Shahidur Rahman Khan, The Daily Star, 07 June 2008

RICE is no-longer an economic substance only, it has already become a political commodity. A US sponsored study of 15 April 2008 predicted that world would face social upheaval, environmental disaster if agriculture is not really reformed to better serve the poor and hungry. Food-riots have already taken place in Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Ivory Coast, Madagaskar, Mauritania, Senegal, Thailand, the Philippines, Uzbekistan, Yemen etc. General strike over rising food prices have already taken place in Burkina Faso and India. Riots over high food prices have led to the dismissal of Haitian Prime Minister Jacques-Edward Alexis.

World’s exportable rice has been advance-booked upto 2010 by now. There are occasions when money fails to buy food grains. This is true for individuals as well as nations. In April 2008 the Philippines invited international offer for procurement of 0.5 mil. tons of rice. They got offers for a total of only 0.32 mil. tons at prices varying from $870 to $1200. Sun Wing Loong Rice Trading Company of Hongkong informed in May 2008 that for the last three months they were receiving 50-60 tons against orders of 100 tons. Recently Bangladesh could procure only 0.487 mil. tons against a programme of 9 mil. tons even after floating tenders for 43 times.

Present price of world rice price benchmark a Thai variety has become 3 times its price of January 2007. The price has jumped from $512 in January 2008 to $998 in April 2008. The recent price surges apply to all food and feed stuff. Recent UN’s World Food Report has found the present food price to be 10 years high and does not expect the price to come down much within next 10 years. None among FAO, WFP, IRRI, WB, IFAD, ADB and other stakeholders has any doubt about high price of rice in the coming years. At least they do not think of any possibility of normal rice price going down to previous level. The flip side of high price is that countries producing surplus can get lucrative amount for their products. Some of the reasons for prolonged high food prices (particularly of rice) in the coming days may be attributed to:-

Limited supply compared to demand: According to USDA, per year 0.9% rate of rice demand increase in Asia is outpacing the 0.7% rate of production increase.

Non-availability of effective substitute (synthetic or otherwise).

Markedly positive income elasticity and negligible (or nil) cross elasticity.

Latest information availability and bargaining adeptness of the agents representing the sector.

Price speculation/ precautionary storage: Crisis in the market coax the supplier to hoard. Rice exporting countries stop/restrict export of rice to protect their own storage at the time of global crisis. There are instances of export ban or price floor fixations. Precautionary demand/storage makes the demand-supply situation more unbalanced creating volatility in the market generating price spike. Thailand has been trying to form a cartel of rice exporting countries. Presently, it is trying to form ”Council of Rice Trading Countries” incorporating China, Combodia, India, Mayanmar, Pakistan and Vietnam with the motive of controlling price.

Urbanisation: Urbanisation is eating away agricultural lands worldwide. Even in Bangladesh about 1% of cultivable lands are being taken away for different development works each year. Cumulative effects of such reduction in availability of cultivable lands are significant in crop production.

Climate change: Inter-governmental Panel on Climate Change (IPCC) predicted that climate changes in the coming decades will cause more floodings in the northern hemisphere and droughts in the southern hemisphere as well as in some arid zones, consequently reducing agricultural output considerably.

Conversion of crops into fuel: USA, Canada and Brazil are comverting maize, soyabeen and sugar cane into ethanol. Fuel E85 made from 85% crop ethanol and 15% gasoline is becoming very popular because of 12-19% less emission of greenhouse gas carbon. 80% Brazilian cars are now dependent on ethanol. 20% of last year’s US production of maize has been used in ethanol production. Bush in his ‘State of Union Address’ on January 2007 called for replacement of 15% of gasoline burned by American transports by ethanol. ‘Energy Independence and Security Act’ signed by Bush in December 2007 calls for six fold increase in production and use of ethanol to 136 billion litres by 2022. EU is requiring 5.75% and 10% transport fuels to come from plants by 2010 and 2020 respectively. Conversion of crops into fuel is going to make their world supply tighter leading to rise in prices of rice.

Diversion to non-food crop production: Farmers in many major food stuff producing countries are diverting from food crops to other crops for economic and/or environmental reasons. Production of raw materials for ethanol is financially more lucrative than food crops production. New York Times reported that Australlia has been passing through severe drought for the last six years which has reduced its rice production capacity by 98%. Many Australlians have already given up the water intensive rice farming. These are going to reduce rice supply in the world market with its consequential negative impacts.

Increased demand for meat and other protein food stuff: General affluence in China, India and other emerging industrial countries has increased the demand for meat and such other protein food stuff. On average a Chinese now consumes 50 kg of meat and other high protein food per year compared to 20 kg in 2001. Production of meat and other protein food require cereal and energy, which otherwise would have been available for direct human consumption.

Increase in prices of agricultural inputs and petroleum products: Increase in prices of agricultural inputs are taking place as an outcome of general world wide inflationary pressure. Rise in price of petroleum directly affects feriliser production, transportation of agricultural inputs and products. Modern farming is highly energy dependent. Jumping rises in petroleum price is bound to push up agricultural input prices ultimately leading to higher rice price.

Food security exists when all people, at all times, have physical access to sufficient food to meet their dietary needs and preferences. A household or a nation is considered food secure when the people concerned do not live in hunger or fear of starvation. It is a proven fact that even having sufficient money may not always ensure availability of foods at individual or national level. Availability of food is a necessary pre-condition of food security. However availability by itself may not ensure access to food for all, as access is also related to economic capability.

Against the looming backdrop of supply crisis and prolonged high prices, “Net Food Importing Low Income Countries (NFILICs)” have to strive for food security for survival. ‘Buisiness as usual’ cannot be an option for them. Long term strategy aimed at maximising food production can only protect them from unceraitanity of unpredictable volatile external market. Production of food grains involve different stakeholders having a process of complex interaction over a period of time. So a holistic approach encompassing all the players is necessary to enhance agricultural output in a sustainable way. Agricultural crop production is highly dependent on and related to weather. So there has to be a comfortable buffer stock to meet eventualities of weather as well as internal/external shocks. Attainment of individual food security, cumulatively leading to national food security is the most preferred of all the options in this regard.

Shahidur Rahman Khan () is a freelance contributor.

Abdul Bayes, The Daily Star, 17 June 2008

It’s now a well-established fact that most of the countries of the world are grappling with the crisis of three Fs: food, fuel and farming. In fact, after decades of a modicum of calm in the international market for food, the sudden volatility and its ferocity has seemingly changed the whole course. Real prices of food are still below their mid-1970s peak, but reached their highest points since then. For example, food price index calculated by FAO rose nearly 40% compared to 9% the year before, and prices in the first months of 2008 again increased drastically.

Wheat prices tripled, maize prices more than doubled, and rice prices reached unprecedented heights in March 2008. Meat and dairy products also joined the fiery foray. By and large, the food and nutrition situation of poor people in developing countries woefully worsened to ignite civil unrest in some countries.

The poor people in Bangladesh felt the pinch when high food prices hit them below the belt over the last year or so. A typical, poor Bangladeshi household with an income of Tk.5000/month, spending half of it on food, will lose Tk.1500 due to a 50% rise in food prices. This is in addition to energy costs. A Brac-backed survey in 2008 appears to show that real income in rural areas dropped by 20-25%, and the incidence of poverty, after declining, moved upwards. Quite obviously, against this backdrop, national governments and international actors are bent on bringing the situation under control through a panoply of policies.

Joachim von Braun (DG, IFPRI) appreciates these efforts but, in addition, points to some pertinent pockets to be addressed with earnestness, effectiveness and cohesion. We can possibly darw upon some of his submissions and examine their relevance in our context.

Factors fueling the fire
Joachim von Braun reckons that the world food situation and prices of food are driven by the new and ongoing forces shaping both the supply and the demand sides of the spectrum. For example, higher prices of energy are fueling food prices, and these two items have growingly become interwoven.

The US response to high oil prices resulted in a massive shift of acreage from soybean, wheat and maize to ethanol production. “About 30% of US maize production will go into ethanol in 2008 rather than into world food and feed markets. High energy price have also made agricultural production more expensive by raising the cost of inputs…” Second, poor weather and speculative capital also played a role in fueling food prices. Third, panicky response from some countries in terms of export bans and import restrictions made the international market thinner, thus pushing up prices again. Such nationalistic naivety might bring short-term relief for the countries concerned, but could also recoil in the long run.

On the demand side, rapid growth of population and demand for different kinds of food, increase in purchasing power from rapid economic growth, etc., caused a parametric shift in the demand curve for food. Specially, demand for meat and dairy products are giving rise to demand for fodder, which is being met by diverting lands from food to fodder. It can possibly be concluded that, more or less, Bangladesh was caught by the abovementioned crises. Most importantly, high-energy prices and poor weather conditions paved the ways for the current peril.

Short-term solutions
The author suggests that in the short-term government should expand social safety net programs. The budget for 2008-09 has rightly earmarked the areas of interventions and allocated a sizeable portion of resources for addressing the ailing poor. Special mention may be made of employment guarantee for 2 million poor people for 100 days at Tk.100/day. Extension of the safety nets is another step. Von Braun thinks that donors should also provide more money.

Second, developed countries should eliminate their biofuel subsidies, which are proven to have distorted world food markets. Subsidies on biofuels are, in fact, an implicit tax on staple foods on which the poor rely most. Third, developed countries should eliminate trade barriers to increase access to their markets by developing countries. If these three steps are taken and implemented properly, much of the rot could be stemmed.

Joachim von Braun suggests policy actions in three areas: (a) comprehensive social protection and food nutrition initiatives to meet short and medium term needs of the poor, (b) investment in agriculture, particularly in science and technology to augment supply in the long run and (c) trade policy reforms through a revision of the developed countries’ stance on domestic biofuel production.

A happy note is that the current budget addresses both (a) and (b) by providing special attention. If long-term projects could be materialised, Bangladesh could be on an even keel through a shift in the supply curve of food grains. But opening of market access by developed countries could impart a positive sum game for these types of countries.

Facing the fire, not escaping it…
Rome was not built in a day, but could be burnt in a day. Likewise, stability in the world food market and increase in food security were achieved in decades, but are facing perils in just one year. The recent UN projection shows that the pressure that developed in the food market worldwide might wane for a while in the near future but the prevailing prices of food grains might be well above the previous ones.

It is, therefore, the responsibility of both the developed and the developing countries to frame rational policies with regard to food and agriculture. A world should be created where all people have enough food for a healthy and productive life. The fire in the forest should be extinguished — shifting of respective shelters is of no help in the long run, if we all are not dead by that time.

Abdul Bayes is a Professor of Economics at Jahangirnagar University.
(abdulbayes@yahoo.com).