Per capita foodgrain absorption, taking direct and indirect absorption together, has declined in India since the beginning of "liberalisation", first gently and of late precipitously, so much so that the level in 2008 itself was lower than in any year after 1953. In China too, there was a sharp decline in per capita total absorption of foodgrains between 1996 and 2003. It improved thereafter but even by 2005 had not reached the 1996 level; it could not have jumped suddenly in 2008. Since the population growth in both these countries has come down substantially, even their absolute absorption in 2008 could not have been much higher than in say the mid-nineties. It is not the increase in their demand therefore that can possibly explain the 2008-11 food inflation.
Many have rightly emphasised speculation as an important contributory factor. But while speculation can no doubt conjure up an inflationary upsurge out of thin air, it typically operates on an underlying demand-supply imbalance, accentuating its consequences. We therefore have to look at the underlying output and demand trends; and here we come across two startling facts.
First, per capita cereal output, and also foodgrain output, has declined significantly in absolute terms for the world as a whole since the eighties. The average annual per capita cereal output for the quinquennium 1980-85 was 335 kilogrammes; for 2000-05 it was 310 kilogrammes. Since this decline in output has also meant decline in consumption, hunger in the world has been on the increase long before the price upsurge of 2008. Or putting it differently, the world food crisis is a matter not of the last two years but of the last two decades or more.
The second fact is even more startling. Since per capita income in the world economy has been going up, and since therefore the demand for foodgrains in real terms should have been going up, the decline in per capita foodgrain output should have meant a rise in foodgrain price after the eighties, relative, say, to the price of manufactured goods. But we find that cereal price relative to manufactured goods declined by 46 per cent between 1980 and 2000. Indeed, between 1980 and 2008, the year of price upsurge, foodgrain prices in general fell relative to those of manufactured goods, even though per capita foodgrain output declined in absolute terms.
How could this happen? The answer is simple: a massive squeeze on the purchasing power (an "income deflation") imposed on the working population all over the world, and especially in the third world, by the universal pursuit of "neo-liberal" policies.
... This is what underlay the 2008 food price upsurge: with oil prices touching dizzy heights because of speculation, large-scale diversion of foodgrains for bio-fuels occurred, which pushed up foodgrain prices. What is more, because of this bio-fuel link, foodgrain prices now have got hitched to oil prices in the minds of speculators. When oil prices rise, so do foodgrain prices, in anticipation of higher diversion of grains to bio-fuels, even before any actual increase in diversion occurs. Not surprisingly, the very person who encouraged the diversion of foodgrains for bio-fuel, George Bush, also started the false explanation for food inflation, in terms of Indians and Chinese eating more, to divert attention from his own culpability.
