The problem of food deficit and poverty

The need of the hour in developing India is to eradicate extreme hunger and poverty. We need a coherent policy framework in achieving that end. In our country more than 65% of the population relies on agriculture as their only source of livelihood and with the sector as such registering below 4pc growth rates, its pretty discursive that this is the section of the population that is in crying need of poverty alleviation measures. The most important measure in reducing poverty would be to alleviate the hunger and food requirements of the BLP (Below the Line of Poverty) category.

The present scenario as outlined below does raise a lot of concern for policy makers all across the globe:

*Rapid urbanisation in the developing world and the resultant impact on food markets
*Deterioration of natural resources all across the globe due to industrial demand
*Ineffective farm produce and lack of superior technology to generate high yielding crops
*Imbalanced subsidy regime in developed world vis a vis developing and under
developed nations (i would avoid calling any underdeveloped nation as a third world country
simply because if they are "poor" today its because of the exploitation by the colonial powers
that were occupying them in the past)
* Threats to global peace and security, political imbalance in various countries which exacerbate
poverty concerns
* Rapid demand for food with rise in population is placing a huge strain on environmental
resources

Food security has become a formidable, perennial challenge for the global economy. Food security is all about producing more than enough quantity of food for every human being and addressing the needs of the undernourished populace of the world. It also needs to make use of well developed information systems today to pinpoint the exact location where there is a supply deficit of food and mobilise rapid transport systems to move food quickly to these areas.

The lesson to date is that no sustainable poverty alleviation program will be successful unless it implants itself with efforst to improve rural livelihoods which would mean boosting their income resources. Economic growth originating in agriculture will have a strong impact on poverty and hunger eradication. Increasing employment and productivity in agriculture will stimulate demand for non agricultural goods and as a corollary, the demand for agro based goods should stem up from the non agro based population. Investment in poverty alleviation and hunger reduction is seen as a welfare measure but however it is this investment which generates superior economic returns going forward.

Technological Access
Improved technology, especially for small-scale farmers, hastenes poverty reduction
through increased crop yields and higher incomes. His access to technology has been hampered by gaps in infrastructure, seed and input markets and very often by his inability to fund these inputs. A great deal needs to be done to alleviate small farmers’ constraints to technology access and profitable use. Technologies that build on and complement local knowledge tend to be particularly effective in meeting the needs of poor farmers in marginal environments. Cheap and effective supply of low cost credit by the banking sector with flexible repayment norms and subsidy support from government agencies are the means to the end in this regard. Vigilance mechanisms should be strengthened by policy makers to ensure that the flow of credit/public investments in this sector finds its way to right end user i.e the poor farmer, through appropriate channels leaving no scope for peculation by middlemen and unscrupulous agents.

Importance of Trade

Trade offers opportunities for the poor and food insecure by acting as a catalyst for
change and by promoting conditions in which the food insecure are able to raise their
incomes and live longer, healthier, and more productive lives.

Opening national agricultural markets to international competition – especially from
subsidized competitors, before basic market institutions and infrastructure are in place
can undermine the agricultural sector with long term negative consequences for poverty
and food security. To minimize the adverse effects and to take better advantage of emerging opportunities, such as those arising from agriculture diversification to bioenergy and other non-food products, governments need to understand better how trade policy fits into the national strategy to promote poverty reduction and food security. Expanding the benefits of trade for the
poor requires a range of other factors, including market infrastructure, institutions and
domestic policy reforms.

Public and Private Investment

Public investment in infrastructure, agricultural research, education and extension is
essential in stimulating private investment in agriculture. But actual public expenditures for agriculture and rural development in the developing world do not reflect the importance of the sector to their national economies and the livelihood of their populations. In fact, government expenditures on agriculture come closest to matching the economic importance of the sector in those countries where hunger is least prevalent.FDI or FII inflows into any country also ignore this vital sector given the cyclical pattern of the industry as well as the longer payback period. Private investment will always follow public expenditure in rural infrastructure and the respective governments have to take the seed intiatives.

Marketing Intiatives:

The expanding urban markets is a major challenge for agriculture and food marketing systems in the years to come. Rapidly rising urban food demand, accompanied by trends towards diet diversification, induces an increasingly commercial orientation of production systems, while inefficiencies in the marketing and transport infrastructure will either provide incentives for the location of production in semi-urban areas or encourage lower cost imports.

Urbanisation increases the scope for economies of scale in food marketing and
distribution, while reductions in transactions costs increase the size of the market for
distributors and retailers. The result is not only an impressive increase in the volume of food
marketing handled by supermarkets, but also substantial organisational and institutional
changes throughout the food marketing chain. Now as a result of the retail revolution, inetermediaries and middlemen have been eliminated as a whole and the farmers have begun benefiting from good realisations for their crops. Improvements in the supply chain effected by these retailers through cold storage mechanisms would enrich the quality and productivity of agri products.

Various governments across the globe must take the required initiatives and retain continuos focus on promoting the agriculture sector and tweaking its growth rates through coherent policy measures with the joint efforts and assistance from international institutions like WHO, UN and financial powerhouses like World bank, ADB and IMF. This can go a long way in preserving the world's ecosystem, its biodiversity and would ultimately promote the twin objectives of poverty alleviation and effective environmental governance.

Dont panic after the fall

The investors are in a state of shock with the way the market is behaving. The last few days have been quite rough for the market with huge amount of volatility. What has happened to the Indian market yesterday and today clearly shows that there is some major concern for the stock market not only for India but also for the global markets. Remember, panic selling is taking place throughout the world with most of the global indices deep in the red.

Now let us take the basic fundamental issue of the Indian stock market. Is it the end of the Bull Run for the Indian market? The answer is clearly No. We don’t see any major change in the fundamental story of the Indian economy. There could be one percentage point decline in the growth of Indian GDP numbers, but otherwise India would continue to be the second fastest growing economy in the world after China. The correction only indicates that the market is not willing to pay 21 times P/E multiple for the Indian stocks. Looking at the FY09 earnings projections, the market is trading at a forward P/E of 14 times. This is a very compelling reason for someone to buy into the Indian stock market. I am not saying that the market would surge in a hurry but senses are bound to prevail after this storm blows over and the dust settles down. In fact, those sitting on cash must buy now as this is a god sent opportunity to invest in the market. The only thing to keep in mind is that the selection of stock has to be really good. Some of the momentum counters not backed by fundamentals have taken a huge beating and I doubt that they would surge in the next round of the rally. The reason is very simple: when front line stocks are available at attractive valuations why would someone buy second rung companies? In fact, mid-cap as well as small-cap stocks would take their own sweet time to bounce back. I would suggest sticking to ‘A’ group companies where many of the stocks have taken a beating just because of the bad sentiment rather than due to any fundamental reason. My best picks in these tumultuous times are Reliance Industries Rs 2330 L&T at Rs 3530 and Bharat Bijlee at Rs 2750.

So what should be the strategy in a market like this? There would be some pain in the market for some more time. We had seen some excesses during the bull run, similarly we would see some excesses in the bear run too. The art of making money in this market is not to panic but to do exactly the opposite of what the people are doing. Buy when everyone else is selling and you would make a great killing in the next 12 months.

Second, don’t invest with a short-term horizon. Keep a long-term outlook for the scrip you have bought as there is a possibility that the good scrip you have bought may fall further for a short while.

Third, never chase the stock in this market. It does not make sense chasing stocks.

Fourth, don’t borrow to invest in the stock market. In fact, if you have already borrowed, slowly reduce your leveraged position.

Fifth, cut your losses in the junk and small-cap stocks where there were no fundamental reasons for them to surge. It’s better to lose 50-75 per cent than to lose 100 per cent as many of these stocks may not remain liquid in this kind of market.

Sixth, never panic in this market. There is no need to change your perception about the stock market. It’s there to survive and one would make good profits provided you have the patience. Don’t watch TV channels and don’t listen to the so-called experts. This would unnecessarily create panic resulting in huge losses. Just stay put. Hold your blue chip stocks as sense would return to the market sooner rather than later.

I am optimistic that equity would do well provided you have the patience and the courage to put money for the long-term. So don’t panic. Now is the time to act sensibly and hold your blue chips to fetch good returns for you. Just reduce your expectations in terms of returns and you would have the last laugh.

Why is gold considered to be the best hedge against inflation

Gold is especially attractive in times of economic and political crisis. As the most widely accepted global currency, gold is viewed as a source of stability in times of currency inflation, stock market uncertainty and political conflict. When the US $ collapses we find gold value shooting up manifold. This is simply because crude oil is traded in $ per barrel and when dollar value falls, the price of crude oil shoots up as a concomitant effect. With crude oil prices rising and the OPEC group getting richer by the day, the automatic channelisation of the surplus profits finds its way to gold as a safe investment destination.

Gold prices have the advantage of independence from correlation with stock market prices and gold investments can help offset the risks of a portfolio heavy in stocks and bonds. Gold hedges against the possibility of interest rates moving against one’s bond investments and protects against the devaluation of one’s primary currency.

Gold is now at around USD 900 per ounce. It was trading at USD 37 in 1971. Gold then shot up to USD 850 in 1980, collapsed all the way to USD 260 in 1999, and has only now crossed the previous peak of USD 850 that it established 27 years ago.

Because many of the central banks of the world have lost sight of what they are supposed to do.
As a student of economics, we were taught that the role of a central bank was to ensure that it maintained the value of the paper currency issued. It did this by ensuring that every time it printed paper, it had a fixed ratio of gold lying in its vaults( Also known in economic parlance as gold standard). But, over the past few decades - and increasingly over the past few years - the central banks have shifted to a "fiat" currency system whereby they have been printing more paper and not worrying about the gold they have as a reserve for their paper currencies. And paper currencies are, in the end, paper. History has shown us that governments have fallen and paper currencies have died with them. Gold has been a currency - a medium of exchange - for centuries. No paper currency has existed for that long. Not the US Dollar. Not the Sterling Pound. Not the Indian Rupee. As governments have printed larger amounts of paper currencies, these currencies have lost value against real assets like property, or for that matter even a samosa. The danger with fiat currency is that nations may lose discretion and print too much currency or allow too much credit, devaluing the currency and causing inflation. Gold serves as a bulwark against a dropping dollar and other fiat currencies in part because it can’t be produced at will.

Even as global demand has increased, gold mining efforts have actually decreased production because of a decreasing supply of easily accessible reserves. Limitations in the global supply of gold ensure its precious nature.

In 1980, it probably cost you Rs 1 to buy one samosa. Today, it costs you Rs 10. Has the samosa become 10 times larger over the past 27 years? Not at all. The fact is that Indian rupee has lost value over the past 27 years, so the samosa wallah wants more of your rupee to sell you the same samosa. He wants 10 times the rupees for that same samosa. Or look at the price of your house. In 1980, it cost Rs 200 to buy one square foot of property in Cuffe Parade, Bombay. Today, it costs Rs. 40,000 per square foot. That is an increase of 200 times! Money, obviously, buys less these days. Paper money has lost value. This is what is called "inflation".

Now look at gold. It was USD 850 briefly in 1980 - when samosa was available at Rs. 1 and land in Bombay at Rs 200. Today it is at USD 900. Interesting, isn't it? The one currency that governments cannot print at will and which has, across civilisations, been a "store of value" - a hedge against inflation in the language of economics - has not really seen any increase in price over the past 27 years.

If the price of gold was to move in line with the price of samosas, gold should be trading at USD 9,000 per ounce or over Rs 1 lakh for every 10 grammes. But gold can be bought for around Rs. 11,000 for every 10 grammes today. If gold was to have moved along with the price of Bombay property, gold should be trading at Rs. 20 lakhs for every 10 grammes.

That may sound absurd. But sometimes the most attractive investment opportunities are those that sound absurd. Like Infosys at its IPO in 1992 or Zee at its IPO in 1993. You could have multiplied your money by over 1,000 times in each of them.

Don't get me wrong - not every absurd idea is a good investment.And not every investment will increase in value by 10 times let alone by 1,000 times. But, sometimes, simple logic and harsh facts should allow us to make simple investment decisions. Do I expect the price of a samosa to fall to Rs. 1 ? Do I expect the price of Bombay property to fall to Rs. 200 per square foot? Or do I expect gold to start climbing and get closer to the equivalent price of a samosa and the price of Bombay property?

Inflation and uncertainty require insurance. Gold is an insurance against absurd government policies - worldwide. I own gold. Do invest more in gold but mainly through ETF's (Exchange Traded Funds) as they dont have the drawbacks of investing in physical gold like making charges and impurity charges which reduces the quantum of gold u get to purchase with ur investible funds. Also if we compare the movement of gold prices over the last 27 years, one factor that clearly comes out is that gold prices are clearly bearish during the first half of the year and they pick up steam over the second half (from june onwards)..therefore the best phase to buy gold would be the current first half from Jan- June 2008. The crash in gold prices have already commenced. Place your bulk orders now on NSE through Benchmark Gold ETF that is traded on the NSE just like any other scrip. Buy on a staggered basis until june and hold ur investments for the long term.