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What the WTO-FAO alliance on food portends

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Campaign material by GRAIN and Via Campesina to stop seed laws that criminalise farmers and to defend local seeds.

Campaign material by GRAIN and Via Campesina to stop seed laws that criminalise farmers and to defend local seeds.

A convergence that the agri-business multinationals have long looked for is now beginning. The UN Food and Agriculture Organisation – whose constitution includes “bettering the condition of rural populations” as one of its four main purposes – has joined forces with the World Trade Organisation, whose concern for rural populations is precisely zero.

Both organisations call it a collaboration, but that term is a smokescreen. The FAO is technically being run under the supervision of its eighth director-general (since 1948; their tenures are far too long and Asian and South American members especially ought to have corrected this error long ago). José Graziano da Silva, the number eight, has since 2013 increased the pace at which the FAO also collaborates with the private sector – which means the international grain traders, the agricultural commodity cartels, the food and beverage multi-nationals, and last but not least the exceedingly powerful agricultural biotechnology corporations.

The WTO has described the new alliance as a “step up” on the issue of “trade and food security, as well as other issues”. The first item of collaboration by the trade body with the FAO will be to participate in the annual State of Agricultural Commodity Markets report, which this year will focus on trade and food security, and which the WTO has mischievously described as “the FAO’s flagship publication”. It isn’t, for the FAO’s State of Food and Agriculture is the flagship report, but that misappellation is a sign of the changes to come.

Grain_defend-local-seeds_201503_2What is being sought, from the WTO point of view, is “evidence and greater clarity on a range of issues related to trade and food security”. This is ingenuous, for the WTO’s ‘greater clarity’ has only meant more trade, justified with make-believe macro-economical models that pretend trade is good for low income consumers and smallholder farm producers alike, and to ignore ground truth. For the FAO on the other hand, ‘greater clarity’ on the question of food and trade has long been available in-house in the form of the food balance sheets maintained for every country in FAOstat, which is the voluminous FAO database.

But the tone is being set by the WTO, which has said: “Considering the important role of open and strengthened food markets in supporting food security objectives, the two directors-general discussed how trade and the multilateral trading system could help in creating a more favourable global environment for food security and sustainable agriculture.” It obviously doesn’t occur to WTO Director-General Roberto Azevêdo and his secretariat that ‘the multilateral trading system’ and ‘sustainable agriculture’ are fundamentally incompatible.

The FAO’s description of its new alliance is couched in milder terms. The organisation has said the collaboration offers “mutual assistance on critical themes such as the functioning of international grain markets” but also invokes “evidence and greater clarity” on “the governance of trade flows and the pursuit of broader food security”. FAO has resorted to using the non sequitur that food security is closely linked to trade and therefore this alliance is important. As with the WTO, internal contradictions don’t matter – if FAO is discussing smallholder family farms, then food security doesn’t include trade; if FAO is discussing organic cultivation, then food security doesn’t include trade. But under an alliance with WTO, unquestionably it does.

Grain_defend-local-seeds_201503_1FAO Director-general José Graziano da Silva has insisted that “food security and trade can together play a very important role to help fulfil FAO’s mandate”. What part of the mandate could be ‘helped’ by this alliance? The FAO member states are committed under its constitution to (1) raising levels of nutrition and standards of living of the peoples under their respective jurisdictions; (2) securing improvements in the efficiency of the production and distribution of all food and agricultural products; (3) bettering the condition of rural populations; and (4) contributing towards an expanding world economy and ensuring humanity’s freedom from hunger.

If called upon to do so by FAO member states – and I wish the G77 would summon up the critical voice to do so – the new alliance will probably be explained by the WTO and FAO as helping to fulfil the second and fourth objectives. Thus ‘improving the distribution’ of food and contributing to ‘expanding the world economy’ is what the alliance will use to show that the FAO’s mandated objectives (problematic as hey are already) are being followed.

What could the immediate implications be of the WTO now having a hand in setting the FAO’s ‘development’ agenda concerning the production of food staples and their use? Here is a short list:

1. The FAO overtly supporting the push, through the WTO, by the USA and other major grain exporting countries, for developing countries to increase their ‘trade facilitation’ measures – which means their physical and policy readiness to receive grain and manufactured food, no matter what the cost is locally.

2. This push will become stronger and energetic very quickly. So far, the Bali decision on public stockholding for food security purposes is to remain in place until a permanent solution is agreed and adopted. The WTO, the USA and the European Union want negotiations (which in their parlance means that all other countries accept their proposal) to be agreed to and adopted by 31 December 2015.

3. The new WTO-FAO alliance will immediately start exerting pressure on India, countries of the South and the G77 on Bali decisions concerning agriculture: tariff-rate quota administration, export competition and phasing out of cotton subsidies.

4. The FAO using trade-related arguments to defend the unacceptable biases in the existing WTO Agreement on Agriculture, and to beat down the developing countries stand (taken at the Bali ministerial meeting of the WTO in 2013) on the issue of public food reserves for food security.

5. The WTO using the FAO’s long experience in the field to sharpen its attack on the public food reserves systems of developing countries – which the US Trade Representative and its allies in the OECD calls ‘trade distorting’ – so that the socio-ecological institution of the smallholder farmer, and family farms, are done away with.

Why the FAO food index is also an oil gauge

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The revealing relationship between the FAO cereals price sub-index, the OPEC Reference Basket price of a barrel of crude oil, and the Baltic Dry Index (right scale).

The revealing relationship between the FAO cereals price sub-index, the OPEC Reference Basket price of a barrel of crude oil, and the Baltic Dry Index (right scale).

The Food and Agriculture Organisation (FAO) of the UN has released its food price index data and commentary for 2014 October. This would be of considerable interest if only the index described the tendencies of food prices as experienced by consumers. Alas FAO’s food price index, as we have remarked upon several times in the past, pays no attention to the true cost of food staples.

Of what use is the FAO index, which is used as a reference by any government (and UN member state) to judge the value of its food exports (or to judge whether when importing grain it is paying what seems to be a fair price)? In the first place, the index (which itself is composed of separately calculated cereal, vegetable oil, dairy, meat and sugar indices) is not a consumer food price index.

The FAO food price index and its component sub-indices for the period 2012 January to 2014 October. A general downward trend, says the FAO, but this is the picture for international food trade and not consumer food retail price.

The FAO food price index and its component sub-indices for the period 2012 January to 2014 October. A general downward trend, says the FAO, but this is the picture for international food trade and not consumer food retail price.

The FAO has not claimed it is, but neither has the agency clearly and plainly said it is not. It should, because financial and general interest media all over the world report the ups and downs of this index as if it portrays how local food prices move, and of course it does not.

The FAO index is used by international traders whose business it is to buy and sell food staples (including cereal, vegetable oil, pulses, dairy, meat and sugar). Perhaps some of them use it as a benchmark while others forecast trends from its sub-indices. It may be used to validate the accuracy of a particular kind of agricultural commodity futures index, and help judge whether an investment in the production of food, its movement, its stocking or its trade is going to be a good investment or not. As you can gather, it is not an index that consumers can use, because consumers are local and this is assuredly not.

What pulls the FAO food price index up, down or sideways? There are two important factors at work on the main index. One is the price of petroleum products, the other is the cost of moving grain (or any other food staple). You may assess the short or long-term trend of the food index against the current or projected price of Brent crude (preferred in Europe), West Texas Intermediate (preferred in the USA) or the OPEC reference price (preferred almost everywhere else).

The FAO food price index and its component sub-indices for 2014 till October. The downward trend of the last six months, which the FAO commentary is faintly praising, mirrors the trend of crude oil prices over the same period.

The FAO food price index and its component sub-indices for 2014 till October. The downward trend of the last six months, which the FAO commentary is faintly praising, mirrors the trend of crude oil prices over the same period.

And then you will assess what the food price index describes against the cost of moving a large quantity of the agricultural commodity to be traded across an ocean, for which the Baltic Dry Index will be consulted.

[If you are a trader and want the FAO food price data and movements, go here. The usual commentary can be found: “The FAO Food Price Index averaged 192.3 points in October 2014, marginally (0.2 percent) below the revised September figure but 14.3 points (6.9 percent) short of its corresponding level one year ago” and so on.]

To help determine what the FAO food price index is depicting, I have made charts for the index (and sub-indices) for the period 2012 January to 2014 October; for the index (and sub-indices) for 2014 till October; a chart that shows the FAO cereals sub-index together with the OPEC Reference Basket Price for a barrel of crude oil and the Baltic Dry Index (this is the shipping index most commonly referred to for the movement of dry goods by sea) for the period 2012 January to 2014 October; and a chart that plots the changes (from month to month) in the three indexes taken together (FAO Cereals, OPEC Reference and Baltic Dry).

The FAO food price index and the OPEC Reference Basket price of oil have much more in common than the Baltic Dry Index, which has swung with volatility since 2012 January.

The FAO food price index and the OPEC Reference Basket price of oil have much more in common than the Baltic Dry Index, which has swung with volatility since 2012 January.

What they describe can be found in the captions, but it becomes clear from a glance at the FAO-OPEC-Baltic charts that the food price as calculated by FAO has very much more to do with how energy is used to produce food staples (that is, the use of petroleum products directly, and the use of fossil fuels-derived energy) and how energy is used to transport, store, process, transport it again and retail it.

I see it as an index that describes the energy quotient of industrially produced food staples, and so it has little if anything to do with any other form of agriculture, in particular the smallholder, family-oriented and organic agriculture that the FAO advertises its concern about.

A Jekyll and Hyde food price index

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FAO's usual winsome twosome, the food price index and food commodity price index charts.

FAO’s usual winsome twosome, the food price index and food commodity price index charts.

Why does the perversity of international food price monitoring continue when all evidence tells us food price inflation is raging just as it was in 2007-08? Here is an example of how persistent this perversity is.

Maize in Malawi at 280%, maize in Tanzania at 110%, maize in Mozambique at 60%, maize in Zambia at 50%. Wheat in Tajikistan and in Russia at 55%, wheat in Kyrgystan and Afghanistan at 40%, rice in Myanmar at 35%. Maize in Haiti at 55%, maize in Honduras at 40%, wheat and rice in Brazil at 30%, maize in Nicaragua at 30%, rice in Bolivia at 25%.

Those are the annual increases in the prices of these cereals in the countries named. The estimates come from the charts found in the FAO Global Food Price Monitor for 2013 May (which has prices for up to April). The charts however are at the end of the Monitor. On the first page, the Monitor offers very short summaries. Like this one:

“In Eastern Africa, maize prices mostly strengthened for the second consecutive month following seasonable patterns. However, prices stabilized or started to decline in some countries where new harvests are about to start.” Is that what is being described with a 110% increase in Tanzania?

Or this one:

“In Asia, domestic prices of rice and wheat generally weakened with the arrival of the 2013 early season rice and winter wheat harvests.” Is that what is being described with a 35% increase in Myanmar?

Or even this one:

What FAO's own charts tell us about rising food prices for staples worldwide. These are from the FAO Global Food Price Monitor for 2013 May.

What FAO’s own charts tell us about rising food prices for staples worldwide. These are from the FAO Global Food Price Monitor for 2013 May.

“In Central America, maize prices strengthened in April with the onset of the lean season and in some countries were at high levels. Bean prices remained low, pressured by abundant supplies from bumper crops in the 2012-13 cropping season.” Is that what is being described with a 40% increase in Honduras?

Who are these summaries really for and why does FAO persist in releasing to the public these misleading pictures of food prices (when it means export prices), and especially when its own price monitoring tools tell us very clearly that many many people are struggling under crushing inflation in the prices of food staples?

To take the food price opera further, this is what the FAO Food Price Indexwhich is one of the world’s primary indices and referred to thousands of times a day by planners, the food industry, policy-makers, bankers (always bankers), commodity traders, foreign exchange brokers, bond market artists and rogues, warehousing tycoons, the purveyors of genetically modified seed, the cigar-smoking CEOs of grain trading companies, and the smarmy corrupt political cronies of all of the above – says about cereals:

“The FAO Cereal Price Index averaged 234.6 points in April, down 10 points (4.1%) from March, but nearly 11 points (4.9%) above the corresponding period last year. Most of the decline in April was triggered by weaker maize prices on expectation of higher closing stocks and favourable 2013 crop prospects. Wheat prices changed little, as the downward pressure stemming from expectation of larger inventories was offset by the upward pressure resulting from concern over the poor growing conditions and spring crop planting delays in the United States. Rice prices were marginally down …”

Read that again, 4.9% above the corresponding period last year. The smallest of the annual percentage increases in the second paragraph of this posting is five times as much as 4.9% which is why we must ask FAO, again and again, who the beneficiaries of this large international effort to collect and distribute food prices really are.

Not the populations of Mzuzu, Kampala and Milange or Jalalabad, Yangon and Sughd, or Tegucigalpa, Sao Paulo and Jacmel, all of whom must find their own means of measuring the burdens of food price increases, and who have in the last year, cut down on health care and perhaps even the education of their children, only to not go hungry too often, too painfully.

The problem with following the FAO food price index

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Not a man who has any time for the FAO Food Price Index. A vegetable vendor in Bangalore's Russell Market.

Not a man who has any time for the FAO Food Price Index. A vegetable vendor in Bangalore’s Russell Market.

Can a cultivator tilling a five acre plot of land in Senegal use the FAO Food Price Index? Can a vegetable vendor on the streets of Jakarta, Indonesia, use the index? Can a corner shop in Quetta, Pakistan, follow the index? Can commodity traders in the world’s most active agricultural commodities and futures exchanges use the index? My answers to these questions are: no. no. no and yes.

Why should it be this way? It shouldn’t, especially since FAO also keeps track of consumer price indices in many countries. But let’s look at why it is this way.

Our familiar pair, but who can use them?

Our familiar pair, but who can use them?

Here is what the new update to the FAO Food Price Index has said, in two words, “remaining steady” (this is the 2013 February 07 update). I quote:

“The FAO Food Price Index averaged 210 in January 2013, unchanged from the slightly revised December value. Following three months of consecutive declines, the Index stabilised in January, as a rebound in oils/fats prices offset a decline for cereals and sugar. Dairy and meat values remained generally steady.”

Concerning cereals, the update said that the cereal sub-index averaged 247 in 2013 January, down nearly 3 points from 2012 December. Now here’s an odd sentence: “The values of the monthly index have been falling since October, mostly on improved crop conditions”. We’ve read news about drought conditions all over the place, in the USA, in Australia, in Central Asia and the former Soviet Union, about unseasonal conditions in South America, for well over three months, so this sentence makes little sense. The cereals explanation added: “Large exports of feed wheat have weighed negatively on maize quotations in spite of tight availabilities”.

Now, let’s see what the FAO Agricultural Market Information System (AMIS) has said in its 2013 February Market Monitor (pdf):

“Wheat production in 2012 fell to below the 2011 record. Early prospects for 2013 point to a larger crop in spite of a possible decline in the US production. Maize production fell well below 2011 in spite of upward adjustments to the estimates in China and North America – utilisation in 2012/13 exceeding 2011/12, contrary to earlier expectations, mostly on larger feed use in China, Russia and the US. Rice production prospects for 2012 little changed, with large declines in Brazil and India dampening world growth to less than 1% – utilisation in 2012/13 still anticipated to increase by 7 million tonnes.”

Here we have what sounds like two different FAO voices speaking – the Food Price Index voice, which sees broad stability, and the AMIS voice, which sees declining production and more utilisation (as the food economists like to call it). True, the Food Price Index reflects what has occurred in the last month, and is not a forecast, but, as we see below, it is based on quotations, and not what households and small vendors actually pay for food, and there lies the rub.

Because, the FAO Food Price Index consists of the average of five commodity group price indices weighted with the average export shares of each of the groups for 2002-2004. There are in total 55 commodity quotations “considered by FAO commodity specialists as representing the international prices of the food commodities”. For the cereals sub-index, it is compiled from the International Grains Council (IGC) wheat price index, itself an average of nine different wheat price quotations, and one maize export quotation; there are three rice components containing average prices of 16 rice quotations. Fascinating yes, but relevant to those in Senegal, Jakarta and Quetta who see 60% of their monthly income being used to buy food? I don’t think so.

The AMIS has charts for daily quotations of export prices, which reveal more than the FAO Food Price INdex

The AMIS has charts for daily quotations of export prices, which reveal more than the FAO Food Price INdex

“The FAO food price index is a trade weighted Laspeyres index of international quotations expressed in US dollar prices for 55 food commodities,” explained FAO’s 2009 ‘State of Agricultural Commodity Markets, High food prices and the food crisis – experiences and lessons learned’. You see why no local translation is possible for the many hundreds of millions under the food inflation hammer.

Why the international trade and export quotations numbers dominate is revealed, in a roundabout way, by a regular paragraph in the AMIS Market Monitor. The monthly pronouncement has this to say about investment flows (that is, money chasing foodgrain), for 2013 February: “Managed money was a significant seller of wheat, maize and soybeans as futures prices attained early January lows prior to USDA stocks report”. Pay attention to that term, ‘managed money’, which means funds run by banks and big investment agencies. “Managed money reversed its position in wheat from long (bullish) to short (bearish) but maintains long positions in maize and soybeans.” Now the confusion should clear somewhat. The index helps traders and exchanges deal better with volumes of grain (and dairy and meat and edible oil). AMIS helps them with a great deal more sophistication.

And what do the primary beneficiaries of the index have to say about the FAO Food Price Index being so benign at the start of 2013? “With corn and soybean prices down sharply from drought-driven record highs reached last summer and holding ‘significant’ risk for further declines, grain farmers should consider hedging their 2013 crops earlier than normal,” is an abstract from a report by the CME Group, a company that advises investors about all kinds of commodities, including agricultural. This tells us why the FAO Food Price Index cannot serve those struggling with soaring food bills in small town Asia and Africa.

A tale of five food indices

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Food and agricultural commodities indices behaviour from 2009 January to 2012 November. There are five series - FAO's food index, FAO's cereals index, Unctad's food sub-index, the IMF's food price index, the IGC's grains and oilseeds index.

Food and agricultural commodities indices behaviour from 2009 January to 2012 November. There are five series – FAO’s food index, FAO’s cereals index, Unctad’s food sub-index, the IMF’s food price index, the IGC’s grains and oilseeds index.

Agricultural commodity and food price indices have ended 2012, as a group, at their highest levels in the last four years.

This chart uses index data from five series – two are from FAO (its food index and its cereals index), there is the Unctad food sub-index (of its long-running commodities index), there is the IMF food price index (which includes cereals, vegetable oils and sugar), and there is the IGC grains and oilseeds index.

I have set them all to ‘1’ in 2009 January and observed their behaviour over 46 months (until 2012 November).
For about a year between 2009 July and 2010 August, there was fairly wide divergence between this group of indices, the FAO cereals index and the IGC index maintaining a lower track, the IMF cereals index not rising above 10% of its starting value, the Unctad food index being volatile and the FAO food index at the top.

From 2010 July to 2011 March all the indices rose steeply and in concert. Thereafter till around 2012 July there was a slow general decline (from about 40% above starting point to about 25% above starting point) for all the indices (with the FAO food index about 15% above the rest).

From 2012 July there has been another steep, albeit shorter, jump for all, and at 2012 November the series at the top is the IGC index, with all five at about 35% to 45% above their starting values.

Written by makanaka

January 4, 2013 at 09:55

AMIS for us, we hope, but wheat and maize look scarce

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Welcome tables from the FAO AMIS, with USDA, IGC and FAO forecasts for major crops. Note the declines in production

The UN Food and Agriculture Organisation’s (FAO) Agricultural Market Information System (AMIS for short, although whether it Francophonically proves to be an ‘ami’ of the cereal trader or the food consuming household we shall know in the months to come) has released its Market Monitor Number 3 which is for 2012 November.

Here, in a bland paragraph that tells us nothing about the travails of households budgeting for their evening bread, ‘roti‘, or rice, the AMIS Market Monitor has said: “World supply and demand situation continues to tighten for wheat and maize but rice and soybeans have eased.”

Here’s the rest of the snapshot paragraph: “In recent weeks, unfavourable weather conditions affecting some winter wheat growing areas in the northern hemisphere and maize and soybeans in the southern hemisphere have become a concern. In addition, contradictory reports about possible export restrictions by Ukraine also influenced the market.”

Two familiar blues and a new green. The IGC Commodity Price Indices chart in the company of the FAO’s Food Price and Food Commodity Price Indices charts.

What I find useful is that the tables provided now include the USDA estimates and the IGC estimates. And moreover, in a generous display of collegial latitude (perhaps the AMIS has its good points after all) the Monitor has included the IGC index chart alongside the FAO index chart.

But as the World Food Programme (WFP) tirelessly warns, From Africa and Asia to Latin America and the Near East, there are 870 million people in the world who do not get enough food to lead a normal, active life (see the WFP’s hunger map here in Englishen français, en español. What does that do to households who are not the primary audience of the AMIS?

This report from IRIN has said that now in Pakistan, more than half of households are food insecure, according to the last major national nutrition survey. The prices of staple grains like wheat and rice have been stable but are “significantly higher” than 2011, according to the World Food Programme’s (WFP) October 2012 Global Food Security Update. A 25% rise in fuel prices has also pushed up the price of food, as it becomes increasingly expensive to transport. WFP says rising food prices in international markets recently may also lead to price hikes in Pakistan. Clearly, we need to find a way to filter the AMIS outputs (or screen its inputs) so that the Monitors are more directly useful to houseolds and their struggle to find enough healthy food at affordable prices.

Moorosi Nchejana is one of 40 farmers in the village of Mabalane in Lesotho’s Mohale’s Hoek district who participated in a pilot programme by the UN’s Food and Agriculture Organization to strengthen farmers’ capacity to adapt to climate change (June 2012). Photo: IRIN / Mujahid Safodien

The IGC raises two bright red flags about world grain

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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.)

Written by makanaka

October 28, 2012 at 20:44

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

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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.

Written by makanaka

October 8, 2012 at 20:07

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

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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”.

The colour of an Indian farmer’s money

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Were our crops to be tied, cyclically and in uneasy dependence, to the trickles of credit, India’s food stocks would be in a desperately poor state and food insecurity would stalk every district. To hear it from the Government of India and its multitude of agencies and allies, all of which in one way or another are connected with agriculture and food, the needs of the kisan (farmer) can be well met, and it takes only the kisan, toiling soul that she is, to “avail” of such plenitude.

Easier stated than done. We may not doubt the intentions that have made these provisions, but we prefer to see proof on the ground, in the fields of our marginal and small farmers, rather than as optimistic indicators that adorn the pages of reports read by no farmer. Where is this disconnection taking place? To borrow from the world of film, Yojana Bhavan and Krishi Bhavan, we have a problem! And it is this: the basis of every school of conventional economic thinking is scarcity – the idea that there is “not enough for everyone” – and the dramatic effects this reality has on human behaviour, and the measurement of behaviours is after all the DNA of economics. This allegation of scarcity is the foundation on which all of the economic systems of past and present are built.

Hence the problem is, are conventional economics approaches (from which flow these heavily-referenced reports and surveys that inform us about the state of India’s agriculture and food) any use for analysing a post-scarcity economy? Such as the ones our 640 districts will face over the next 25 years, and indeed which they face every time there is a flood or a drought? I think not. We should rather break free from analysing these matters and issues in the binary terms of ‘price’ and ‘cost’ – these are economics ‘tags’ that we intuitively know have no significance in an agro-ecological system. For social scientists and multi-disciplinarians, this is simple enough, not so for the organs and apparatus of governance. Yet for the sake of reaching an understanding that is more in tune with the kisan, it is unavoidable. When will one culture of understanding displace the other? This may not be foretold, but can be encouraged.

Let us make a rapid and selective review of what is being said about credit, the provision of money, to our farmers and agriculturists. The following paragraphs are from the Reserve Bank of India’s ‘Report of the Committee on Priority Sector Lending (2012 February), whose executive summary has said: “The need for directed lending in India would continue considering that there is lack of access to credit for a vast segment of the society. Credit remains a scarce commodity for certain sections/sectors and they continue to remain outside purview of the formal financial system. Therefore, those sectors where sufficient credit does not flow, those people who do not get adequate credit may get the benefit of directed lending.” [Get this document here (pdf).]

There are a few important insights that this paragraph provides. One, perhaps the most important, is that credit is presented as simultaneously a need for the small farmer and as a commodity (a scarce one, do you notice?). Two, there is a formal and an informal, and it is the products of the formal that are presented as possessing the ability to solve the small and marginal farmer’s problems. Three, there is a class stratification within the recipients of credit, those who are “financially included” and those who are not – and we have seen enough evidence over the last decade to show that the overlap of the marginal farmers and the financially excluded is very high, high enough to have been surprising two Plan periods ago, and for the measures this RBI report is discussing now, to have been not a preface, but an epilogue. Read the full comment on Agropedia.