ࡱ> ceb ;bjbj]q]q .b??3 8%d4-:89999999e<?L99$9$$$8 9$9$$47$9]Ƹ"79490-:76S?$S?,$9$$9\9 :   Session 29: Controlling food prices in turbulent times: An agenda for South Asia Sub-theme I: Food security Moderator Mr Arun Goyal, Director, Academy of Business Studies, New Delhi Speakers Mr Petko Draganov, Deputy Secretary-General, UNCTAD Dr Sadiq Ahmed, Vice Chairman, Policy Research Institute of Bangladesh; formerly Economist in charge of South Asia, World Bank Ms Lauren R. Landis, Director, World Food Programme, Geneva Mr Vijay Kalantri, Vice Chairman, World Trade Centre Mumbai; Board Director, World Trade Centers Association, New York; President, All India Association of Industries, Mumbai Organized by World Trade Centre Mumbai Academy of Business Studies, New Delhi Report written by Mr Vijay G. Kalantri, Vice Chairman, World Trade Centre Mumbai; Board Director, World Trade Centers Association, New York; President, All India Association of Industries, Mumbai Tuesday, 20 September 2011 16.15-18.15 Abstract World food prices rose by a steep 43 per cent in 2007, creating shock waves around the globe, specially in food deficit countries in Africa and Asia. More shocks like this are forecast in the near future on account of spiralling prices in rice. South Asia, covering mainly Bangladesh, India, Nepal, Pakistan and Sri Lanka, accounts for a quarter of the world population. It is a key player in world food markets for wheat, rice, sugar and edible oil. The region can play a role as a market maker to control food prices and move regular supplies to food deficit countries. During periods of uncertainty and volatility arising from natural factors or economic crisis, it can act as a swing factor to turn the direction of prices. This session examined issues involved in getting food supplies from South Asia to the Horn of Africa and West Africa, the main food deficit regions. It also examined the role of futures trading, commodity exchanges, supply side export controls on food prices, and the need for a special window for freeing humanitarian food assistance from controls and extraordinary taxes. 1. Presentations by panellists (a) Mr Arun Goyal, Director, Academy of Business Studies, New Delhi The moderator of the session, Mr Goyal opened the session by describing the current situation in South Asia. He said that South Asia used to be a region which had the highest number of poor, hungry people; however, this has changed and South Asia now has a surplus in wheat and rice. Indian low-priced rice is very popular in the food deficit region of Sub-Saharan Africa on account of its taste, and India has exported nearly a billion dollars worth of rice to the region in the face of competition. Both India and Pakistan have a surplus in rice and wheat and this is likely to continue in the future. Exporters can deliver in hard-to-reach destinations; all they need is the guarantee of open policies which ensure that the export window remains open at least for the food deficit countries. The thin world trade markets in rice and wheat, which currently account for a mere 6 per cent and 25 per cent, respectively, of world production, must develop to become deeper and wider. Liquidity must come from the private sector as well as banks and financial institutions. Global market development and regulation are key to controlling turbulence in food prices, Mr Goyal said. (b) Mr Petko Draganov, Deputy Secretary-General, UNCTAD Mr Draganov reminded the audience that the Horn of Africa is currently suffering one of the worst famine and food security crises since the 1980s, largely due to a devastating drought which has severely affected local food production. Rising oil prices and changing exchange rates are as problematic now as they were three years ago when food prices spiked. UNCTAD believes that futures trade and over the counter markets (OTC) for agricultural commodities impact significantly on this volatility. Extreme volatility in food prices deters producers from making the necessary investments for increasing productivity and production: this is one of the underlying causes of continued worldwide food insecurity. There is no harmonized regulation for these markets, and some of them do not have a basic set of rules governing market abuses and price manipulations. Increased transparency for physical commodity markets is a must. In South Asia, countries protect most agriculture goods under the Agreement on South Asian Free Trade Area (SAFTA) by putting them on their sensitive lists. The most-favoured-nation (MFN) applied tariff on agriculture goods in South Asia is higher than in some other regions. It was 29 per cent during 2006-2009, compared to just 9.93 per cent in ASEAN. The average share of consumer income spent on food in the United States is 9.8 per cent compared with 65.5 per cent in Bangladesh. Food aid as a share of total official development assistance is rising in least-developed countries; for example, Africas dependency on food aid can be valued at nearly US$ 2 billion per year. The use of strategic and emergency food stocks to prevent and deal with food crises should be better coordinated at the international level. (c) Dr Sadiq Ahmed, Vice Chairman, Policy Research Institute of Bangladesh; formerly Economist in charge of South Asia, World Bank Dr Ahmed said that South Asia has a mixture of food surplus (India, Pakistan) and food deficit (Afghanistan, Bangladesh, Nepal and Sri Lanka) countries. Collectively, it can produce enough to meet the regional requirements as well as generate a net exportable surplus. Food price inflation must be examined along with energy prices, which bring down real income. The poorer countries of Afghanistan, Bangladesh and Nepal have been hit more severely because they are net importers of both food and fuel. Trade bans, price controls and subsidies may have been justifiable on political economy grounds, but they have adverse implications for efficiency and resource allocation over the longer term. Safety net programmes must be their effectiveness and fiscal sustainability. There is tremendous scope for reducing fiscal cost and food stock leakages. The idea of a regional buffer as food bank might also make sense and would help to mitigate a regional food crisis. Agriculture's contribution to value added has declined showing very low levels of productivity. The improved terms of trade in favour of agriculture resulting from the global price increases allow South Asian governments to let farmers benefit from these higher output prices while removing fiscally expensive and inefficient subsidies. The resources thus saved can be redirected to areas that support farm productivity. South Asian governments also need to revisit agriculture trade policies. Importantly, trade barriers among neighbours are not very effective given physical proximity, and simply encourage illegal trade. (d) Ms Lauren R. Landis, Director, World Food Programme, Geneva Ms Landis introduced the World Food Programme as the worlds largest humanitarian agency for food aid, particularly during emergencies, such as the current one in the Horn of Africa. Emergency humanitarian food reserves must be created to support safety nets and mitigate the impact of food crisis. Ethiopia is a success story, showing what reserves can do to combat famine; the numbers of deaths and vulnerable people during famines have fallen since they established their emergency food security reserve. Similar ideas, supported by ECOWAS (the 15-member West African grouping of countries), are being explored in West Africa. At the June 2011 meeting, G20 Agricultural Ministers called upon the WFP and other international organizations for a feasibility study for small, targeted, regional emergency humanitarian food reserves. The G20 met in Cannes on 3-4 November 2011 along with the African Union and the Gulf countries to take forward paragraph 40 of the G20 action plan, in which agriculture ministers agreed to remove all food export restriction and extraordinary taxes on food purchased by WFP. Mismanagement and panic fuelled by export restrictions were the main forces behind the 140 per cent increase in world rice prices in 2007-08. The WFP purchased US$ 540 million, or 1.2 million tonnes of food in Asia for humanitarian purposes. Pakistan was at the top of the charts for food purchases by WFP. This food was used primarily for emergencies in the South Asia region. In fact, WFP bought food in Pakistan for Pakistan in response to the devastating floods that hit that country last year. However, rising food prices impact on the WFP budget. For example, WFP had to halve the reach in Afghanistan to US$ 3.8 million from US$ 7 million due to price volatility. (e) Mr Vijay Kalantri, Vice Chairman, World Trade Centre Mumbai; Board Director, World Trade Centers Association, New York; President, All India Association of Industries, Mumbai Mr Kalantri welcomed the speakers and the audience on behalf of the World Trade Centre, Mumbai. He said that the WTC has worked on the subject of ϲʹ and world trade consistently for the last 15 years and has published research and information to a wide audience on these subjects. South Asia is particularly concerned to give priority to feeding the poor in countries in the region. Mr Kalantri said that developing countries do not have a level playing field in terms of world trade. Developing countries are asked to remove trade barriers for their imports but their exported goods face trade barriers when they reach the borders of developed countries. He cited the export of Indian grapes to Europe, where the whole shipment was refused entry even though only one container contained pests. World food prices are up 50 per cent compared to 10 years ago. India has surplus rice and wheat to share with the rest of the world. It produced 95 million tonnes of rice this year; after setting aside 89 million tonnes for its own population, it has 6 million tonnes surplus for the world market. The four-year ban on rice exports was lifted in September 2011. Wheat export too is free of export controls. Referring to the state of Indias infrastructure, Mr Kalantri stated that 40 per cent of Indias agricultural produce does not reach the market due to lack of proper transportation. Ports, rail transport, roads, and handling documentation and facilitation must improve if supplies to the poor are to be made at the lowest transaction cost. India also needs to build adequate storage capacity. Financial assistance to develop infrastructure for movement to food deficit countries is required. Offers of grants during the early days of the ϲʹ for capacity building were not followed by actual disbursement, he complained. On the issue of commodity futures, Mr Kalantri called for the control of speculation. The world food markets are integrated with the energy, finance and exchange markets, and the instability and volatility of the latter are transmitted to the food markets. Sensitive commodities like food must be taken out of the exchange since wild fluctuations in these affect the spot prices. Finally, Mr Kalantri called for an integrated SAARC Treaty for balanced distribution and management of food in the region. 2. Questions from the audience To Dr Ahmed, audience members responded that the rise in food prices must be seen in the context of the rising input prices of fertilizer, seed, water and power. Thus, mismanagement of the macro parameters that lead to turbulence in food prices as well as input prices, is a factor to be considered. The moderator responded that macro policies themselves could not provide the answers to food security. Regulatory interventions and emergency actions play a role too. The audience reacted to Ms Landis remarks on the WFP and food aid, suggesting that the multiplicity of UN agencies dealing with food and agriculture namely FAO, IFAD and WFP is eroding the efficiency and reach of food aid. She responded that all the three agencies are closely related and work in tandem. Audience members also suggested that the trade restrictions blocking private sector trade could be removed to allow food to flow to high demand areas in emergencies. These measures could supplement the efforts of the WFP to bring succour to the hungry. In response to Mr Kalantris address, a section of the audience said that many speculators have lost money on forwards. The huge spot markets cannot be controlled by futures for long. There is no evidence to suggest that food markets rise and fall on the signals of futures markets. Farmers face a certain future if they are sure of a guaranteed price before they plant their crops. Mr Kalantri replied that the poor must be protected, especially in the context of essential goods like food. 3. Conclusions Further work is necessary with regard to the identification of barriers in the food trade with South Asia and solutions to these barriers. A thorough audit of the non-tariff barriers in the 60 food deficit countries, as well as the top ten exporters, must be carried out to lay out the ground positions in trade. Delivery-based futures and commodity exchanges must also undergo further study.     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