Volatile food prices could cost India $49 billion in GDP

The estimates are here. No, it does not bring good news. As per a new UN report, India stands to lose $49 billion in GDP if food prices double in the future. Volatile food prices due to rising populations will allegedly be a global phenomenon.

Titled ERISC Phase II: How food prices link environmental constraints to sovereign credit risk, the report is a study on how various countries will be affected by a twofold increase in global food commodity prices.

According to the report, China, a dominant player in the world of trade is expected to lose $161 billion in GDP and India could lose $49 billion.

“In the future, the world will likely suffer from higher and more volatile food prices as a result of a growing imbalance between the supply and demand of food. Rising populations and incomes will intensify the demand for food while climate change and resource scarcity will disrupt food production,” an excerpt from the report.

The impact of global food price shock on 110 countries was assessed to identify the countries which are the most vulnerable to the greatest economic risk from this growing imbalance.

India’s predicted GDP loss is equivalent to the current total GDP of Croatia.

Net food trade and the average household spending on food commodities were the main criteria in analysing the risk exposure of individual countries.

Combined high household spending levels on food commodities and high food commodity imports translate into worst effects in terms of GDP reduction for Egypt, Morocco and Philippines. The countries will also have to overcome other related challenges such as worsening of current account balances, and higher inflation.

China, Indonesia and Turkey, a few of the emerging market countries will also have to tackle similar challenges given high household spending levels on food commodities and moderate net imports of these commodities.

South American cash crop exporters such as Paraguay and Uruguay and agricultural powerhouses such as Brazil, Australia, Canada and the United States will apparently witness an increase in GDP.

UNEP Executive Director Achim Steiner said, “Fluctuations in food prices are felt directly by consumers and reverberate throughout national economies. As environmental pressures mount, it is important to anticipate the economic impact of these stresses so that countries and investors can work on mitigating and minimising risk. And as the global population continues to rise, food prices can be a bellwether for how environmental risk translates to economic risk and vulnerability.”

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