The Uproar Over Bush's Comments

Today's paper reported President Bush commenting on Indian food consumption as a cause for the growth in international prices. Here is what the Hindu reported.

At an interactive session on economy in Missouri, Mr. Bush argued that there were many factors for the present crisis, only one of which was investment in biofuels such as ethanol.

"Worldwide there is increasing demand. There turns out to be prosperity in developing world, which is good. It’s going to be good for you because you’ll be selling products in the countries, you know, big countries perhaps, and it’s hard to sell products to countries that aren’t prosperous. In other words, the more prosperous the world is, the more opportunity there is", he said.

"It also, however, increases demand … There are 350 million people in India who are classified as middle class. That’s bigger than America. Their middle class is larger than our entire population. And when you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up", he said.

I see nothing objectionable here but for some reason that I do not comprehend, apparently, all political parties in India have gone ballistic about it. Several comments as reported are chronicled below.

Jairam Ramesh: It shows how wrong President Bush is in his understanding of economics — first he blamed India and China for spiralling oil prices and now he is blaming India for increased food prices. There should be limit to this kind of talk.

Prakash Karat: This is adding insult to injury. Mr. Bush is covering up the U.S. policy of subsidising and promoting bio-fuel out of crops like corn — the major reason for the shortages and spurt in food prices.

D.Raja: Ridiculous and smacking of an imperialist mindset. Probably Mr. Bush does not know about a vast majority of our people who do not even get enough food.

Congress (no name mentioned): how could anyone blame poor India for eating better and causing shortages when in fact it was a net exporter of food and self-sufficient for several decades?

Prakash Javadekar: [These remarks are] irrelevant. This is similar to Ministers blaming global prices for inflation in India, which is not dependent on imported food. The global population has not doubled overnight and it is the business of planners in India and the world to ensure that food supply remains secure. Perhaps Mr. Bush has his eye on his domestic constituents in an election year and [at] a time when the U.S. economy has slowed down.

M.A.Naqvi: The remarks are “unwarranted” since the majority of Indians need more nutrition not less.

Shakeel Ahmed: The U.S. is perhaps agitated that India has banned exports of some food items to check domestic inflation and ensure adequate supply.

Manish Tewari: Since the 70s India has been self-sufficient in food grains. The view that global food shortage is a result of enhanced consumption is erroneous.

Reading his comments, I certainly do not get the impression Bush is blaming anyone for the price rise. He is simply articulating the causes for it as facts. Are Indian leaders so hypersensitive that they take umbrage at even the most innocuous of comments? Or are they unable to distinguish between the two?

Contrary to Karat's claim, Bush did not say that diversion of foodgrains towards biofuel production is not a cause. As for the validity of the President's comments, read this post by Posner and this one by Gary Becker, two prominent economists at the University of Chicago (the latter is also a Nobel Laureate). Becker highlights how the price rise came about without a population growth and how the World Bank's index of food prices increased by 140 percent from January 2002 to the beginning of 2008, and a full 75 percent just since September 2006 - this phenomenon has been several years in the making and is not a sudden 2008-summer occurence both of which contradict Javadekar's implied notion of it happening overnight. As for whether rising incomes are responsible, here is what he says:

...[Rise in food prices] is only a little related to the rapid expansion in world incomes in recent years. Rather, the boom in petroleum prices and subsidies to ethanol and other biofuels are the most important forces explaining the recent increase in food prices.

...The Malthusian forces of population and income growth ontributed only a little to explaining the big increase in grain prices since 2002. The large rise of world food prices came after food prices had been either stable or declined for many years. Although incomes in China and India, countries that account for almost 40 percent of the world's population, did grow rapidly during this decade as well as during the 1990's, global consumption of corn, wheat, and rice grew more slowly since 2000 than during the five years earlier. To be sure, the slower growth in consumption is partly the result of the rapid increase in grain prices. However, if an unusually large increase in world wide demand for grains to use as feed for animals and for human consumption explained the rapid increase in these prices, consumption should have grown more rapidly during the later period, even after adjusting for any induced increase in grain prices.

Here is what Posner says:

The demand for agricultural products has grown, though not as a result of population growth; instead as a result of increased demand for ethanol and other biofuels, and for food that requires more agricultural acreage to produce. Today, besides people and pigs eating corn, our motor vehicles "eat" corn that has been converted into ethanol. And in China and India, which together contain a third of the world's population, increased wealth has led to an increased demand for meat, in China for beef. Cattle eat corn and other crops and are in turn eaten, but the amount of crops consumed in this process is several times greater than the amount that would be consumed if people ate the crops directly, rather than indirectly by eating vegetarian farm animals. China's consumption of beef, which has been growing rapidly for a number of years, is expected to grow 4 percent this year - yet it will still be only about 15 percent of U.S. beef consumption per capita.

It may be that the rising grain prices reflect in some measure greater meat consumption. While I find Becker's view that consumption trends do not justify the theory of higher incomes being responsible persuasive (that echoes the views of Indian leaders as well), the issue, at the very least, is debatable. The President's comments are plausible even if incorrect and and certainly not preposterous or even otherwise outside the realm of possibility. The political storm is therefore unwarranted.