India may ban food futures, reports

By Jess Halliday

- Last updated on GMT

Related tags: Southeast asia

India is mulling a temporary ban on trading in food futures,
according to reports, as it looks at ways to mitigate the effect of
rising food prices on its population.

The country's finance minister P Chidambaram suggested the move this weekend. The Financial​ Times notes that India actually already restricted trading in rice and wheat last year, and lentils in 2006. It is also one of several Asian countries to have put in place restrictions on food exports so as to ensure adequate domestic supply. The issue highlights the effect that hedge funds have been having on food commodity prices on a global basis. Speculators identify markets with high potential for gains; currently stocks such wheat and soy hold just such an appeal. The food futures market was introduced in India just five years ago in an effort to build India's presence as one of the world's financial centres. "The pressure is to suspend a few more food articles,"​ Chidambaram said in an interview at the weekend with Bloomberg Television​. "It may be politically wise to do that for a short period to see if it has any impact at all on inflation."​ The minister has not given an indication of what foods may be the subject of an extended ban, but there there have been suggestions that it could include sugar and cooking oil. Chidambaram's proposition has already fuelled criticism for India's political handling of the food situation from officials at the Asian Development Bank, however. The bank's chief economist Ifzal Ali is reported by The Finanical Times​ to have called it "a political gimmick".​ In parts of the world where rising prices have led to rioting, politicians have been under considerable pressure to show a strategy to prevent their voters from facing starvation. In Haiti, for instance, prime minister Jacques-Edouard Alexis was dismissed by the senate following unrest over rice prices. However there are grounded fears that political moves can actually exacerbate the problem on a global scale since they cause distortions in supply. If one country take a protectionist stance, this has a knock-on effect on prices and availability of foods in exporting countries. Members of ASEAN (the Association of South-East Asian Nations), on the other hand, this weekend set an example of cooperation by pledging to work together to help reduce food prices. Ministers said in a joint statement the pledge is to "continue fair trade practices and to achieve an orderly regional rice trade".​ The ASEAN countries are Thailand, Philippines, Vietnam, Indonesia, Brunei, Singapore, Laos, Malaysia and Burma. Politicians of member countries have dismissed allegations that the group's plans are the beginning of a price-fixing cartel. Rather, the statement sets out intentions to share technology, research and experience that could make the whole supply chain for rice more efficient and boost productivity. Such knowledge-sharing would cover making more land available for rice production, irrigation practices, harvesting practices and distribution.

Related topics: Markets, Ingredients, Emerging Markets

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