Food Price Inflation – Some Interesting Quotes

At a lecture in Singapore, the Indian Finance Minister, P Chidambaram is reported to have said “It is a sign of the lopsided priorities of certain countries that they will resort to measures that will produce fuel at a cheaper cost in order to meet the transport requirements of a section of their population". Furthermore, he said the pursuit of such policies at a time when many in the world could barely afford to eat was "outrageous and... must be condemned"[1].

On May 3, 2008, the US President George Bush in an interactive session on the American economy at Missouri said that "Worldwide there is increasing demand. There turns out to be prosperity in developing world, which is good. It's going to be good for you because you'll be selling products in the countries, you know, big countries perhaps, and it's hard to sell products into countries that aren't prosperous.

In other words, the more prosperous the world is, the more opportunity there is. It also, however, increases demand. So, for example, just as an interesting thought for you, there are 350 million people in India who are classified as middle class. That's bigger than America. Their middle class is larger than our entire population.”

"And when you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up". “No question that ethanol has had a part of it. But I simply do not subscribe to the notion that it is the main cost driver for your food going up”[2]. And as expressindia puts it, - ‘The comments come close on the heels of US Secretary of State Condoleezza Rice's controversial statement that ‘apparent improvement’ in the diets of people in India and China and consequent food export caps is among the causes of the current global food crisis’.

Noble Laureate Amartya Sen (rightly) feels its government policies (across the developing and the developed worlds) that are to blame, “Much discussion is rightly devoted to the division between haves and have-nots in the global economy, but the world’s poor are themselves divided between those who are experiencing high growth and those who are not. The rapid economic expansion in countries such as China, India and Vietnam tends to sharply increase the demand for food. This is, of course, an excellent thing in itself, and if these countries could manage to reduce their unequal internal sharing of growth, even those left behind there would eat much better.

But the same growth also puts pressure on global food markets —sometimes through increased imports, but also through restrictions or bans on exports to moderate the rise in food prices at home, as has happened recently in countries such as India, China, Vietnam and Argentina. Those hit particularly hard have been the poor, especially in Africa.

There is also a high-tech version of the tale of two peoples. Agricultural crops such as corn and soya bean can be used for making ethanol for motor fuel. So the stomachs of the hungry must also compete with fuel tanks. Misdirected government policy plays a part here, too. In 2005, the US Congress began to require widespread use of ethanol in motor fuels. This law combined with a subsidy for this use has created a flourishing corn market in the US, but has also diverted agricultural resources from food to fuel. This makes it even harder for the hungry stomachs to compete. Ethanol use does little to prevent global warming and environmental deterioration, and clear-headed policy reforms could be urgently carried out, if American politics would permit it. Ethanol use could be curtailed, rather than being subsidized and enforced.” [3]

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[1] Reported on March 26, 2008 by the BBC (http://news.bbc.co.uk/2/hi/south_asia/7315308.stm)

[2] Reported on May 3, 2008 by the ExpressIndia (http://www.expressindia.com/latest-news/Rising-food-prices-After-Rice-Bush-blames-India/304902/)

[3] Amartya Sen quoted in the daily Mint on May29, 2008. (http://www.livemint.com/2008/05/29004356/Beyond-the-usual-explanations.html)