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Date
 20/05/2008
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 Kamar Nor Aini Bt Kamarul Zaman
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 Journalgazette
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 The soy also rises: Indiana farms prosper, but Indian cooks must pay more

18/05/2008 (Journalgazette), Mumbai - A northeast Indiana farmer is selling soybeans for the highest prices he’s ever been paid.


More than 8,000 miles away, an Indian housewife is forking out more money to buy the cooking oil she needs to make a fish and rice dish.


They are standing on opposite sides of what’s being called a global food crisis. The booming biofuels industry, skyrocketing fuel prices and soaring food demand are pushing grain prices to record levels. Local grain farmers are reaping the benefits, but agricultural economists say the high prices are squeezing the poor in India and other developing nations.


American shoppers have seen grocery prices rise about 4.5 percent this year, said Chris Hurt, agricultural economist at Purdue University in West Lafayette. That’s the highest level of food inflation since 1991, but he said some food prices have jumped 50 percent to 70 percent in the developing world. U.S. consumers earn more and spend less of their income on food, so they are better able to withstand food inflation.


The women who line up to buy palm oil at Abdul Bhai’s downtown Mumbai shop are experiencing the fallout firsthand. Bhai said last month he’s never seen such high vegetable oil prices in the five decades his family has sold cooking oil in the city, formerly known as Bombay. Prices jumped 25 percent in late March, he said in Hindi through a translator while serving customers in the outdoor Colaba market.


“Yeah, biggest (increase) in my life,” he said in English.


Prices have moderated somewhat, Bhai said. The prices at his shop ranged from 60 rupees – about $1.50 – for a liter of sweet oil to 80 rupees – about $2 – for a liter of coconut oil.


India slashed vegetable oil import tariffs to keep prices low, but the effect may not last as global food prices continue to increase. With soybean oil and other vegetable oil prices soaring, the world’s second-largest vegetable oil importer will have to pay more for its supply.


Increasing demand from several sources is pushing vegetable oil and other food prices higher, Hurt said. Newly built ethanol and biodiesel plants and middle-class residents of developing nations are both laying claim to a growing share of the world’s crops. Poor weather that damaged wheat harvests last year left more demand for the remaining grain, he said.


The rising demand is making northeast Indiana’s grain crops more valuable than ever. Soybean farmers who once only dreamed their crop could earn $10 a bushel were earning $13.81 a bushel last week, according to The Associated Press.


“Prices are the best that we’ve ever seen,” said Kip Tom, president of Tom Farms LLC, a farming operation in Kosciusko County. “There’s no question about it.”


Tom Farms raises corn, soybeans, seed corn and tomatoes on about 12,000 acres in northern Indiana, Tom said. The Tom family farms 4,000 acres in Argentina. Farms like his will need to grow more crops to meet rising global demand, he said.


The growing middle class in China, India and other Asian nations is changing the global food market’s dynamics, Tom said. Consumers there are eager to spend their growing incomes on better food, particularly meat. That means Asian livestock farmers need more grain to feed their animals, he said.


While an American worker who gets a raise might buy a new television or sofa, Hurt said Asian workers are first improving their diets. That’s partly because Asians already spend a larger portion of their income on food than Americans.


About a third of a typical Indian household’s expenditures were food purchases in 2006, according to the most recent data from the U.S. Department of Agriculture’s Economic Research Service. Less than 6 percent of American household expenditures went toward groceries.


Because Indians already spend more of their income on food, consumers there feel food price increases more acutely, said Brent Babb, director of communications and program development for the U.S. Soybean Export Council.


“They feel the impact of these higher prices more than the average U.S. citizen,” he said.


Indian consumers have little choice but to pay the rising vegetable oil prices, Mumbai resident Chaya Borkar said as she stopped at Bhai’s shop to buy palm oil. The oil is essential for cooking most Indian dishes, including her favorite fish rice, she said in Hindi through a translator. The 30-year-old woman needs about 5 liters of palm oil a month to cook for her husband and two sons.


Bhai owns four cooking oil shops in Mumbai. Women in saris and men riding motorcycles stopped on a Tuesday afternoon to buy bags of cooking oil from this downtown stand. Bhai and his employees poured palm oil and five other cooking oils into bags for each customer. The shop sells about 400 liters of vegetable oil a day, Bhai said.


Global vegetable oil prices have soared in the last three years, Hurt said. Soybean oil, which is made from soybeans grown in northeast Indiana fields, illustrates the trend. Soybean oil sold for 61 cents a pound on the Chicago Board of Trade last week. That was nearly double the average price from 2006 – 31 cents a pound. Prices reached a high of 70 cents a pound March 3, he said.


India is expected to import more than 5 million metric tons of vegetable oil during the current farm-growing season, according to the USDA’s Economic Research Service estimates. The nation is the second-largest vegetable oil importer after China.


The United States is the world’s fifth-largest vegetable oil exporter. The Economic Research Service estimates the country will export 1.6 million metric tons of vegetable oil during the current farm-growing season. Palm oil producers Indonesia and Malaysia, which are major suppliers to India, are the world’s leading vegetable oil exporters.


Although India and Indiana both feel the effects of the global vegetable oil market, the two nations are not directly linked. India imports little soybean oil from the United States, said Maurice Landes, senior economist at the U.S. Department of Agriculture’s Economic Research Service. India imports much of its palm oil from Malaysia and gets its soybean oil from South America.


“They’re basically a price buyer,” he said, “and we’re just not as competitive as the South Americans.”


India could buy more American soybean products in the next five to 10 years, Babb said. With a growing population of 1.1 billion people, India is using much of its domestic food supplies already. It will likely need to import additional food, he said.


The U.S. cannot control growing overseas food demand, but some legislators have wondered whether biofuels subsidies contributed to rising food inflation. Congress held hearings examining biofuels policies this month.


Ethanol is a growing industry, but Landes said economists are not sure what extent it is affecting food prices. American plants produced 6.5 billion gallons of ethanol last year, up from nearly 1.8 billion gallons in 2001, according to the Renewable Fuels Association, an ethanol industry trade group.


Other countries – including Malaysia, Indonesia and Brazil – also are turning crops into biofuels. That is increasing demand for grain, Landes said.


Tom said he thinks rising gas and energy prices are having a larger effect on food prices than biofuels. Farm products make up about 19 percent of food costs, he said. Advertising, delivery costs and packaging make up a larger share of the expense, and those costs are affected by skyrocketing gas prices.


The biofuels industry’s recent growth has contributed to rising prices, but Hurt said it is not the only factor. Growing overseas populations and livestock farms are bidding against the biofuels industry for grain on the open market.


Now that the biofuels industry also needs grain supplies, Hurt said the agricultural industry needs to find a way to balance demands for food and alternative fuels. That may mean ensuring world food needs are met before surplus grain is sold to the highest bidder. No one wants people to starve because alternative fuel production is using the available grain, he said.


“I think it’s a matter of us in agriculture learning what our priorities are,” he said. “Feeding the world has to be No. 1.”


 


 


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