Essay, Paragraph or Speech on “Agriflation-The New Threat” Complete Essay, Speech for Class 10, Class 12 and Graduation and other classes.

Agriflation-The New Threat

Given the importance of food prices for consumers and the speed of this year’s food price rise, it is understandable why governments around the world are trying to soften the blow for the most vulnerable part of the population. However, if one looks more closely along with the value chain at the different policy options (export restrictions, price controls, import facilitation) it is clear that there are winners and losers from state intervention in the market.

A sudden rapid increase in the prices of key agricultural commodities has put food price inflation on the top of the agenda for policymakers worldwide. The most affected are usually the poor that spend a high proportion of their income on food. The evidence of growth inflation trade off in the Indian context is more prominent in recent times. Till the early 1990’s, high inflation was induced by either monsoon failure or oil price shock. The early 1990 saw high inflation and then acceleration in growth. The late 1990’s witnessed deceleration in growth as well as lower inflation. Now in the present times, with the growth accelerating to 8-9 per cent times, we have rising inflation. A careful look will show that higher inflation rate today is largely driven by fuel prices and food prices both of which are facing supply side pressures. This article will try to discuss its causes, consequence and suggestions.

The reason why there is pressure on food prices is due to near stagnation in the production of wheat, rice, pulses and also edible oil seeds. Rice output is forecast to drop to 12.6 million tons from 13.2 million tones earlier, and pulses from 9.4 million tons to 8.6 million tones. The land under cultivation has dropped by more than a million hectare from million in 1990-91 to 141.89 million in 2005-06. It leads to a 14 percent dip in per capital availability of food grains in India over the last 15 years. Declining public investment, poor pricing and marketing policies, ‘ and a short-sighted approach towards food security have pulled down agricultural growth in India from 5-7 per cent in the 1980’s to less around 3 per cent. No country as large as India can depend on imported food grains. Even demand and supply mismatch leads to an increase in the price of food grains (especially wheat and rice), prices of these commodities increased by two to three folds in four years.

There is growing apprehension the world over about food inflation. The price of wheat has been steadily rising from last year. This is because of the prevailing unusual drought conditions in the main wheat producing countries. This by itself is sustaining global wheat supplies. Adverse weather conditions in Europe and North Africa have further aggravated the shortage of major food crops. Specially wheat and depleted their stocks. The food and agricultural organization (FAO) had warned that wheat production could drop by 10 per cent to 142.6 million tons in 2008, as compared to 2007. Similarly rice stocks are expected to tumble to 107 million tones. The World Bank says the shortage has caused global food prices to rise 75 per cent since 2000. In the past 12 months alone, global wheat prices have jumped more than 50 per cent. The food price index of the Food and Agricultural Organizations (FAO) based on the export prices of 60 internationally traded food commodities rise 41 per cent in 2007 as compared with the previous year.

Internationally, the price of crude oil is heading towards US$150 a barrel. This is boosting the demand for bio-fuel. Many countries like China are using food grain to produce ethanol. Even more than 20 per cent of the US’s crop is now used to produce the bio-fuel and ethanol. European countries are also using edible vegetable oil to create bio-diesel. Brazil and India also make ethanol from sugarcane. By indulging in these true types of activities we are heading towards a global agricultural crisis.

At a time when growth is projected at 9 per cent, the rate of inflation is inching towards double digit. This is entirely based on whole sale price of food grains and manufactured goods. Here loading and speculation is playing a leading role in jacking up the price of agricultural commodities. The National Multi-Commodity Exchange (NMCE) was established in Dec 2003. It was aimed at de-risking Indian agriculture in terms of irrigational and erratic fluctuations in farm prices. Four years later, the speculative play of futures and derivatives and options is posing a strong negative influence on the prices of traded agricultural commodities ironically, future trading in food grain, pulses, edible oils and sugar has introduced an additional element of price instability and marginalization of the farming community, exactly the opposite of what it was supposed to check. The parliamentary standing committee on food, consumer affairs and public distribution has therefore recommended a ban on forward trading in agriculture commodities.

Given the importance of food prices for consumers and the speed of this year’s food price rise, it is understandable why governments around the world are trying to soften the blow of the most vulnerable part of the population. However, if one looks more closely along the value chain at the different policy options (export restrictions, price controls, and import facilitation). It is clear that there are winners and losers from state intervention in the market.

The most prominent policy option, a lowering of import tariffs on agricultural commodities, has proven to be the least distortionery and most effective one, although it is only applicable to net importers. In most cases, the lowering of import tariffs has resulted both is lower prices for end consumer as well as lower cost structures for the processing industry. In the short run, an increase in competitive pressure can negatively impact agriculture producers so government has been reluctant to use this option. This would, however, mean that liberalizations is likely to result in significant structural changes, with small, inefficient, agriculture producers being replaced by even larger, efficient ones.

The fact remains that the Govt. has lost control over the retailers and hoarders with the dilution of the essential commodities act. It does not even know as how much of food and vegetables are actively hoarded for the sake of speculation. If the price of agricultural commodities continue to increase 4 per cent in a week everybody tries to hoard now and sell later to get profit.

So in the end, it can be concluded that rise in food prices are linked with global food process. Globally, there is shortage of food production because of several reasons. That’s why United Nation’s Food an Agricultural Organization (FAO) warned that the global food stock outlook had reached a critical stage. So Indian Government should take serious steps to increase agriculture production. Government can import food grains upto an extent. But it will not help much because global food prices are too high. So government should boost agricultural production to bridge the supply gap.