So the monsoon is going to be normal, says the Met department. For the moment, we will believe them (perhaps because we want to) and heave a sigh of relief. However, this only means that my yearly dread (which starts around April) of a disastrous monsoon that is 50-60 per cent deficient, is now pushed back by another year.
Like any firm believer in Black Swans, I know that a long-term trend reversal is always accompanied with a big candlestick movement, which ‘shocks’ the crowd and sends them packing in the other direction. So also with global warming; this sanguine (global) belief that “all will be well”, will be shaken by a tsunami-like event, which might just choose India one day.
As Taleb would say it, we suffer from ‘fragility’. The configuration of our circumstances is such that a Black Swan event is likely: our complacency will only serve to exacerbate the impact of a coming disaster. What exactly it will be, I cannot tell…..there is so much in India that is calling for a disaster that I don’t know which (disaster) will be triggered by which set of circumstances.
The country which is most dependent on imported energy, spends its time buying gold (and by the way, spends its money subsidising kerosene and diesel). It goes after coal (which is also now partly imported), not solar. It subsidises energy, even sometimes distributing it free, making sure that nobody has any incentive to produce it. It refuses to invest in water, and cannot even claim to have a water policy, let alone some common sense in it. It just sits with bated breath, waiting to be hit by some disastrous event. Till such an event happens, it will carry on a ‘business as usual’ and ‘everything is all right’…until, of course, it is not.
The chart on the next page makes a very important point. One, it covers almost all the major staple foods consumed anywhere in the (civilised) world. Two, it brings out that you should start getting your calories from proteins, rather than carbohydrates. Sugar, rice and corn are all carbohydrate-intensive, and (a good diabetologist would argue) not really necessary for nutrition.
Sugar, rice and corn could be prone to huge volatility in prices, and wheat and soy will be relatively safe for you. Millets and coarse grains will go the same way.
Corn, soybeans, rice and wheat are the most important food staples consumed in the world. However, what you will notice is that very little of the major food staples is traded at all; mostly, it is kept for domestic consumption. If you look at this, together with the potential world surplus/ deficit, you get a very scary picture. Even a temporary setback to a particular agricultural sector could snowball into a full-blooded famine, if the (surplus) countries do not allow their export surpluses to be traded. We have seen this often enough with India keeping large buffer stocks and choosing to rot its grains, rather than export it away. Back in the 1960s, US wheat (PL480, remember?) was used as a political tool to pressurise India.
Corn, rice and wheat are sources of carbohydrates, while soy is a good source of vegetarian protein. Rice is particularly precarious, because there is very little traded surplus since China produces much of it, and keeps it for internal consumption.
Predominantly, the surplus is with the US, Brazil, Argentina and a new player, the Ukraine; together, they account for 80 per cent of the global corn surplus. Almost the whole world is an importer, though very few countries think of it as a critical food staple. Japan, Mexico and South Korea have the purchasing power to absorb a supply shock, while Egypt will probably drop out if prices rise too much. Together, this accounts for about 40 per cent of global imports.
A new development in the US corn market is the reduction of subsidies for production that goes into ethanol, which in turn is used to spike gasoline. Recently, import duties on Brazilian cane-based ethanol have been reduced, making it competitive with corn-based ethanol. More of the Brazilian ethanol is now expected to go into the US, freeing up corn for food consumption. The removal of subsidies will also shift some acreage away from corn; together with the bumper crop in the Ukraine, global traded corn is expected to see a big increase.
Despite a much-feared drought in both Brazil and Argentina, the former brought in an 11 per cent increase in output, making up for any potential loss from Argentina.
At 257 million tonne, soy production is less relevant to global food inflation than rice, wheat and corn, but it is the ‘joker’ that fills in the gaps left by the other food staples. Sugar, the only other staple, is pure carbohydrate and actually harmful in excessive quantities; also, it cannot be eaten alone. Soy production has grown 150 per cent in the last 2 decades, nearly twice the rate of corn production. Much of this has come from Brazil, that great agricultural powerhouse. In fact, the whole of Latin America has seen a huge uptick in soy production. In Argentina, is also used as animal feedstock, impacting meat production. On the consumption side, China has emerged as the world’s biggest consumer/importer, and has taken to stockpiling it, since imports now account for 80 per cent of domestic consumption. The recent drought in Brazil will affect soy production, but it will still grow, outstripping the US as producer/ exporter.
This is the most temperamental food staple of all. It is a big crop, but only 7 per cent of global production is traded, mainly because China consumes all it produces and both India and China (50 per cent of global production and consumption) are extremely insecure about production and stockpiles. Were it not for Thailand and Vietnam, there would be nothing to trade. Pakistan is the other minor player, but this year, the only country to have a good year. Thailand has been affected by floods while China by drought.
The outlook for rice has never been too good, and is expected to deteriorate even further.
China is by far the biggest producer (and consumer). However, since a lot of countries produce wheat, and many of them are agriculturally surplus (including the EU, Australia, Russia, Canada, Argentina and the post-USSR states like Kazakhstan and Ukraine), the situation looks good.
Wheat stockpiles in India are good, and this year’s crop is not too bad either. For the long term, two important nations have broken into the wheat market: Russia and Kazakhstan, which are using their freshwater supplies to grow wheat on virgin farmland. With low populations in both countries, most of the incremental production will come onto the global (traded) market. This augurs well for this particular food staple. For example, Kazakh supplies this year have grown 132 per cent, of Russia 30 per cent, pushing the US (-10%) out of export markets.
Amartya Sen got a Nobel Prize for pointing out that it was information dissemination, logistics and supply chain deficiencies that created famines, not the absolute amount of food production. From this, we learn to focus on tradeable (food) staples for our food security, rather than absolute production and stockpiles. India’s obsession with stockpiling wheat, for example, may be wasteful in the context of plentiful (tradeable) wheat available elsewhere.
Yet, it is a dangerous game. In the global context, domestic food price increases have been larger than price declines across countries. Wheat prices from March 2011 to March 2012 rose 92 per cent in Belarus, while the price of maize increased by 82 per cent in Malawi, 80 per cent in Ethiopia, and 71 per cent in Mexico. Obviously, production statistics alone are missing the point, then. While production has been robust in response to the sharp price signals received from the price increases of 2010-11, it is the other factors that will now come into play.