Grain drain

  • 14/04/2008

Clearly, there is a mismatch between demand and supply of cereals. And the factors contributing to this widening gap are more than just population growth. Although the reasons for shooting prices vary from cereal to cereal and region to region, there are certain overarching trends that have contributed to the crisis-like situation. While climate changes played spoilsport by constraining supply, biofuel and changing dietary preferences pushed up demand. Fall in soil fertility and rise in prices of fertilizers, due to increasing cost of oil, and seeds raised production cost. The search for solutions has divided the world between those advocating GM crops and those opposed to it.

Biofuel
"In 1973, a jump in oil prices had doubled grain prices and now oil is again set to change the trend in grain prices. Only this time there is a search for a substitute for oil,' says Ramesh Chand, national professor, Indian Council for Agricultural Research, Delhi. Globally, the shift towards biofuel and cereal being used for the production of ethanol are being seen as the main factors pushing up foodgrain prices. More and more land is being diverted to biofuel than to food. Since most of the maize, used as cattle feed, was being diverted to biofuel, its prices shot up and wheat soon replaced maize as feed in several countries. Much of the 5 per cent growth in global cereal production in 2007-08 is attributed to a sharp increase in maize output.

In the us, one-fourth of the total maize production and one-fifth of the total corn output is being used for biofuel generation. The us plans to increase its biofuel production from the targeted 34 billion litres in 2008 to 136 billion litres in 2022, of which 75 billion litres can come from grain. This impacts the food price. According to a World Bank report, filling up an suv with ethanol once means having used up enough maize to feed a man for a year.

Corn for ethanol
US uses a fifth of its produce
Source: US Department of Agriculture
Stavros Dimas, European environment commissioner, admitted that the eu had underestimated the dangers of food shortages and rain forest destruction when setting a binding target for 10 per cent of all eu fuels to come from "green" sources by 2020. According to eu, its biodiesel industry uses 60 per cent of the rapeseed oil output. In the us, the biofuel industry is likely to absorb 20 per cent of the domestic soya oil production.

According to a 2007 study by the International Water Management Institute, China aims to increase biofuel production fourfold to 15 billion litres of ethanol-9 per cent of its projected petrol demand-by 2020, from 3.6 billion litres in 2002. India is also focused on ramping up ethanol production. In October, the government approved a plan to require oil companies to sell petrol with a blend of at least 10 per cent ethanol by next year, which is double the current levels. The study states that to meet their biofuel targets, China will need to produce 26 per cent more maize and India, 16 per cent more sugarcane.

"We need to understand the cost of producing biofuel. Not only will we use fossil fuel to run biofuel plants, we are also clearing fields and forests to make way for biofuel crops," says Praveen Jha, professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University (jnu), Delhi.

Climate
The impact of climate change is beginning to show across the world (see box: Weather beaten). Drought-like conditions in major cereal producers Australia, European Union and Canada have affected cereal production. Central Asian countries are facing extreme cold conditions with temperatures dipping to a 25-year low, hampering agriculture.

A December 2007 report by the International Food Policy Research Institute, Washington, warns that climate change is likely to add to food insecurity, further fuelling prices. The report, World Food Situation: New Driving Forces and Required Actions, projects that by 2020 the production of all agricultural produce in developing nations will decline by 20 per cent, while that in industrial countries by 6 per cent. It estimates that a 3

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