Meltdown to hit agriculture, food shortage looms

Commodity Online
NEW DELHI: As if the global meltdown and soaring food prices are not enough, now brace up for food shortage in the coming two years.

Even as the world is struggling to fight global market meltdown with companies sacking employees and Industries scaling down production, the world will also have to tackle food shortage and soaring prices in the coming days.

According to United Nations’ Food and Agriculture Organization, the current financial crisis will adversely affect agricultural sectors in many countries, including India and other developing countries.

This warning is issued by the FAO despite predictions that world cereal production is set to hit a new record of some 2.24 billion tones in 2008/2009. Again, global rice production is also expected at 450 million tonnes during the same period.

Still, this year’s record cereal harvest and the recent fall in food prices should not create a false sense of security.

If the current price volatility and liquidity conditions prevail in 2008/09, plantings and output could be affected to such an extent that a new price surge might take place in 2009/10, unleashing even more severe food crises than those experienced recently.

The report also noted that most of the recovery in cereal production took place in developed countries, where farmers were in a better position to respond to high prices.

In contrast, developing countries were largely limited in their capacity to respond to high prices by supply side constraints on their agricultural sectors.

FAO said the sharp 2007/2008 rise in food prices has increased the number of undernourished people in the world to an estimated 923 million.

Lower international commodity prices have not yet translated into lower domestic food prices in most low-income countries, it added.

The FAO report further noted that world agriculture was facing serious long-term issues and challenges that need to be urgently addressed.

These include land and water constraints, low investments in rural infrastructure and agricultural research, expensive agricultural inputs relative to farm-gate prices and little adaptation to climate change.

The more critical and likely impact of the global meltdown will be on credit, whose non-availability is widely recognised as one of the major constraints to agricultural development in the developing countries, and the rationing of which is likely to be more serious than any interest rate effects, it said.

Taking lessons from the 1996 Asian financial crisis, the FAO suggested that countries and investors should meet their commitments on the development of agriculture in the developing countries as agriculture would act as a 'buffer' and help cushion greater losses incurred in other sectors of the economy.

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