Trade

Recent spiral in the food prices has a number of impacts across the globe, including India. According to a latest World Bank study, there was a modest decline in poverty in 2005 since early 1980s. This alarming trend of rising prices has the potential to reverse the development trend in the country. Therefore, this brief attempts to analyse the nature of current trend of spiralling prices and its causes. It also suggests appropriate policy interventions to lessen the impact of increasing food prices.

Foodgrain prices have been witnessing a global upward trend for the past three years. Prices, which have risen 85% during the period, are a serious cause for concern, especially for Asia which alone is home to 1.20 billion poor people who spend more than 60% of their income on food. This upward trend of spiralling food prices has begun to jeopardise the Millenium Development Goal of halving poverty by 2015.

The factors that have hit the poor hard or are directly responsible for this price rise are growth of food demand, biofuel policies of the US and the EU, drought in wheat-producing countries -- Australia and Ukraine, and 'poor' government policies like export bans, import subsidies, speculative trading behaviour. Besides, according to IFPRI, rapid growth in income of middle-classes in India and China accounts for half of the recent price spiral. Given this background, the brief examines the magnitude of food price rise in the context of Sri Lanka and some of the reasons for the increase in prices mainly – production-related issues and trade and other macro economic policies.

The current spurt in food prices has snowballed into a global food crisis, which stems from multiple reasons like depletion in food stocks, rise in crude oil prices, climate change etc. The consequences of food prices have a cascading impact on the economy fuelling inflation besides restraining MDG goals and political turmoil. Along with the rise in food prices, the fuel prices have skyrocketed crossing all limits, from 2002 it has increased six times and is expected to scale further. The rising cost of inputs linked to the increase in oil prices is another important factor adding to the farmers' woes. The current policy brief tries to explore some critical factors linking food prices, biofuels and international trade.

It is clearly evident that the modern food system is dependent on crude oil and with energy shortage and environment concerns boiling high there is a strong urge to reduce the escalating crude oil prices by growing biofuels, which is ushering a new era of green revolution, a new development paradigm and a solution to the twin problems of poverty and climate change. However, biofuel can bring clear shift in food economics if the profit in fuel crops rule higher than growing food crops. Keeping these sensitivities, India's biodiesel policies are still under suspension and current brief tries to bring to fore development impacts of biofuels in the context of trade and food prices.

Since its coming into being, UNCTAD has had two avatars . In its first avatar , until late 1980s, UNCTAD was seen as an important tool in creating the developing countries a more balanced international trading system to realise their goal of development. Then from 1990s onwards, it underwent a remarkable change as far as its structure and vision are concerned. The Midrand conference restructured UNCTAD's intergovernmental role by changing the funding pattern and mode of functioning curtailing the number of meetings and publications. This was its second avatar .

Since then, UNCTAD has lost its identity and development role it performs. The recently concluded UNCTAD XII conference held between 20-25 April 2008 at Accra began with a different purpose of extending the benefits of globalisation. The Accra Accord talks of policy diversity to help individual countries attain their development priorities and objectives, and the specific policies and practices should be based on detailed rigorous diagnostic analysis. Further, national strategies of development should take into account the needs and circumstances of each country. It suggests many trade policies to fill the wide gaps arose out of lack of technical capacities and more specific diagnostic research needs. From UNCTAD's view, though the Accra Declaration has come about advocating wide policy recommendation, the funding structure, which determines its mandate and support, and research prioritisation seem inadequate to address the growing needs in a globalising world.