consumables recently, is directly linked to the spurt in grain prices. In the early seventies, it triggered political forces that brought down the Congress regime, despite its recourse to emergency measures. If they are off the mark, one has to look for explanation in possibly a huge mismatch between demand and supply. If this is the cause, there is an urgent call for improving supply-side functioning.

Either way, the double-digit escalation in grain prices is too serious a matter to be left at the mercy of the RBI’S monetary policy. In 2008 — after another year of grain shortage — the RBI and the government played all the monetary tricks in their basket, but could not cool off their prices. There is no monetary remedy to supply-side disequilibrium. The rise in grain prices and its spiralling impact on prices of fruits, vegetables, milk, eggs and livestock products, have not gone down well with the consumer. It is evident in stagnant consumer demands.

Global wheat futures prices have accelerated over 70 percent since their June low on the Chicago Board of Trade, climbing over $8 a bushel, the highest since the disturbance in global supply-side dynamics of 2008 that followed a dry spell. Global rice prices are also on the rise.

Illustration: Anand Naorem, Samia Singh 
Photo: Shailendra Pandey

mk.shukla@fwtehelka.com

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