The IGC raises two bright red flags about world grain

The European Commission’s directorate general of agriculture in its ‘Commodity Price Data’ 2012 August edition contains this chart on ‘cereals/bread and cereals-based products’ that their EU agricultural market and consumer price developments (this shows 2000 January to 2012 August data with the starting month representing the 100 of the index). This chart shows barley (the blue line) is at or near the 2007 peak and maize (the green line) is above the 2007 peak.

The Grain Market Report for 2012 October released a few days ago by the International Grains Council (IGC) makes two extremely important prognoses.

IGC’s 2012 October total grains chart

These two forecasts will have an immediate effect on grains prices as they are traded in the agricultural commodities markets through the winter season of 2012-13, and I expect we will see the effects in the major indices that describe the movements of food and of food prices – the FAO food price index, the World Bank ‘pink sheet’, the IMF commodity prices index, Unctad’s long-running series on agricultural commodities, and of course the various exchanges-based indices (DJ, CBOT, NYSE LIFFE and so on).

The IGC has cut a further 6 million tons (mt) from the 2012-13 forecast for total global grains production, which is now expected to be 5% lower year on year, at 1,761 mt. The decline includes 39 mt of wheat, 46 mt of maize, and 4 mt of barley. “Reduced availabilities and higher prices are expected to ration demand, resulting in the first year on year fall in grains consumption since 1998-99,” said the IGC in this month’s report.

IGC’s 2012 October wheat and rice charts

It is worth making the connection that the United States Department of Agriculture (USDA) in its recent ‘Wheat Outlook’, released on 2012 October 15 by the Economic Research Service, had said that global wheat production in 2012-13 is projected to reach 653.0 million tons, down 5.7 million tons this month (that is, 2012 October). The USDA’s 2012 October Wheat Outlook had said the “largest change this month is a 3.0-million-ton cut in projected wheat production in Australia to 23.0 million” and had added that “projected wheat production in Russia continues its decline as the wheat harvest gets closer to its end and projections for abandoned wheat area get higher, reaching 12% of planted area”. About the European Union (EU-27) wheat production for 2012-13 the USDA Wheat Outlook had reduced it 0.8 million tons to 131.6 mt, mostly because of a significant reduction for the United Kingdom (UK) (down 0.8 million tons to 14.0 million).

The IGC forecasts show a further tightening in the balance this month, with 2012-13 end-season total grains  stocks revised down by 4 mt to 328 mt (it was 372 mt the previous year), the lowest since 2007-08 – and we all remember well the global food price increases that set in during the 2007-08 season, and how the spikes of that period were quickly replaced from mid-2010 onwards by the sustained high plateau of food prices.

“Inventories for the major exporters will be even tighter and the smallest for 17 years,” the IGC has said in its 2012 October Report. The global year on year decline is forecast to come from a 24 mt reduction in wheat, an 18 mt decline in maize, and a 1 mt drop in other coarse grains, notably barley. Global grains trade is expected to fall by 19 mt from last year’s high, to 249 mt, with a particularly steep decline for wheat – down by 13 mt year on year, largely due to a forecast reduction in EU feed wheat imports against the backdrop of tight Black Sea supplies. (Also please see the European Commission’s directorate general of agriculture’s ‘Commodity Price Data’ 2012 August edition.)

Cornflakes and oats invasion, 10 rupees at a time

What does a breakfast cost in India? Depends what you choose to eat or cook. A breakfast for three in urban south India, with dosa, averekal akki and ragi roti (and three small filter coffees), will cost within 100 rupees at an ordinary udupi cafe. A kilogram of wheat rava or rice rava, from which you can cook several upma breakfasts, will cost no more than 50 rupees from a small grocer in a middle-class ward of any town or city. A packet of poha (beaten rice) costs around 45 rupees a kilogram.

Now consider the cornflakes and oats breakfasts that are being marketed both by food MNCs in India (such as Quaker Oats, which is PepsiCo India, FritoLay Division; or Kellogg India; or Saffola, Marico Limited). [See the new post, ‘Let them eat biscuits’.]

Quaker Oats sells sachets of oats-based breakfasts for 10 rupees each. These are flavours such as ‘Homestyle masala’. ‘Kesar kishmish’, ‘Lemony veggie’ and ‘Strawberry apple’. Saffola sells sachets of oats-based breakfasts for 15 rupees each, and its flavours are ‘Curry and pepper’, ‘Masala and coriander’ and ‘Pepper and spice’. Then there is Kellogg’s which has for example ‘Corn flakes strawberry’ and ‘Corn flakes chocos’, both for 10 rupees.

The per kilo prices of these almost-ready breakfasts (warm milk or hot water to be added) can be seen in the table below:

Why has this happened? Part of the reason is that food products manufacturers, and in particular breakfast cereals companies, find it is cheaper to pack dry ready-to-eat (milk or water to be added) portions in strips of single-use sachets than in a plastic containers. The prices at which these are sold are in simple multiples – 5, 10 and 15, with the grammage being adjusted for these prices. This is the ugly side of the ‘bottom of the pyramid’ market, a foul term that ignores the mis-nutrition these food companies are responsible for in their pursuit of the price-conscious consumer (rural and urban alike). It also ignores the environmental aspect of such packaging, the costs of which are borne by towns and cities in the form of increasing per capita loads of plastic, packaging and laminated sachets.

Persistent high food prices and a winter’s tale of the FAO index

This chart, using data from the FAO food price index and considering the period 2006 Jan to 2012 Sep, shows the four sections of price plateaus, with the longest – and most severe – being what we are experiencing now.

In this chart I have divided the period from 2006 January till 2012 September into four sections. These four sections represent different phases of the global food price rise and consequent levels of persistent food price inflation. As with all price series movements, the sections flow into and from one another, but with the five components taken together (I have omitted the sugars index, so these five are food, cereals, oils, dairy and meat) the sharp upward and downward gradients become visible. These differences help find the four different sections of prices over the last six years and nine months.

Index close-up: 2007 May to 2008 Nov

Most conspicuously, what is immediately clear from the main chart is that the current period of high food prices (and high levels of food price inflation coupled with volatility in global, regional and local food markets) began in 2010 June and established a new set of plateaus by 2010 August. It is now therefore two years of such a plateau, and the worrying indications are that, as happened in 2009 August and September, we may be on the cusp of an even higher upward movement of prices.

Index close-up: 2010 Jun to 2012 Sep

The thin lines representing averages for the five separate index components (four plus the main food index) are visible for each of the four sections. These provide more evidence of the higher overall index and graphically show the very worrisome duration of the current elevated plateau of prices – the averages for the 2010 June to 2012 September period are higher than the averages for the 2007 May to 2008 November period. Thus the optimistic pronouncements by FAO on the monthly variation in its index – such as this month’s “the FAO Cereal Price Index is 7 percent higher than in the corresponding period last year but still 4 percent below the peak of 274 points registered in April 2008” – fail to present the context, that it is not how far below the 2008 peak but how much the current average is higher than the 2007-08 average that matters.

Indeed, using the FAO food price index data released early in 2012 October (covering the period till 2012 September) this may be the FAO confirmation of the signal that the widespread droughts of 2012 have begun to affect food prices even at this already elevated level. It is all the more worrying since, in the period since 2006 January and which includes the 2007 May to 2008 November period, this is the longest period of sustained high food prices recorded by the FAO food price index. These are the long-term signals that are not conveyed by FAO’s standard monthly chart, which you can see here.

Does KFC want 13-month-old infants in India to eat its chicken?

A schoolgirl walks under the KFC advertisement in Bengaluru (Bangalore). This hoarding is visible to all traffic on one of the city’s major roads, Richmond Road.

Kentucky Fried Chicken (KFC) in India is advertising a chicken meal that costs 35 rupees (USD 0.67, EUR 0.51). Hoardings such as this one are visible now in all the major metropolitan cities (Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata, Delhi) and KFC has taken outdoor advertising space along major roads in these cities.

This hoarding advertises “Real chicken” for 35 Indian rupees, “KFC wow! price menu”. In small letters on the lower bottom right of the hoarding the advertisement also says: “Products contain added monosodium glutamate. Not recommended for infants below 12 months”.

There are two culprits here at work to further the interests of the junk food/fast food industry. One is the Food Safety and Standards Authority of India which is nowhere near as vigilant as it ought to be, especially given its ‘Advisory on Misbranding/ Misleading claims’ which invokes the Food Safety and Standards (FSS) Act, 2006, Rules & Regulations, 2011. This has said: “(2) The various false claims made by the Food Business Operator about food articles and consequent violation, if any, are punishable under the provisions fo FSS Act, 2006; (3) Violations related to food items, seriously jeopardize public health as well lead to unfair gains to Food Business; (4) Misleading advertisement related to food items are imputed with malafide intent on the part of person making the claim and is normally made to misguide a consumer to purchase food item without disclosing the complete details on the advertisement. Companies (Corporate bodies including firm or other association, individual) are also covered u/s 66, FSS Act, 2006.”

The objectionable disclaimer is in small letters on the lower right edge of the hoarding, unnoticeable to passing traffic.

The other culprit is KFC and its parent company, Yum! Brands, Inc. Just how important is India to Yum! Brands? Consider the statement by the company’s chairman and chief executive officer, David C Novak (available right now on the company website) in which he has mentioned India and its market:

” …we have made incredible progress in India, opening 101 new restaurants in 2011. Ten years ago, we were essentially just beginning with KFC in India, and now it’s our second leading country for new unit development. In fact, we’re so excited about our prospects in India, and its impact on the future growth of Yum!, that we’re going to break it out as a separate division for 2012 reporting directly to me. It’s encouraging to see that our new unit progress with KFC in India is very similar to what we saw in China during its first 10 years. Our India team has identified the key elements driving success in China and are adapting these strategies in India to leverage our iconic brands and build concepts with broad appeal.”

No thank you. We want 0 such restaurants per 1,000,000 people

India’s business and financial English-language dailies, since they function as mouthpieces of industry and propaganda sheets for industry and trade associations, and since they function as uncritical endorsers of the current ruling regime’s reckless gallop into ruin, have had only laudatory noises to make about the invasion under way by KFC and similar global junk food peddlers.

The Economic Times published a gushing interview with Muktesh Pant, CEO of Yum! Restaurants International, which is described as running “the international operations of US quick restaurant chains Kentucky Fried Chicken, Pizza Hut and Taco Bell restaurants”. The newspaper asked: “How is the Indian restaurant market evolving, compared to say China?” and Pant answered: “If you compare the stats of the two countries, the consumer class of 300 million in China has an access to 3,000+ KFCs, while the consumer class of 100 million in India has access to only about 140 KFC outlets. Hence, there is a huge potential for us to leverage our expertise in the untapped market. Our aim is to have 1,000 outlets in India by 2015 and China has helped us provide a blueprint for this rapid growth.”

The influence of KFC on the diet of India’s urban schoolchildren? See the schoolbuses driving past the hoarding.

The same gushing interview contained answers from Niren Chaudhary, president of Yum! Restaurants India, who was described as “reporting directly to Yum! Brands, Inc, Chairman & CEO David Novak after the world’s largest restaurant company last week made India only the third country after the US and China with a standalone reporting division”. How fabulously exciting for all the 13-month-old infants wetting their diapers in anticipation of their next KFC portion.

The question was: “Will it translate into faster expansion and more hires?” And Chaudhary’s answer: “Our goal is to double our store base to at least 1,000 stores, employing 50,000 people, in three years. The new structure is a change in reporting relationship and reflects the importance of India as a future growth opportunity.”

Now we know why the KFC advertisements say what they do (and hide much). This CEO Pant is reported to have studied at the Indian Institute of Technology Kanpur, and if so that particular IIT – and the IITs and IIMs of Bharat – have much to answer for.

What India’s schoolchildren think of M K Gandhi at 143

A special section in the Hindu, 2012 October 02, on what schoolchildren in India think of M K Gandhi

Today is the 143rd birth anniversary of M K Gandhi. We need, more than ever, swarajya and satyagraha, khadi and ‘gram rajya’. Here is what he wrote 85 years ago:

“Indeed the word swaraj is all-embracing. It does include complete independence as it includes many other things. To give it one definite meaning is to narrow the outlook, and to limit what is at present happily limitless. Let the content of swaraj grow with the growth of national consciousness and aspirations. We may be satisfied today with dominion status. The future generations may not be, may want something better. Swaraj without any qualifying clause includes that which is better than the best one can conceive or have today. Swaraj means even under dominion status a capacity to declare independence at will. So long as we have not achieved that capacity, we have no swaraj. This is the least it should mean.”

“What India will finally have is for her and her alone to determine. This power of determination remains unfettered by the existing creed.”

“It is totally consistent with national self-respect and it provides for the highest growth of the nation. After all, the real definition will be determined by our action, the means we adopt to achieve the goal. If we would but concentrate upon the means, swaraj will take care of itself. Our exploration should, therefore, take place in the direction of determining not the definition of an indefinable term like swaraj but in discovering the ways and means.” – M. K. Gandhi, in ‘Young India‘, 13 January 1927

How the crop cultivation and food habits of 1.21 billion are being hijacked

A woman sells small seasonal fruit from her basket on a bust main road in Mumbai (Bombay).

In both 2009 and well as this year, 2012, there were droughts. The impact of one drought on rural cultivating households is considerable, and we have known of the severity of these impacts ever since the chronicling of the famines of 1943-44. What happens when over a five-year period, there are two droughts? Before the end of 2012, we shall begin to know, and this will be a grim learning – drawing from the conclusions of several surveys conducted on drought and its impacts between 1970 and 2002, rural cultivating households suffer annual income losses of at times more than 60% in drought years. Can they recover enough in three years to withstand such drastic income erosion a second time in quick succession? We will learn soon enough, but the circumstances in which we learn is already being influences by major changes afoot.

Let us consider the global concern about drought and the need expressed for support to cultivating (and rural food consuming) populations experiencing drought (and food price inflation) stress. “We cannot allow these historic price hikes to turn into a lifetime of perils as families take their children out of school and eat less nutritious food to compensate for the high prices,” said World Bank Group President Jim Yong Kim in a recent statement concerning high food prices. “Countries must strengthen their targeted programmes to ease the pressure on the most vulnerable population, and implement the right policies.” The World Bank, together with other multi-lateral lending organisations and many governments worried about agrarian distress and chronic food price inflation, has spoken often about “measures and policy to protect the most vulnerable against future shocks”.

The immense sprawl of Mumbai, with over 20 million inhabitants, a food magnet that drains food producing districts up to 500 kilometres inland.

What sort of measures have been and are being discussed and implemented? They include agriculture-related investment, policy advice, fast-track financing, support for safety nets, the multi-donor food security programmes, and risk management products. The Government of India has also talked about cash transfers and increased investment in agriculture, in the same breath that it has talked about technological ‘solutions’ (the introduction of drought-resistant crop varieties, they like to call it) to surmount the yield per hectare limits currently experienced in food crop staples. How sensible or opportunistic are these measures? How true are they towards being ‘inclusive’ and ‘participatory’ (terms our government and major line ministries, including the Ministry of Agriculture and the Ministry of Rural Development, like to use)? How much are they driven by the demands of industry rather than the needs of the food insecure and price vulnerable?

Before I indicate some of the answers, it is useful to look at the conditions in the same sector in our neighbour, the People’s Republic of China.

Inside China, the country is fast approaching the limit of its own available farmland resources – the so-called ‘red line’ for food security of 120 million hectares of arable land, set by the government. China’s typical solution has been to import cheaper agriculture commodities like soybean and maize while saving its farmland for higher-value exports like fish and vegetables. But there is another force driving the rise in soybean and maize imports: the rise in meat consumption in China (a reduced example of which we are seeing in the cities and towns of India, in which the middle class diet includes a growing meat component, usually poultry). In China, meat is increasingly coming from large-scale commercial farms – not small-scale or household farmers – and is therefore dependent on animal feed rather than food waste (which has and continues to be an important portion of animal feed – think goats and chicken – for India’s small agricultural households).

From a growers’ collective in India’s Western Ghats region, a visual aid to help urban consumers identify vegetables that can be grown organically in cities.

Looking back at the pronouncements of India’s planners – whether in the Ministry of Agriculture, in the Ministry of Chemicals and Fertilisers, the directorates in states for major crops and horticulture – and its lobbyists (mostly in the chambers of commerce and trade associations) one comparison made frequently with China is seen: that our per hectare use of fertiliser is low. What they conceal is the tremendous ecological damage that has taken place in China as a result of unregulated growth in the use of synthetic and inorganic fertilisers, which has rendered toxic and sterile vast farming tracts in China. To even consider such an approach in India ought to be anathema to our farmers – but they are being pressured and coerced by a business-centric lobbying front which is alas being supported by the central government and by the governments of major states.

“Smallholder farmers are capable of producing the food necessary to feed their country, but face increasingly difficult barriers,” concluded a recent report from the international NGO Grain, which campaigns for farmers’ rights worldwide. The report by Grain added that government decisions to rely on agricultural commodity imports serve the interests of agribusiness and its need for cheap sources of feed “but threaten the land, livelihoods and local food systems of communities”. It is this linkage that lurks behind the recent ‘reform’ (a distorted and dangerous term) that now has permitted foreign direct investment (FDI) in India’s (and Bharat’s) agriculture and food retail sector.

Such changes come against a legacy of corruption concerning access to and misuse of foodgrains that deeply affect our public distribution system and with it, equitable and affordable access for our population to nutritious food. A recent report in Bloomberg, the international news agency, exposed one such fraud, which found that Rs 2,700 crore worth of foodgrain “was looted by corrupt politicians and their criminal syndicates over the past decade” in Uttar Pradesh alone. The report quoted Naresh Saxena, a commissioner to the Supreme Court who monitors hunger-based programmes across India, as having said: “This is the most mean-spirited, ruthlessly executed corruption because it hits the poorest and most vulnerable in society. What I find even more shocking is the lack of willingness in trying to stop it.” How can they begin to stop it when, in a country whose agricultural production in absolute numbers has reached ecological limits, the food retail and processed food industry continues to demand more? And will pay more for new supplies and will gratify the looters more?

A one-kilo packet of ‘ragi’ (finger millet) from an organic farm in Andhra Pradesh state, central India, packaged and labelled in a manner that provides an alternative to the premium rice brands (mostly basmati) sold in urban centres.

Imagine the psychological effect of this sort of fraud on those who work in and for our agriculture markets. The number of regulated (secondary) agricultural markets (‘mandis’) stood at 7,157 as of March 2010 (compared to just 286 in 1950). There are also reckoned to be about 22,200 rural periodical markets, about 15% of which function under the ambit of APMC (Agricultural Produce Market Committees) regulations (there are at least 27 such acts in different states). It is against this density of local collection and distribution that the impact of agri-business on inflation (both direct and indirect) may be viewed. The direct impact of agribusiness is visible in the form of food price inflation, as the Reserve Bank of India has also observed. There is demand arising from increasing population and (especially in urban and urbanising centres – see this report in a business daily, which ignores entirely the food demand footprint of urbanising India) prosperity has outstripped the growth of agricultural output, hence food inflation in India will certainly to persist and deepen (in rural areas as a result of the agri-business-led escalation of marketing channels and investment in infrastructure to move crop and food – the current government and its industry partners are doing all they can to convince middle-class urban India this is good for ‘growth’).

There is a dictatorial emphasis on food processing, on trading (consider the number of commodity exchanges today compared with ten years ago, and the much enlarged scope of their futures trading business, all of which requires access to stored raw crop that serves as the basis of such trade) and on marketing. The growing demand for protein-rich and what are called “high-value foods” (fruit, vegetables, edible oil and meat) is simultaneously raising the demand for what the food industry (processed food manufacturers, food retailers, crop terminal markets promoters, exporters) calls “high quality, safe and convenient (frozen, pre-cut, pre-cooked and ready-to-eat) foods”. Hence the view now shared by the central government, planning agencies and business and industry associations is that meeting these demands will facilitate growth (of national GDP and of the agriculture sector; see the National Summary Data Page for growth rates, however meaningless these are to the cultivating households of rural Bharat) and moderate inflation (in complete disregard of evidence from countries all over the world in which the growth of modern food retail has contributed to inflation in the prices of food staples).

The strength of the ‘growth’ totem does not diminish, and nor does the artificially inflated appeal of the ‘growth is good, more growth is better’ fiction. This is wholly and utterly misguided and mischievous and is responsible for deepening the agrarian distress in Bharat. How entrenched this fiction is can be seen in allegedly authoritative pronouncements that can be found even by the RBI, which recently said: “There is, however, near unanimity, amongst all that agriculture and agri-business growth is a necessary prerequisite for moderation of inflation, particularly food inflation, as well as for acceleration and sustenance of inclusive growth.” Growth as defined by the resource-intensive and ecologically destructive direction of the central government, Indian business and an urban middle class divorced from rural realities has directly caused this same inflation the RBI (and others) is complaining about. Yet in the policy space the contradiction is ignored – true reform that benefits Bharat rather than India is not considered.

A neighbourhood vegetable market in Bengaluru (Bangalore). How these small markets cope with the dictatorship of the food retail and food processing industry will depend on local consumers and their support.

Our central problem in the near future will continue to be the divide between Bharat and India, between food growers and the food consuming populations they support (usually unseen and unheard, often unrepresented). The English-language media that represents the interests of the well-off urban elite have become uniformly uncritical of the different aspects of agri-business and the ‘supply chain’ (another loaded term that spells danger for rural Bharat) which are being transformed (to be fair, major regional language media can be equally uncritical). Reports such as these, one from an Indian business and finance daily, Mint (which holds up GM food as the panacea for India’s food insecurity, and the other from the Wall Street Journal, which is read and quoted in business circles (which said the new ‘reforms’ are not comprehensive enough), reflect the aspirations and tendencies of urban upper middle class India and the disproportionate influence this minority enjoys over national policy, especially policy concerning agriculture and food.

These media views celebrate “rural prosperity” which is “thanks to government job schemes” (no mention of the labour distorting effect of MGNREGA (the Mahatma Gandhi National Rural Employment Guarantee Act) that is now widespread and which has pushed up farm labour costs to benefit the manufacturers of agricultural machinery – see this report for one of the implications of this cost rise, and see this compilation [pdf] by the Indian Social Institute on NREGA-related wages news), the drive for more “domestic demand from rural areas” (to benefit the consumer goods companies and their financiers primarily), the need for “better private-sector jobs in manufacturing and services”, the obsession with how to “boost purchasing power” and the tiresome illogic of “a virtuous cycle of growth”.