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Emerging Markets

UN: India holds key to food security

Asia’s food supply security will be boosted significantly if, as expected, India lifts its rice and wheat export ban after the election, UN officials believe.

Asia’s food supply security will be boosted significantly if, as expected, India lifts its rice and wheat export ban after the election, UN officials believe.

But still-high domestic prices in many low-income countries could still hinder millions of people’s access to food.

“India is a key”, Alexander Sarris, director of trade and markets at the UN Food and Agriculture Organisation (FAO), told Emerging Markets. “It was the Indian export ban that really triggered the rice situation [the spike in world prices] last year. If it is lifted, markets will gain confidence.”

An Indian ministerial group headed by Pranab Mukherjee, external affairs minister, decided last month that the ban would be lifted after polling in the general election closes, on May 15 – but did not set an exact date.

India imposed the ban on exports of wheat and non-basmati rice in 2007, in an effort to control rising domestic food prices. But this year prices have come down – and the country’s storage facilities are full to bursting.

The government is considering using school grounds and unused airfields to store grain, although that will affect its quality. The problem with rice is less acute, as the harvest starts later. But analysts reckon India will have to export 3-5 million tonnes of wheat and a similar quantity of rice to avoid a glut.

But even with a well-supplied world market, vulnerable low-income populations remain in danger because domestic prices have not everywhere followed international prices downward.

FAO analysis of domestic food prices in 58 developing countries, published last month, showed that in 78% of cases they are higher than a year ago and in 43% they are higher than three months ago.

“The correlation between domestic and international prices is weak”, Sarris said. “In some cases, domestic prices did not rise as rapidly as world prices during last year’s spike.” From here, it could take up to a year for the effect of price decreases to filter through.

World cereal output hit a new record in 2008 and stocks are expected to increase sharply overall.

Another area of concern is the shortage of investment funds for farmers caused by the financial crisis. Sarris said: “Last year the big problem was trade finance, and that received a great deal of attention. This year there is a real shortage of credits for production and supply.”

The problem of credits to farmers is especially acute in eastern Europe and Russia, where banking systems have been far harder hit by the crisis than in many developing countries.

The food market crisis last year has also triggered a bout of cross-border “land grabbing”: farm land in producing countries is being bought up by private interests seeking profit on one hand, and governments of food importing countries seeking to enhance food security on the other.

A report issued last week by the International Food Policy Research Institute warned that the trend could endanger “poor local people, who risk losing access to, and control over, land on which they depend.” Ruth Meinzen-Dick, one of the report’s authors, told Emerging Markets that cross-border land deals had to be conducted transparently, with free prior and informed consent, and with an understanding of environmental externalities relating to land use, bio-diversity loss and water use.

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