Of Budget, loans and soaring prices

The Central government hiked the minimum export price of non-Basmati rice from $650 to $ 1,000.

Readers must be wondering why all of a sudden a $350 hike in minimum export price. The reason is India is facing a major problem in the food front. Whether you call it a supply-demand mismatch or any other jargon, food prices are soaring in India.

The government is struggling to rein in the rising inflation rates. In this context it is important to take a look at Union Finance Minister P Chidambaram's Budget 2008. Will this Budget help solve India's food woes?

No, that is the firm answer experts are giving. Take a look at CSE Director Sunita Narain's article on Budget in a CSE newsletter. It has given a clear picture on where India's agriculture sector is heading for.

The scenario: The world is facing impending US recession, which is already causing financial markets to tumble. Crude oil price has reached a record high of over $100 a barrel.

Sky-rocketing prices of food grains in the international market: this week, the price of rice surged to a 20-year-high, touching $500 per tonne for the first time since 1969.

In the last eight months, the price of wheat has risen 88 per cent; last year, most food items have become dearer.

Intensified climate change in the form of extreme and variable weather events -- tropical cyclones, heavy rains leading to floods, bitter cold spells and frost made crops fail.

The fact is no finance minister, in this interconnected and globalised world, can design domestic policies without accounting for these developments.

The fact also is that in Budget 2008, only one development has been given consideration: the 'turbulence' of the financial markets.

The rising price of oil (and its politics of ownership) is leading governments to discuss the imperative of national energy security.

Climate change is forcing the same issue by demanding alternatives to fossil fuel use. Now, the answer from both fronts has been to subsidise the growing of biofuels --ethanol from maize and sugarcane and biodiesel from edible oil crops.

The scale and pace of this change are phenomenal. In the last few years, the US alone has diverted about 20 per cent of its maize crop to biodiesel, and so the price of maize has increased by 60 per cent.

Similarly, a European Union mandate, of a 6 per cent use of biofuel in the transport sector by 2010, is diverting land from food to fuel and increasing volatility of the prices of oilseeds and their substitutes.

It is important to unpack this inter-play. In part, the price of wheat has increased because now it is also used as a feed, as a substitute for now-expensive

maize.

In part, the increase is climate-related; drought in Australia and other weather-related events have brought world wheat stocks to a never-before low.

The price of rice -- the food staple of millions in our region -- has increased, too, because of unpredictable weather in many countries and urbanisation that has gobbled acreage.

To these big changes, Budget 2008 provides petty answers. Take the loan waiver to farmers. Given the huge financial write-offs handed out to the corporate sector, nobody should argue against this move.

But the questions are: can this write-off help farmers in a time of agrarian crisis? And the country in a time of increasing food prices?

Clearly, no. We have already done everything we can to ensure that the costs of inputs used to grow food have increased. Today, farmers have no option but to take loans to build irrigation facilities -- wells -- because public infrastructure does not exist. Today, over three-fourths of Indian agriculture is irrigated, using groundwater, by way of assets the farmer has created and not the government. As water levels decline, costs increase.

Also, be clear that any 'free' electricity reaches farmers when they need it to power their pumps. Moreover, we have disabled public investment in providing essential and affordable seeds -- the private seed market thrives on propagating costly seeds designed for single use by farmers.

The cost of growing food is increasing each day and this will continue to push farmers to take loans to survive. We also know that nationalised and cooperative banks do not provide the bulk of these loans. In this situation, the loan waiver does little, for today or for the future.

Now for the second -- naturally inter-linked -- question. The simple argument here is: If international food prices are increasing, our farmers will benefit; the high prices will then compensate for the higher input costs.

But higher food prices hurt our economy, twice over. We cannot afford, any more, to import the quantities of food we were once hoping to do.

The government has already banned the export of critical food items and even put a price bar on the export of Basmati rice.

It will use the minimum price index to fix and therefore depress the prices of each commodity. Even as world food prices have increased by over 25 per cent in the last year, in India the increase has been less than 6 per cent.

The government has no option but to do more of the same -- control food prices -- to check inflation. In this situation, the move to waive farmer loans is not just meaningless, it is a joke. A cruel joke.