June 11, 2008 12:18 IST
The food crisis will worsen following India's ban on rice exports, says Swaminathan S Aiyar, noted economist and longtime World Bank consultant, who is currently a Research Fellow at the Cato Institute in Washington for India and Asia. He said the rice export ban shows India "is the biggest hoarder."
Aiyar, who was the lead panelist on a discussion of trade and security at a Heritage Foundation-FICCI sponsored conference on US-India Synergy: Facing the Economic Challenges of the 21st Century, said, "The government of India wants to crack down on hoarders, but the biggest hoarder actually is India by refusing the rice to be exported."
Arguing that the current food shortage was directly the result of export curbs, he noted that the International Food Policy Research Institute "has estimated that a relaxation of trade curbs can cut world (food) prices by 30 percent and in the case of rice, it would cut world prices by more than 50 percent."
"The problem is not a shortage of rice; it's that wherever the rice is being produced, to protect the domestic consumer, it is not being allowed to be exported and therefore you are artificially shrinking the grain in the world market and artificially pushing up prices."
Aiyar said that the IFPRI "has rightly called this 'starve your neighbor' policy,' and argued that India by imposing these export controls had effectively cut the production of rice.
"India used to produce almost one-fifth to one-sixth of the total rice trade - it exported 5.5 million tons of rice in 2007," he said, but said that this year it would only be exporting 1-2 million tons. "So three million tons are off the market from India alone and it's like one-tenth of the world trade (in rice) has disappeared just because of India's action."
Aiyar said by doing so, India had "managed to keep our rice prices only up 10 percent, (but) in neighboring Bangladesh, it is up 60 percent. So, this is what you call, 'Starve your neighbor policies."
He asserted, "The world needs to get together and say, 'Look, there is panic going on here- panic, when one country bans it, another country bans it, and the result is the prices are going up far more than required."
Aiyar said, "We really do need a world meeting of the rice exporters to say, how do we provide another extra two million or three million tons to the world market. How do we apportion this extra rice quota to each country. I think just an announcement that you can do that, would bring prices of rice down by $200-300 a ton."
Aiyar said he is convinced that the food crisis would soon blow over "and we are going to be back very soon to the issues of over-production through subsidies - which was what the Doha Round was about. The whole point of the Doha Round was there is too much production because of excessive subsidies. I do believe that the current phase is a highly temporary one."
"For those who are not familiar with India," he explained, "when we had the sharp increase in domestic prices in the late 1990s, farmers responded and we got a mountain of food- at one point India alone had food stocks of 65 million tons in 2000 and at great loss we exported all this."
But Shenggen Fan, division director, Development Strategy and Governance, said that the protectionism by India by curbing exports may have been what had helped the kind of food riots seen in some other Asian countries.
He recalled that just a few years ago, food prices in India were about 20-30 percent higher than global food prices, but "today, it is opposite. The domestic (food) price in India is actually about 20-30 percent lower than the global prices."
"The Indian government used trade restrictions and so, that is why in India you have not heard of any food riots and lots of complaints," he added.
Inflation: The silent killer!