Indians are outraged by President Bush’s claim that rising food consumption in India and China have sent world food prices skyrocketing. When incomes rise, people eat more meat, so more grain is fed to animals. Seven tonnes of grain produce only one tonne of beef. The conversion ratio is 4 to 1 for pork, 2 to 1 for poultry. India has a middle class of 350 million, larger than the US population. This middle-class demand for more food is helping raise food prices, said Bush.
Buddhadeb Bhattacharya fumed that Bush was “out his mind.” Defence minister Anthony called it “a cruel joke”. Analysts blamed Bush for causing the food crisis by diverting a fifth of US maize to produce ethanol.
Journalist Subodh Varma showed that per capita grain consumption was five times higher in the US than in India, mainly because of animal feed. Indian consumption per head has remained in the range 440-500 grams/day since the 1960s. Meat and dairy production has risen, but animal feed consists of oilcakes, straw and some coarse grain. Virtually no wheat or rice is fed to animals. Goats are mainly grazed.
The Indian middle class has prospered, but two of its major constituents – brahmins and banias – are traditionally vegetarian. Hence, rising income has not translated into a huge demand for meat, as in China. Rather, it has translated into higher consumption of dairy products, fats, fruit and vegetables. This cannot cause sky-high world grain prices. Bush is plain wrong. So, Indians are feeling smug and self-righteous. It’s all Bush’s fault, so how dare he blame us?
Yet, India is indeed to blame, partly, but for very different reasons. India is among the 40 countries that have curbed food exports to control domestic prices. So, food supply to the world market has shrunk, fuelling world prices.
The Food and Agriculture Organisation (FAO) warns that prices will stay high unless the export curbs are eased. The International Food Policy Research Institute says that the countries with export curbs are unwittingly following “starve your neighbour” policies. By creating an artificial shortage in the world market, they are condemning millions in neighbouring countries to hunger and starvation.
There is no food shortage. The FAO says world cereal production was a record 2,108 million tonnes in 2007, and will hit a new record of 2,164 million tonnes in 2008. Rice production will rise by 7.3 million tonnes and wheat by 41 million tonnes. Now, world cereal consumption has been slightly faster than production for seven years, so world stocks have fallen to 405 million tonnes. But this cannot explain skyrocketing prices.
Biofuels have diverted some land from food to fuel. Nevertheless, world wheat output is up from 596.5 million tonnes in 2006 to an estimated 647.3 million tonnes in 2008. Corn-based ethanol cannot explain the high price of rice, which grows in very different climates.
Biofuels caused an initial spike in prices, which then led to panic and export curbs. These raised prices much further. The FAO estimates that world trade in rice will fall from 34.7 million tonnes in 2007 to 28.7 million tonnes in 2008, and trade in wheat from 113 million tonnes to 106 million tonnes. Never before has world trade in rice and wheat shrunk sharply after record harvests.
India used to provide up to one-sixth of world exports of rice (5.5 million tonnes in the last financial year). But after the new export curbs, it will export only around 1 million tonnes of basmati rice this year. The reduction is a significant cause of rising world prices.
India is cracking down on hoarders. But the 40-odd governments with export curbs are, in effect, hoarding grain themselves. They have created an artificial scarcity and artificially high prices in the world market. India, Vietnam, China and others with export curbs are starving their neighbours. Corn-based ethanol is not the only culprit.
Congress Party spokesman Manish Tewary criticised Bush saying, “India is not a food importer. It is a food exporter.” True, but the export curbs mean India has substantially reduced supplies to the world market, stoking prices.
Let’s face it, we are starving our neighbours even while self-righteously condemning Bush. Realpolitik cynics can argue that self-interest must reign supreme, and India is responsible only to its own citizens. But then how can you criticise the US for following its own narrow self-interest in ethanol?
India should help launch an initiative, under WTO or FAO auspices, to persuade rice exporters with curbs to forge an agreement on increasing supplies to the world. As part of its WTO import obligations, Japan has an accumulated stock of 1.5 million tonnes of indica rice, which it uses for animal feed. WTO should agree to release this for export. If other key exporters agree on modest export increases to increase world availability by just 3 million tonnes in 2008-09, world prices will fall sharply, while having very little impact on domestic prices of exporters.
Indeed, falling world prices could stem panic and reduce even domestic prices. Starving your neighbour is not the only policy option.