Food security requires higher foodgrain prices

29/09/2012

There was a time when India had acute shortage of sugar. Then the government increased the procurement price of sugarcane and continues to increase the procurement price periodically. This has led to India becoming not only self sufficiet but also surplus in sugar.Not only this, sugarcane is one of the only 2 or 3 crops in which India’s yield is higher than world and Asian average yield.

If countries which are deficit in cereals increase procurement prices substantially,the farmers will find ways to increase the yield and production. These countries should also impose import duties on cereals to such an extent that the local produce becomes cheaper. The deficit in food grains can easily be wiped out in most of the deficit countries.

The question will arise as to how poor people who are malnourished for want of money to buy food gains shall buy at higher prices. The people do not have buying power because they do not have enough work. The govenments there should undertake massive works like digging lakes, canals, wells,laying roads, railway lines, power transmitters and lines solar power stations, hydro-electric power stations etc. Most of the west and east African countries receive over 1000 mm rainfall every year and hence increasing food grain production may not be a big problem at all.

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Currency War-US, Europe are unjust in their demand for Yuan appreciation

15/10/2010

The rate of exchange between US$ and Chinese Yuan is around $1= Yuan 6.7. US(and other developed countries in Europe etc) thinks that Yuan is undervalued to the extent of about 25% i.e. their view is that the rate should be around $1= Yuan 5 or 5.5. The arguments of US is that since the Yuan is undervalued, products imported from China into US are cheap compared to local products, and this is detrimental to the US industry, and leads to job cuts estimated at around 0.5 million. Further, US products exported to China are expensive in China and hence US exports suffer. China’s foreign exchange reserves are very large (around $2650 billion) and this should normally make China’s local currency appreciate against other currencies but it is not happening. . According to US, China manipulates the exchange rate

US argument is not fully justified because,

i).it does not take into account, the fact the China exports to around 200 countries and the number of countries affected by current rate of exchange are only a few. Most of the developing countries benefit when prices of imported products are low.

ii) Many countries do not have the concerned industry and the question of the local industry suffering or workers losing jobs do not arise at all.

iii) Where local industry exists, Chinese equipments and products fill the gap between supply and demand, at comparatively low prices thus meeting requirements of importing country and helping industrialization of that country.

iv) Even in US, the general public will only be happy to get their requirements from China at a lower rate. The large number of consumers is not bothered about the job loss for a few hundred thousand people or manufacturers suffering loss.

v)To protect the local industry and save the jobs, US could think of means like imposing/increasing import duties on Chinese products, assisting the exporters with incentives like low interest rate for exporters, exemption from tax for profits from exports etc.

vi) US could think of means of making its industry competitive in relations to Chinese industry, by asking workers to increase their productivity, upgrading technology, minimizing overhead expenses etc..

vi) US(also European) industry being affected by Chinese exports or its inability to export to China is a bilateral issue and should not be made a multilateral issue as the US gain from appreciation of Yuan will harm many, particularly developing countries importing from China.