28/09/2007 (Sify.com) - The global agribusiness scenario is undergoing a fundamental change, which started a couple of years back. Currently, it is not so much changes in food production or consumption, but the rapidly expanding bio-fuels sector that is seen driving the global grains and oilseeds market.

Rising crude (mineral oil) market and State support for greener fuels have resulted in large investments in environment-friendly bio-fuel production, mainly in the US and the European Union.

Fuelling a debate

Developing countries are promoting bio-fuel production and consumption. Bio-fuels involve utilisation of traditional food crops for fuel purposes. Following the sudden emergence of demand from the energy sector, food markets globally have spiked like never before.

Concerns over shortage of food are emerging. This has fuelled a “food versus fuel” debate across the world. A significant part of grains (corn/maize and wheat) is diverted for ethanol and of vegetable oils for bio-diesel. Bio-fuel feedstock (corn, wheat, cane, oilseeds/vegetable oils) prices are shooting up even as supplies for food and feed sectors are tightening. As feed prices rise, meat, poultry and dairy prices will rise too.

The July 2007 OECD Outlook report forecast strong agri-commodity prices in the coming years owing to expanding usage of what are traditionally food crops for energy purposes. There is heightened concern among major food importers and consumers. The net food-importing poor countries are the worst hit. Countries are attempting to find political solutions to this development.

China, for instance, has banned diversion of grains meant for food production for bio-fuels. But, major grain producers such as the US and the EU grant support for production and usage of renewable or green fuel. Large quantities of rapeseed oil, soya-bean oil and palm oil are used for bio-diesel.

As a result, the world vegetable oil market is facing a bull run. Corn and wheat prices have nearly doubled. Globally, crops have begun to compete for acreage. In the US, corn and soybean fight for acreage and, in the 2007 season, corn won. The US soybean output is expected to be down by 15 million tonnes to about 72 million tonnes.

The delicate balance

Farmers have a choice and will plant the crop that is most remunerative. However, consumers have to bear the brunt of market price spikes.

The relationship between food, feed and fuel is a delicate one. All the three are necessary for sustenance. There is now an emerging need for a harmonious balancing of the needs of the three sectors. It is necessary for policy-makers and stakeholders to not only prioritise, but also take steps to augment supplies.

Indeed, the feed sector has some flexibility to substitute one grain for another. Stronger vegetable oil prices will encourage greater oilseed crushing which will result in the production of more oil-meals or extractions.

In addition, DDG (dried distillers’ grains) from corn (used for bio-ethanol production) will partially substitute soya-meal. So, the feed sector is less of a concern. But in food, such substitution is not possible always. There is need to augment food production and supplies. Also, food habits are hard to change.

Given the rising bio-diesel demand and competition for acreage, soybean prices are likely to remain firm over the coming seasons. Over time, high prices will result in higher supplies; but such supply response will be lagged. Soy product producers have to reckon with the price action. To promote soy products usage, it is necessary to make the price of the products consumer-friendly.

Inflation is already a serious issue in most countries. In particular, food inflation hurts the poor the most. The Indian Government is taking steps to check price rise. Imports have been liberalised and Customs duties have been slashed or waived.

Nutrition insecurity

The health benefits of soy are well-documented. India is facing the threat of creeping nutrition insecurity. There is serious deficiency of protein and calories. Given the age profile of the population (a young population - 40 per cent of Indians are less than the age of 30) if the country really wants to reap the so-called demographic dividend in the coming years, investment in health and education is necessary.

A sound mind in a sound body is the adage to follow. High-protein soy can help fight malnutrition, especially in the rural areas. Women and children are major victims of malnutrition. Access to and affordability of nutritious foods are issues to be addressed.

Fighting obesity

Soy needs to be first promoted among the farmers themselves. Mandatory blending of soy flour in food (say, wheat flour) may be explored. Such blends can be sold through the public distribution system to the vulnerable sections of people. If need be, such supplies should be subsidised.

Another syndrome emerging in the country may be called demographic dichotomy. There is creeping obesity in the cities, especially among youth, and chronic under-nutrition in rural areas, especially among women and children. This trend needs to be checked.

It is only through sustained commitment to deliver benefits to the society that any effort will succeed; and for the success of any such effort, it takes time. To be lasting, success has to be earned through commitment and patience.