'Richer India, China must invest in farms'

Written by Reuters | New Delhi, October 29: | Updated: Oct 29 2007, 21:30pm hrs
Rapidly expanding India and China need to invest heavily to improve farm productivity as both face a number of food challenges due to rising affluence, a report said.

The JP Morgan hands-on China series report says both countries face supply and demand issues that put them at risk of food price volatility.

"Food inflation has accelerated in recent years, as a result of growing demand for grain -- which is compounded by periodic supply shocks due to natural disaster and planning problems," according to the report.

"Both countries will need to invest heavily to improve agricultural productivity."

China's annual growth eased slightly in the third quarter to 11.5 percent and annual consumer price inflation in September slowed to 6.2 percent, not far from a decade high of 6.5 percent in August, official figures showed.

The Indian economy has grown at an average 8.6 percent in the past four years and annual inflation hit a two-year high at 6.69 percent in January.

But since then India's inflation has eased to a five-year low of 3.07 percent but pressure on food prices remains.

The JP Morgan report says there has been a shift in diet from starchy foods to animal-based protein as people have become richer in both China and India.

China's urban population -- which is growing by some 15 to 20 million people a year -- consumes three times more meat than the rural population, raising demand for commodities such as soy and corn, it said.

"The same dynamic is taking place in India -- there has been a substantial growth in the consumption of dairy products, eggs and poultry -- but this is somewhat less pronounced," the report said.

It says soaring demand for agricultural commodities from China and India will make both countries prominent players in the global commodities markets.

"If India improved its agricultural productivity, it might find China could prove to be one of its largest customers," the report said.

Farm growth has averaged just 2 percent over the past five years in India, far short of services and manufacturing, which averaged over 8 percent.

The sector has not kept pace with the economic rise of India as government reforms that started in the 1990s focused on the development of manufacturing and services.