Monday, May 05, 2008

Good and bad ideas for Indian agriculture

India may ban food futures trading - Financial Times
India’s finance minister said on Monday he was considering a blanket ban on trading in food futures, underlying growing concerns in Asia over the role of hedge funds and financial market traders in the recent surge in commodities prices.

If India imposes a ban, it would come only five years after the country introduced such futures trading as part of a broader push to develop India as a leading financial centre.

Speaking on the sidelines of the Asian Development Bank annual meeting in Madrid, P. Chidambaram said his worries over market speculation were shared by governments across the region and that India was “facing a very grave crisis on the food front”.
Right. Make it all the more difficult for farmers to know what they will get for their crop, and see what that does for agricultural output.

UPDATE, May 6: Financial Times reports,
Mr Chidambaram's re-marks drew a strong rebuke from two senior, Indian-born officials of the ADB [Asian Development Bank], highlighting concerns among international institutions that costlier food is leading to trade protectionism and new market distortions.

Rajat Nag, ADB managing director-general, told the Financial Times that trading restrictions "send the wrong signal and are just not -productive".

Ifzal Ali, ADB chief economist, described banning futures trading as "a political gimmick" intended to pander to voters.

Weighing into the debate, Jean-Claude Trichet, president of the European Central Bank, said yesterday speculation was not responsible for food price rises. "At the source . . . was a supply phenomenon and a demand phenomenon, which was explaining most of what we have," he said.

But there are success stories in agriculture coming out of India. For example,
Middle-class Indians are eating more and better food. Yet its population of 1.1bn is growing at about 1.4 per cent and food grain production increased just 0.9 per cent last year, according to ministry of agriculture statistics.

Agricultural growth has steadily decelerated because of years of under-investment as attention has focused on high-growth manufacturing and service industries.

But big strides can be made with relatively simple measures. In Kurthia, which is 40 km from the bustling holy city of Varanasi, the e-choupal consists of a computer in a modest house rigged with a small satellite dish. Farmers pose questions that are e-mailed to ITC -agricultural scientists and experts at agricultural -institutes. [ITC is the Indian agribusiness-to-hotels conglomerate]

Yogesh Bhrigulanshi, a farmer and the ITC local manager in nearby Bisuari village, says rice yields have risen 70 per cent, to 3,900kg per acre, since the arrival of the e-choupal. "We used to use fertiliser without any knowledge," says Mr Bhrigulanshi. "We used to use pesticides for any disease on plants. Now we know which pesticide to use and if it needs to be used."

ITC plans to invest $1bn on e-choupals in the period to 2015 to connect farmers to information, products and services. The hope is that as rural incomes rise, farmers will buy more products and services, ranging from seeds and fertilisers to insurance and healthcare.

Rural standards of living have improved.
But this is the most pertinent to the banning futures story: "Knowing the fair market value of crops allows farmers to fetch better prices and circumvent local traders who used to dictate terms. Farmers can also sell wheat and other crops to ITC." Thanks to Marginal Revolution for ITC story.

There is something that Mr. Chidambaram and I agree on:
Mr Chidambaram said on Monday that “food being converted into biofuels is the single biggest reason why we are facing this crisis.” He added: “To put mildly, [the conversion of land for biofuels] is foolish, to put it strongly it is a crime against humanity.”
Meanwhile, US farm lobby defends biofuel while Suspend biofuel rules, say British MPs.

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