‘Food commodities are at 200 year lows in real time dollars” – Marc Faber
The biggest economic threat is…
This may bring to your mind problems related to high leverage, cheap liquidity, rising inflation and the like. But the gravest problem facing global economy is far from these. And as per investors like Jim Rogers it has the potential to derail global growth. It also holds promise of leading to social unrest. We are referring to food scarcity. With the world’s biggest food producers producing lesser food and instead concentrating on other segments of the economy, food scarcity has come to be the most perilous threat.
Ironically, the economies that carry the weight of global growth on their shoulders also have the potential to feed the world. The BRIC nations supply nearly half of the basic food requirements of the world. Be it wheat or meat. These nations house 42% of the world’s population and produce between 30% to 40% of all major food crops consumed around the world. However, this share has been gradually falling as the economies get more industrialized.
Take the case of India for instance. For the first time ever, India’s manufacturing will contribute more to its GDP than agriculture this year. While one may perceive it to be the result of faster industrial and service sector growth, the reason underlies a productivity disaster in India’s agriculture output. Soil is getting insensitive to the use of fertilizers and dependence on monsoons has barely come down. The truth is that while India has freed industry, agriculture remains a tightly controlled sector. Just to give an example, fixed prices exist for 25 commodities even now and input like fertilizers are subsidized. The result is that there is no incentive for the farmer to switch to other crops. Interestingly however, the Prime Minister’s Economic Advisory Council (EAC) is of the belief that a revival in farm output in the next fiscal will help the Indian economy move closer to the 8% growth rate.
Nonetheless, the BRIC nations have now have agreed to boost efforts to achieve food security and increase their role in global farming. The respective agricultural ministers will share information on technology and farm related inputs in the coming days.
We believe that improved growth in industrial activity is certainly critical to long term growth of Indian economy. However, India is also the nation with the world’s second largest population. Further, it is endowed with one of the most agriculturally conducive natural environments. Given these, Indian policymakers have their primary duty in ensuring food security for the nation. But nothing like coordinating with other large producers to ensure food security for the world.
The article “The Biggest Economic Threat is….” appeared in EquityMaster 03/29/10