So the monsoon is going to be normal, says the Met Deptt. 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% deficient, is now pushed back by another year.
Disclaimer: This article was written originally in May 2012, so some data points may be outdated.
The Impact Of a Coming Disaster
Like any firm believer in Black Swans, I know that a long-term trend reversal is always accompanied by 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, 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 subsidizing kerosene and diesel). It goes after coal (which is also now partly imported), not solar. It subsidizes 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 below makes a very important point. One, it covers almost ALL the major staple foods consumed anywhere in the (civilized) 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 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.
| Commodity | Major Importers | Major Exporters | Prodn; Trade; % of World Prodn Traded | Potential Surplus/ Deficit as % of World Prodn |
| Sugar | Russia, Egypt, China | Brazil, Thailand, Australia, Indonesia, India | 145 mn MT; 40 mn MT; ~30% | 5% |
| Corn | Japan, Mexico, S.Korea, Egypt, etc (40% out of 90 countries) | US, Brazil, Argentina, Ukraine | 868 mn MT; 94 mn MT; 11% | 10% |
| Rice | China, Japan, sometimes India Thailand Thailand Thailand | Thailand, Vietnam, India, Pakistan, US | 461 mn MT; 31 mn MT; 7% | 10% |
| Wheat | China, Japan, etc. | US, Australia, Russia, Canada, EU, Argentina, Kazakhstan | 691 mn MT; 139 mn MT; 20% | 5% |
| Soy | China (60% of traded soy) + E.Asia | US, Brazil Mercosur (Uruguay, Paraguay, Argentina) | 257 mn MT; 95 mn MT; 37% | 10% |
Most Important Food Consumed in The World
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 them away. Back in the 1960s, US wheat (PL480, remember?) was used as a political tool to pressurize 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.
Corn
Predominantly, the surplus is with the US, Brazil, Argentina, and a new player, Ukraine; together, they account for 80% 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% 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 Ukraine, globally 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% increase in output, making up for any potential loss from Argentina.
Soybeans
At 257 mn tons, 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 harmful in excessive quantities; also, it cannot be eaten alone. Soy production has grown 150% in the last 2 decades, nearly twice the rate of corn production. Much of this has come from Brazil, that great agricultural powerhouse. The whole of Latin America has seen a huge uptick in soy production. In Argentina, it 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% of domestic consumption.
The recent drought in Brazil will affect soy production, but it will still grow, outstripping the US as a producer/ exporter.
Rice
This is the most temperamental food staple of all. It is a big crop, but only 7% of global production is traded, mainly because China consumes all it produces and both India and China (50% 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.
Wheat
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. For the long term, 2 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%, and Russia has grown 30%, pushing the US (minus 10%) out of export markets.
Outlook
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 a global context, domestic food price increases have been larger than price declines across countries. Wheat prices from March 2011 to March 2012 rose 92% in Belarus, while the price of maize increased by 82% in Malawi, 80% in Ethiopia, and 71% in Mexico. 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.
