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Food crisis looms in India

New Delhi, June 4, 2010

India's anxiety over erratic monsoon rains will become more acute as rising incomes and a growing population push up demand for farmed produce faster than supply, turning the nation into a major importer within 5 years.

Forecasts of a normal monsoon this year have stirred hopes for smooth supplies and low inflation, reversing setbacks from last year's poor rains. But the country must boost yields if it is to feed nearly its 1.2 billion people -- a fifth of the world's population - on just 4 per cent of global land.

India is already the world's top importer of edible oils and ranks among the biggest producers and consumers of wheat, rice, cotton and sugar, making it a key driver of global prices if the failure of a monsoon forces it to import grains or sugar.

But even if monsoon rains are plentiful, India is likely to become a large food buyer within a few years.

"There is a food shortage," said TK Bhaumik, an economist with JK Corp. "That is really at the root of high grain prices. India will be a major food importer in 4-5 years' time."

MS Swaminathan, a scientist who helped kick off the 1960s-era Green Revolution that boosted India's grain yields, said early successes had made policy makers complacent about farms and irrigation.

"There is an emerging crisis," he said. "We have a tremendous problem on the food front, both on the production side and consumption side."

The growing hunger for commodities has lured trading firms such as Noble, Louis Dreyfus, Cargill and Czarnikow to India, while NYSE Euronext, Goldman Sachs, and Fidelity International have bought up stakes in Indian commodities exchanges.

"India is going to be a major player in the global supply and demand balance," said Diego Parrilla, head of commodities for Asia-Pacific at Bank of America-Merrill Lynch.

Food prices soaring

India's food prices have risen an annual 15 percent or more for several months, sparking wide protests and spurring the government to free farm commodities from import duties, but the country's colossal demand rattles markets, making imports a costly, inflationary option.

An Indian sugar deficit last year helped hoist New York raw sugar futures to a 29-year peak, while a tender to import 2 million tonnes of rice helped Chicago Board of Trade rice rise to a contract high last November, though it was later cancelled.

"As India is one of the largest consumers of quite a few basic foods, even small purchases by India tend to affect global prices," said Devika Mehndiratta, an analyst at Credit Suisse in Singapore.

Growth in India's grain output has fallen back in recent years, slowing steadily from a spectacular jump of 50 percent in the 10 years after the green revolution, and a rise of 30 to 40 per cent in the two decades that followed.

Analysts say food prices were rising even before the monsoon failed last year, and inflation soared past the level struck after a drought in 2002, when the summer-sown crop shrank 41 percent, a steeper fall than the 2009 drop of 9.3 percent.

"We think that the recent food price spurt reflects more than just one-off supply disruptions. The last, somewhat worse, drought in 2002 did not see such sharp price rises," Mehndiratta said.

As the economy expands, India's poorest 410 million citizen, who earn less than $1.25 a day, will buy more grains, edible oil and sugar, aided by a job-guarantee scheme that has boosted household incomes by nearly half over 2 years, some studies show.

"An increase in income has resulted in an increase in ability of rural households to purchase food grains, other essential commodities, and to access education and health care," the junior minister for rural development, Pradeep Jain, told parliament.

An increase in income has resulted in an increase in ability of rural households to purchase food grains, other essential commodities, and to access education and health care," the junior minister for rural development, Pradeep Jain, told parliament.

Demand outstrips supply

Demand for many farm commodities will quickly outpace supply, Surabhi Mittal, a senior fellow at the Indian Council for Research on International Economic Relations told the federal Planning Commission in a paper.

In 10 years' time, India's edible oils deficit will be 17.7 million tonnes, or double its 2009 imports, and its sugar shortfall will be nearly 40 million, or five times the deficit that triggered last year's global rally, Mittal estimated.

Within 15 years, India's rapidly growing population is expected to surpass China's, which will peak at 1.4 billion, the US census bureau estimates.

Although India's planned expenditure on water resources rose to $50 billion in the five years to March 2012, two and a half times the allocated $20.5 billion in the previous five years, irrigation continues to be a challenge.

With virtually no scope to expand area under cultivation, some of which is being encroached by highways and urban expansion, India can raise output only by lifting its yields, which are half to a third of Western levels.

But raising yields is difficult as small farmers, who own 80 percent of the land, do not use modern practices, while output by big farmers in grain-bowl states such as Punjab has saturated.

"We are already using water, fertilisers and chemicals in excess to keep the production up, which has put tremendous pressure on our resources," said P.S. Rangi, marketing consultant at the Punjab State Farmers' commission.

To meet the challenge, government agencies offer attractive payments to encourage planting of wheat and rice instead of other crops while growers of oilseeds and cane face market volatility.

Last year, a switch from cane to wheat forced India to import sugar but now higher prices have lured farmers back, deflating prices as Indian imports dry up and supply from Brazil rises.

"In the longer term, this highlights the fact that production swings in the two largest players, India and Brazil, are now becoming too large compared to the size of overall sugar trade flows," Sucden said in a recent report.

That makes makes India a good hunting ground for traders.

"There is no question that if you want to know what's going on in the commodities market, you will have to have a foot in what's going on in India," Parrilla said.-Reuters




Tags: India | monsoon | Supply | demand | Food crisis |

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