Comprehension For SBI PO Set – 42

The current global food situation is very serious and hence we need to understand the reasons for such a dramatic increase in food prices in a short period.

It is argued that increases in energy costs are resulting in cost-push inflation but the contribution of energy costs to overall costs in agriculture may not explain the huge increase in food prices.

Related to the current elevated energy prices, there has been a diversion of corn and edible oils to bio-fuels, which is significantly influenced by policy mandates. Very clearly this diversion to bio-fuels is a policy-induced new reality, which coincided with price escalation in precisely those products and hence is noteworthy.

The financialisation of commodity trade and current extraordinary conditions in global financial markets could have influenced the spurt in prices. The recent reductions in interest rates in the US and the injection of liquidity have resulted in investors seeking new avenues such as commodity markets, in view of the turbulence in financial markets and the low returns in treasuries. The relatively easy liquidity and low interest rates, by themselves, make holding of inventories attractive and thus induce greater volatility in commodity markets. The weakening of the US dollar is also advanced as a reason for the recent volatility in commodity markets, including food items. It is evident that this phenomenon is now also coinciding with the across-the-board rise in food prices.

In brief, while there are demand and supply side pressures on food items, there is considerable merit in the argument that the recent extraordinary increases in food prices are closely linked to public policy responses to high energy costs in advanced economies, and the turbulence in financial markets and financial institutions. It is said that the impact of such policy-induced diversion of food to bio-fuels is significant at this juncture and reflects a preference to fill the fuel tanks of automobiles rather than fill the empty stomachs of people. Similarly, it is sometimes held that the weight accorded to financial stability in public policy may now be at the expense of stability in real sector-especially of sensitive commodities like food. At the same time, there is a general consensus that public policy in regard to food in many economies around the world has not provided adequate incentive to farmers to increase the supply of food and other agricultural products to comfortably match the growing demand over the medium term.

1. The passage lays emphasis on which of the following central theme(s)

(A) The abysmally throwaway prices offered for food commodities

(B) The worldwide acute shortage of food commodities

(C) Promoting the use of bio-fuel for automobiles

(a) A only

(b) B only

(c) C only

(d) All the three

(e) None of these

2. In what way are bio-fuels responsible for the increasing cost of food?

(A) It is a policy mandate to use bio-fuel in place of petroleum products, especially in developing countries.

(B) Certain essential food commodities are being used for manufacturing alternative fuels.

(C) The low cost of bio-fuels has created fluctuation in prices of other agricultural commodities.

(a) A only

(b) B only

(c) C only

(d) A and B only

(e) None of these

3. Which of the following situations has/have prompted investors to look towards commodity markets?

(A) Dip in rates of interest in the US

(B) Easy liquidity

(C) Volatility in commodity prices

(a) A and B only

(b) B and C only

(c) A and C only

(d) All the three

(e) None of these

4. Which of the following shows a cause-effect relationship between its two components?

(a) Reduction in interest rates and abundance of food commodities

(b) Reduction in energy prices and increase in food commodity prices

(c) Turbulence in financial markets and escalation in production of food commodities

(d) Dipping of US dollar value and volatility in commodity markets

(e) Injection of liquidity and the drop in investor confidence

5. Which of the following can be inferred from the contents of the passage?

(A) At present the demand for food items exceeds the supply.

(B) Fuel production has been given higher priority than caring for the millions who are starving.

(C) Farmers have not been motivated to increase their production of food.

(a) A and B only

(b) B and C only

(c) A and C only

(d) None of these

(e) All A, B and C

6. Which of the following can be thought of as a measure to remedy the global situation mentioned in the passage?

(A) Reducing the production of cars and thereby the demand for energy

(B) Inducing farmers to increase their food and other agricultural produce

(C) Increasing the prices of food items to compensate farmers for their losses.

(a) A only

(b) A and B only

(c) B only

(d) B and C only

(e) None of these

7. Which of the following statements is TRUE in the context of the passage?

(a) Commodity markets have become erratic due to easy liquidity and low interest rate.

(b) Governments of many countries have begun paying better prices for food commodities to ensure their farmers are taken care of.

(c) Farmers in developing countries have to compulsorily produce a certain quantity of bio-fuels annually.

(d) The financialisation of commodity trade has resulted in a dip in prices of food products.

(e) The weakening of other currencies against the US dollar has resulted in high fuel prices.

8. Which of the following statements is/are FALSE in the context of the passage?

(A) Unusual conditions in global financial markets have aggravated the food price.

(B) No government would prefer fuelling vehicles to feeding the hungry.
(C) Maintenance of financial stability in public policy will be at the cost of stability in the real sector.

(a) A and B only

(b) B and C only

(c) B only

(d) C only

(e) None of these

9. Which of the following best explains the phrase “this phenomenon” as used in the fourth paragraph of the passage?

(a) Volatility in commodity markets which has led to hoarding

(b) Escalating food prices caused by high interest rates

(c) Easy liquidity because of lack of investment in America

(d) Weakening of the US dollar and consequent variability in commodity markets

(e) Fluctuation in energy price and outdated public policy

Directions (Q. 10-12): Choose the word which is most OPPOSITE in meaning of the word given in bold as used in the passage.


(a) raised

(b) stabilised

(c) inclined

(d) fallen

(e) slanted


(a) agitation

(b) effervescence

(c) optimism

(d) disparity

(e) inactivity


(a) deviant

(b) disagreement

(c) dejection

(d) denial

(e) dissuasion

Directions (Q. 13-15): Choose the word/group of words which is most nearly the SAME in meaning as the word given in bold as used in the passaege.


(a) tranquility

(b) certainty

(c) turmoil

(d) restless

(e) lacklustre


(a) acceleration

(b) surplus

(c) baiting

(d) inspiration

(e) encouragement


(a) put forward

(b) set aside

(c) taken over

(d) marched forward

(e) escalated further

Answer key:

1. (b) 2. (d) 3. (a) 4. (d) 5. (e) 6. (c) 7. (a) 8. (c) 9. (d) 10. (d) 11. (e) 12. (b) 13. (c) 14. (e) 15. (a)