People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 09

March 03, 2013



                                                                                    Issues on Price Rise


Brinda Karat


ONE of the important issues being raised in the Sangharsh Sandesh Jatha is that of the relentless price rise of essential commodities, particularly of food items. The UPA government is intensifying the very policies, which cause price rise. International agencies are warning of high prices of food on a global scale in 2013 if concrete measures are not taken. In India, the struggle for food security must have as its focus the concrete measures that the government of India must take. This struggle is also linked to the global demand to make the governments of the United States and other big capitalist countries accountable to the people of the world for their criminal policies and systems that intensify hunger and food insecurity worldwide.




Even the World Bank, which has been responsible for the imposition of the neo-liberal policy framework across the world in its recent report has warned that “high and volatile food prices are becoming the new normal..” It points out that while on a global level food prices declined in the latter half of 2012, they still remained high.” The FAO in a similar warning states “despite decline in international food prices, they remain close to all time highs. Stocks of key cereals have tightened.” The warning is timely as with the decline in global prices in the last quarter of 2012, already the assurances given by developed countries for reforming the systems which had caused the food crisis in 2008 which led to severe shortages and skyrocketing prices in many developing countries, are now being put on the backburner. The reasons which push up global prices include financial and commodity speculation, diversion of agricultural land from food to biofuels, rising fuel prices which increase transportation costs; low levels of public food reserves, low and declining public investment in agriculture and changing climate conditions.


While the drought in the United States, Russia, Ukraine and other countries is cited as one of the reasons for apprehensions of a drop in the production of wheat, the FAO has warned that the continuing diversion of land to produce crops for the biofuel industry in the US, Europe and the growing trend of companies to buy land in developing countries like Africa for growing such crops at the cost of food grain, will lead to “increasing hunger worldwide.” By subsidising corn production for bio-fuels, the US and other temperate countries pull out corn from food supply, raising prices.


To give a few concrete examples of how the imperialist-corporate driven policies effect world prices, it is estimated that the use of around 30 per cent of total corn production for the bio-fuel industry in the US pushed up corn prices by 21 per cent. That was in 2009. At present 37 per cent of the crop goes for ethanol production. In Europe, bio fuel accounted for 80 per cent of the EUs vegetable oil production.  According to most recent calculations since 2006, US ethanol policies have increased food bills of poor food importing countries by more than 9 billion dollars, by creating shortages and pushing up prices. (Timothy White, Working Paper, Global Development and Environment Institute, October 2012.) While big companies are buying land, displacing thousands of small and marginal farmers in many countries in Africa for bio diesel crop production, the US and EU countries subsidise farmers to divert production for the biofuel industry.  With such incentives for the industry, it is hardly surprising that of the 389 large scale investment acquisitions covered in a 2010 World Bank report, 35 per cent were concerned with agro fuel. The call to “place people and food before fuel and cars” given in the paper cited above, is a global slogan to force a change in the policies of developed countries.




The other critical aspect is the huge increase in speculative capital and in the role of financial institutions in these markets. Speculative investment is estimated to be 20 times more than all the agricultural aid by all countries combined. The recent UNCTAD report linking speculative capital with price rise in food stated that “over 400 billion dollars is traded in food commodities, that is 20-30 times the physical production of the actual commodity.” This speculation for profit which has no connection with the real world of production, has an impact on pushing up spot prices. The profit greed of corporates and the financial sector mafia was symbolised by the statement of Chris Mahoney, the head of the food trading division of Glencore, the world’s biggest commodity trader when he said “US drought will be good for Glencore.” Glencore had made a pre-tax profit of 2.3 billion dollars in 2011. Three more big traders in food commodities, Barclays Capital, Goldman Sachs and Morgan Stanley have all made big profits through speculation in food. According to the World Development Movement, Barclays made a profit of 548 million dollars in food speculation, while Goldman Sachs made up to 400 million dollars in 2012 from speculation in food including wheat, maize and soy.




In response to international mobilisations against speculation in food prices in 2008 and following the global financial crisis caused by the neo-liberal policies of the imperialist countries, the US and European countries had assured that restrictions would be placed on monopoly control in futures markets. In 2010 in the United States, the Dodd Frank Wall Street Reform and Consumer Protection Act suggested a set of regulations to curb speculation.  The Act was signed into federal law in July 2012. To implement the law the Commodities Future Trade Commission in the US had among other steps imposed “position limits” to curb the proportion of the market that can be held by any one institution. Even though the limit was still very high at a quarter of the market, it was challenged in court by financial market associations. The District Federal Court has recently ruled that no such limitations can be imposed, as the CFTC has been unable to prove any link between the speculation in food commodities and high prices!  The CFTC has decided to appeal against this and it will be interesting to see the arguments it puts forward to establish the linkages. Perhaps homegrown loyalists to the US view on most matters could take a few lessons from even the limited interventions of the CFTC.


In the EU, the regulatory regime promised was to come into place by the end of 2012. However it has once again been postponed. Analysts of these regulations have pointed out that it is full of loopholes, and gives exemptions to benefit the big traders.


Thus, the warnings of the UNCTAD, FAO and even the World Bank of higher global food prices in the coming days should be taken seriously.


The government uses high global prices as an excuse and a cover to conceal its own policies which are responsible for high food inflation in India. High prices in the Indian context are almost entirely because government is following the same policies that are responsible for high global food prices.


India has established a record of sorts in high rates of inflation. A comparison of the Consumer Price Index for BRICS countries shows that India has the highest year on year increase. The comparisons are for the period January 2012 to January 2013 in the case of Brazil and China and from December 2012 to December 2013 in the case of India, Russia and South Africa.


India 11.17 per cent

Brazil 6.15 per cent

Russia 6.54 per cent

China 1.90 per cent

South Africa 5.75 per cent




On February 14, the ministry of commerce and industry released data on wholesale prices as reflected in the wholesale price index between  2011-2012 and January 2012-2013. The figures confirm what every working household across India knows - the only growth the aam admi has seen is the sustained increase in prices of food.


Food articles rose by 11.88 per cent.


Cereals 18.09 per cent                                              Vegetables  28. 45 per cent

Rice       17.31 per cent                                              Potatos 79.07 per cent

Wheat  21.39 per cent.                                               Onions 111.32

 Pulses 16. 89 per cent                                               Sugar 12.95 per cent


These are the wholesale prices. The increase in  retail prices would be even higher. The decontrol of sugar is imminent which means there will be another round of higher prices of sugar. The elimination of all regulatory mechanisms to control the prices of petroleum products and cutting down subsidies has a cascading impact leading to further price hikes. Since the UPA took office the price of petrol has been raised 19 times raising the price of one litre of petrol by 126 per cent and that of diesel by 67 per cent.




India too is ignoring the lessons of the global crisis. Large tracts of agricultural land are being handed over to the private corporate sector for real estate etc.  In addition, the ongoing policy of crop diversification to incentivise tropical cash crops wanted by the developed world in place of staples and foodgrains further reduces production of food. The last Economic Survey itself reports this fall in gross area under food grains by roughly 5 million hectares if we compare the decade preceding the neo-liberal reforms in the 1980s to the two post-reform decades of the 1990s and the 2000s.  Self reliance and self sufficiency in food grain production are now discarded policy pursuits for this government despite their crucial role in protecting Indian consumers from the volatility of international prices. For this much greater investment in agriculture, in infrastructure, in strengthening extension services to help small farmers increase productivity and to ensure a proper land use policy with adequate planning for food security is essential. The government seems quite content to allow trade liberalisation for dumped imports that are so heavily subsidised that they outcompete Indian products.


In spite of a cross party consensus reflected in the recommendations of the Standing Committee report to ban future trade in agricultural commodities, particularly food items, the government has permitted and indeed encouraged speculation in futures trade by not taxing such transactions. Even as small and marginal farmers who make up over 70 per cent of the farming community are being forced to make distress sales of their produce, big profits are being made in trade of agricultural commodities in the commodities exchanges. This is reflected in the increase in the cumulative value of trade in agricultural commodities by over ten per cent over the last year even while the cumulative value of trade in all commodities decreased by five per cent.


In the light of the warnings of global food shortages, it is essential for the government to de-list food items from futures trade and also to  resist the growing pressure to lift the current ban on rice futures. It should learn from the most recent and scandalous example of the highly speculative trade in Guar (the gum of which is used as a thickening agent in some foods and also as a sealant for shale gas). In the year ending October 2012, the price had shot up 1000 times yielding profits worth 1290 crores rupees to identified companies indulging in speculation. But producers of guar, mainly farmers from Rajasthan received no benefits as they had already sold their crop. Although the trade has since been suspended, prices are still volatile.  Such blatant manipulation of the market invites no punishment in liberalised India.




India has sufficient stocks, over 6.62 crore tonnes of foodgrains as on February 1, 2013 which is three times the norm set for this quarter which is 2 crore tonnes. Given the anticipated shortage in world markets, big companies, foreign and domestic, have started putting pressure on the government to “liquidate” the stocks by allowing liberal exports. The global price for a quintal of wheat was much higher than that paid to an Indian farmer. Whereas the MSP for a quintal of wheat was 1285 rupees, the export price was between 1800 to 2000 rupees. The export of rice also was at much higher prices than the MSP. The minister for food has put the value of exports in 2012 as 20 billion dollars or over 1.8 lakh crore rupees. Thus the government helped traders and exporters make big profits while farmers were denied a better price.


The liquidation of  stocks for exports which help traders not farmers is taking place at a time when India has a quarter of all malnourished people in the world. The stocks should and must be used to ensure a minimum amount of foodgrains at subsidised rates through a universal public distribution system 


It is equally necessary in view of the anticipated global shortage of foodgrains to use the stocks judiciously as a buffer against hoarding and blackmarketing. Reckless exports are not in India’s interests.



·                    Control Price Rise

·                    Stop Future Trade in Agricultural Commodities

·                    Reverse deregulation of Diesel and petrol and bring back the administered price mechanism

·                    Do not export food stocks

·                    Distribute Food Stocks with at least 35 kgs of foodgrains at maximum price of two rupees a kg to each family through an expanded universal PDS