Relevance: GS-3: Issues of Buffer Stocks and Food Security;

Key Phrases: Global Food supply disrupted; steep and severe periodic price shocks; Food Price Index; policy of strategic liberalisation; Global food security stock.

Context

• The recent Ukraine-Russia conflict has worsened the Global Food supply on the backheels of the COVID pandemic, causing a steep hike in global food prices.
• These hikes can have widespread ramifications and hence must be tackled at the earliest.

Key Highlights

• Countries can manage year-to-year volatility through changes in their trade and domestic policies
  • But, it is steep and severe periodic price shocks that creates crisis at the global and national levels.
  • The crisis can emerge in the form of
    • food shortages
    • trade disruptions
    • a rise and spread in hunger and poverty levels,
    • depletion of foreign exchange reserves for net food-importing countries,
    • a strain on a nation’s fiscal resources due to an increase in spending on food safety nets,
    • a threat to peace, and even social unrest in some places.

Crises and history

• As per the data of WB, FAO and IMF, since the onset and the adoption of Green Revolution technology in the early 1960s, the world has been struck 3 times by food price crises. It is measured by observing Food Price Index (FPI).
  • The first shock was experienced during 1973-76.
  • The next food price crisis of 2008-12.
  • The 3rd food price crisis began in the third quarter of 2020.
• This time the increase in the food price index happened very quickly and it turned out to be very big - it has taken the Food Price Index (FPI) to its historically highest level.
• Learnings
  • These crises had origins outside of agriculture.
  • The interval between two consecutive price shocks has narrowed down considerably.
  • The severity of shock is turning stronger.

The Recent Spike

• Disruption in trade patterns
  • The recent spike in food prices has been triggered by supply disruptions due to COVID-19 and further aggravated by the Russia-Ukraine war. Trade patterns have also contributed to this rise in prices.
    • This began with vegetable oils and then expanded to cereals.
  • The trade patterns of these commodities show that the following percentage is globally traded
    • 38% for vegetable oil.
    • 25% for Wheat
    • 16% for Maize
    • Only 10% for Rice
  • Hence, the prices of Wheat, Vegetable Oil and Maize will be more affected by the trade disruption.
• Diversion of food for biofuel needs
  • The proportion of vegetable oil used for biodiesel increased from 1% (2003) - 11% (2011) - 15% (2021).
    • Due to the increase in the price of Crude oil, it becomes cheaper to produce the same from oilseeds, etc.
  • The second reason for the use of food crops for biofuel is the mandate to increase the share of renewable energy resources.
• Increase in cost of production
  • Due to an increase in the prices of fertilizer and other agrochemicals, food prices will spike.
  • The international price of fertilizer has increased by 150% in April 2021 and April 2022.

Implications for India

• Export and import in the agriculture sector constituted 13% of the gross value added in agriculture during 2020-21.
  • Therefore, some transmission of an increase in global prices on domestic prices is inevitable.
• This transmission of global prices to the domestic market can be moderated through trade policy and other instruments.
  • Favouring Producers - When international prices go too low, India puts checks on cheap imports to protect the interests of producers
  • Favouring Consumers - When international prices go too high, imports are liberalised and exports are checked to ensure adequate availability and reasonable food prices for domestic consumers.
• A buffer stock of food staples is helpful in maintaining price stability (during global food crises).
• Dependence on agriculture exports to mop up food and agriculture surplus has increased.
  • As per a projection, India must dispose of 15% of its domestic food output in the overseas market by 2030.
  • This is more than double the current ratio of export to output.
  • Hence India must maintain an image of a reliable and credible exporter.
• However, it is important to differentiate between the two situations: disturbing normal export and regulating exports exceeding the normal level.

Wheat export restrictions

• Due to the abnormal situation, the recent ban on wheat exports and restrictions on the export of other food commodities by India is justified.
• It is not a setback to India’s image as a reliable exporter as this move is seen to disrupt (regular) export channels.
• India is a small exporter of wheat, only 0.1% to 1% of the world’s wheat came from India, during 2015-16 to 2020-21.
• The world requires around 50 million tonnes of wheat to compensate for the disruption in wheat exports from Russia and Ukraine.
  • This is close to half the wheat production in the country and more than 2/3rd of the wheat that comes to the market.
  • It would have resulted in a severe shortage of wheat within the country if the ban wasn't imposed.
  • No responsible country would jeopardise its own food security by allowing excess exports.
• India must continue with a policy of strategic liberalisation to balance the interests of producers and consumers.

Global impact

• The Green Revolution technology has helped in keeping food prices low and relatively stable. But since then, the steam of the revolution has slowed down along with the weakening of the resilience of the food sector against price shocks.
• CGIAR (Consultative Group on International Agricultural Research) must be revamped for a collaborative approach in R&D related to Argiculture.
  • This will bring new breakthroughs such as Green Revolution technology, for large-scale adoption to enable checks on food prices to rise at a faster rate.
• Biofuel protocols have contributed to the global food crisis for the second time in the last 15 years.
  • Hence, it must be restricted to 2 and above degree biofuels.
    • 2-degree biofuels involve non-food plants.
    • 3-degree biofuels involve microalgae.

Conclusion

• Climate change will further provide supply shocks in the years ahead. Therefore, the global community must plan to have a global buffer stock for increased resiliency. The situation requires coordinated and timely action by the global community.

Source: The Hindu

Mains Question:

Q. The recent food price crisis is not the first and it will not be the last? Mentioning the reason for this crisis, suggest a suitable way forward.