Tackling the crisis of rising global food prices 

News: Recently, the government of India has banned wheat exports and imposed restrictions on the export of other food commodities.

History of Food Price Crises 

Since the adoption of Green Revolution technology in the early 1960s, the world has faced food price crises three times in terms of nominal as well as the real prices: (1)1973-76 Period, (2) 2008-11 Period, and (3) Since 2020.

Few trends are important about these crises: 1) They were not caused by any serious shortfall in agriculture production, but the factors outside agriculture 2) The interval between two consecutive price shocks has narrowed down considerably. 3) The severity of the shock is becoming stronger.

Causes behind the recent spike

It has been caused by supply disruptions due to COVID-19 and the ongoing Russia-Ukraine war.

The commodities that are traded more at the global level are more vulnerable to global supply disruption. For example, trade dependence for vegetable oil is around 38%, for wheat is 25%, among others. Therefore, the current food price spike first began in vegetable oils and then expanded to cereals.

Nowadays, food crops are being diverted for biofuel generation.  For example, the proportion of vegetable oil used for biodiesel increased from 1% in 2003 to more than 15% in 2021.

Food prices hiked because of an increase in the prices of fertilizer and other agrochemicals.

The global prices are being transmitted to the domestic prices because the share of the agriculture sector in export and import is substantial.

Measures Taken by India to moderate the transmission of global prices to the domestic market

The government has adopted trade policy and other instruments to balance the interests of producers and consumers and to protect the economy against excessive volatility in international prices. For example, the government liberalized imports and imposed checks on exports to ensure adequate availability of the food items as the international prices have gone too high.

The government has used a buffer stock of food staples to maintain price stability, especially in the wake of global food crises.

Is the present move of Wheat export restrictions damaging India’s image as a reliable exporter? 

In order to understand the image of a reliable and credible exporter, there is a need to differentiate between disturbing normal export and regulating exports exceeding the normal level.

India’s ban is not disrupting its normal exports. India was a very small exporter of wheat (Only 0.1% to 1% share in global wheat trade during 2015-16 to 2020-21). Therefore, despite the ban, the wheat exports this year will be much higher than the average wheat export from India in recent years.

In order to compensate for the present disruption, around 50 million tonnes of wheat is required in the international market. India produced only double of it. Therefore, the absence of a ban could have led to a severe wheat shortage and food security in India.

What should be done?

Just like the Green Revolution of the 1960s which lowered food prices, India requires new breakthroughs for large-scale adoption.

The spending on agriculture research and development (especially by the public sector and multilateral development agencies) should be increased.

The global agri-research system under the Consultative Group on International Agricultural Research (CGIAR) should be rejuvenated

Diversion of land under food crops and food output for biofuel should be carefully calibrated.

The energy prices and disruptions in the movement of food across borders should be checked. In addition, climate change can be another source of supply shocks in the future. Therefore, it should be checked.

A global buffer stock of food should be established to ensure food prices and supply remain stable at the global level.

Source: The post is based on an article “Tackling the crisis of rising global food prices” published in the “The Hindu” on 14^th June 2022.