World

Food inflation is choking people

By Binod Singh (chinadaily.com.cn)
Updated: 2010-12-09 14:46

Since the 2008 food price explosion across the developing world, prices have hardly come down to pre-crisis levels. The infusion of liquidity in global markets by printing currencies and pumping it into financial markets has proved disastrous for many developing economies such as India and China.

The quality of life for people in rural areas is deteriorating because they cannot buy the basic necessities, even paying double from just a year ago. Consequently, there is a strong sense of growing dissatisfaction among the masses in developing countries against the so-called GDP rise and oppressive inflation rate.

A majority of poor countries have in one way or another become dependent on Western-oriented institutions. A majority of the population in these countries, however, has very little knowledge about how these institutions work. This leads to their exclusion from these institutions and therefore prevents them from reaping the benefits.

The elite, on the other hand, have a better understanding of these institutions and are therefore able to maximize their returns. The example is the stock market. People’s wealth has multiplied several times because they have knowledge of market realities and insider information. At the same time, many investors have lost their life savings by investing in the stock market. This imbalance in access to information between the haves and have-nots has contributed to the lower effectiveness of development efforts.

Our agricultural products are still at a disadvantage when it comes to competing with Europeans, because European governments provide huge agricultural subsidies to their farmers. The same is true in South Korea and Japan. In China and India, the reality is that we are not even able to buy out the produce in one season and store it in the right place. The middlemen are making all the profit that should have gone to the original producer.

It is time that government take some measure to ensure minimum infrastructure support to the farmers to enable their products to reach the market at the right time and they get the margin price.

Since the Chinese economy is still export-led and employs millions of migrant workers in the manufacturing sector, any fluctuation in the global demand has serious consequences on employment. Under the recent global financial crisis, there were massive layoffs in export-dependent Guangdong province. During the financial meltdown, many migrant workers returned to their villages and may not find suitable jobs.

The government admitted at least 20 million migrant workers had lost their jobs. Just before the crisis, the central government came out with a strict law on labor contracts, which addressed the issue of labor exploitation by employers. But it has proved counterproductive and employers feel reluctant to employ workers short-term. All these factors led to a dilemma that cannot be addressed by the market alone. The State must regulate the food market and make sure that there is a balance of interests between producers and consumers.

The point I emphasize here is that we must not follow what Japan did in the late 1980s and early 1990s by inflating the prices of basic goods. India and China cannot afford the economic model practiced in Japan and South Korea simply because our per capita GDP is still too low and we have a large population.

History has many lessons for us. The rich and the poor cannot survive together in a society once the majority falls to levels of extreme deprivation.

The author is a teacher at Beijing Foreign Studies University and can be reached at binod@126.com.