REASONS OF FOOD PRICE HIKE

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Nov 30 - Dec 06, 2009

There are numerous reasons of increase in prices of foods. When high food inflation is not because of international spillovers of upward costs of inputs or any other apparently uncontrollable interventions, bad governance, fiscal mismanagement, and hoardings and smugglings are even though in full swing to trigger food price hike in the country.

It is worthwhile to note that frequently growers express dissatisfaction over support price they are paid for sale of crops. Sometimes, they are compelled to run from pillar to post to be paid. This induces in them alienation about investment for increasing cultivation area rather some decide on rollback. "It is my third visit to the city to receive payments for the crop procured by the mills, last two failed in making my longstanding dues cleared," told an enterprising grower of sugarcane to this scribe while he was on his way on bus from Hyderabad to Karachi, corporate hub of Sindh. "Also in the last season, the payment delay was the major reason making me to reduce sugarcane cultivation acreage." He said I found it unprofitable to invest in the crop from my own pockets.

His was not the lone case in the province since recently Sindh Abadgar Board in a seminar also echoed this recurrent problem of growers. According to the board, ineffective procurement policy has rendered growers Rs7 billion losses in paddy crop. This may discourage growers to come to participate vigorously in cultivation in Rabi season or of dobari (next) crop.

Credit facility to farmers in Sindh is not in harmony to their contributions in agriculture gross development product. Sindh accounts for almost 24 percent of the total country's agriculture and has only 10 percent of agriculture credit disbursed in the country. Supply constraints may enroot in paucity of funds and low investments for increasing yields.

It is relevant to mention that although food prices are on upward trend in many countries world over, the benefits of high food prices are not passed on to growers, mentioned in a FAO report.

A case for reference can be cited from yarn exports issue in Pakistan, for which there is a demand for ban to extinguish domestic yarn price flare-up. Referring to yarn, an industrialist explains why the price is usually increased so wildly, claiming while growers and ginners increase price by 10 percent spinners push it 40 percent. The unruly price determination formula is apparent elsewhere also. When this does not happen, there appear many other covert ploys of profiteers to increase prices.

The recent countrywide sugar crisis is accelerating because of underutilization of production capacities in sugar mills - that numbered over 80 all over Pakistan - which delayed crushing unduly. Government increased the support price of sugarcane to Rs81 per 40 kilogram from Rs63 per 40 kg last year. Increasing input costs created reluctance of sugar millers to start crushing on time, by start of November. According to an estimate, sugar production in the country of 130 days is sufficient to meet the sugar demand in the country. It is estimated that country's annual sugar production capacity is about 5.6 million tons while actual production is three million tons because of underproduction of sugarcane. Sugar consumption is around 4.35 million tons per annum. During financial 2008-09, over 0.8 million farmers produced over 50 million tons sugarcane from 10,29,000 acres tracts. In Pakistan, per capita sugar consumption is increasing at a substantial rate. It is 9 kg per head in China, 17 kg in India, while it is 23 kg in Pakistan.

Rice price has started to come down because of the high carryover stocks of last year. Besides, rice production in Kharif season 2009-10 was quite good and increased to 6.37 million tons against the production target of 5.94 million tons.

DOLLAR'S INFLUENCE

Explaining aptly what happened to food prices in 2007-08, why did FAO food price index rise to 24 percent in 2008, and why most of the developing economies were pitted to reel under unabated food price inflation, the FAO report on the state of agriculture commodity markets 2009 says the victims of high food prices are commonly the economies that have currencies pegged to or are weaker than the US dollar and depreciation of greenback scales up the cost of food procurement more than 30 countries. Conversely, countries that have local currencies stronger than the US dollar nullify the impact of high food prices largely when the dollar tumbles. Dollar depreciation impact is pronounced for good or bad because of its being global medium of exchange commonly for most of the commodities. Why the soaring food prices did not transfer benefits to agriculture economies or more specifically Pakistan? For some exporting countries, the development could have been beneficial. But, as most of them are net importers of food products, high food prices resulted in balance of payment crisis. A rough calculation reveals that food and agriculture related imports account for 25 percent of total country's imports. For example, Pakistan imported in FY09 $3.5 billion foods and earned only $2.8 billion as export receipts of food group. Alone wheat accounted for approximately one billion dollars imports. Notably, Pakistan is ranked under world's top ten countries for wheat production. In this year, the country imported over $500 million fertilizers and insecticides. Amount spent on other agriculture related products including agricultural machineries and implements are not included. Of $2.8 billion food exports, alone rice exports earned country over $1.8 billion.

Despite bumper production sometimes outweighing country's total demand of rice and sugar, or wheat, the supply is limited because of smuggling of crops. There are reports of sugar being smuggled to Afghanistan from the smuggling-prone Durand line. The smuggling creates shortage of produces that are abundantly produced. Good prices of sugar or sugarcane and other crops prompt smugglers or unscrupulous exporters to channelize the produces across the border. Mis-declaration also eases movement of goods along custom procedures. In one instance, custom officials discovered pulse under export ban from a container recently, misdeclared as metals or any other such product.

ENGRO FOODS LAUNCHES FIRST DAIRY HUB

Engro Foods Limited, in collaboration with Tetra Pak Pakistan, the world's leading food processing and packaging solutions company, has launched Pakistan's first Dairy Hub which is located at Kassowal, in District Sahiwal. The basic objective of this pioneering initiative is to help the farmers in improving productivity and efficiency.

Addressing the function, sarfaraz Rehman, CEO, Engro Foods Limited said that the Dairy Hub is really a ground-breaking initiative that will bring about benefits for all stockholders in the dairy industry in Pakistan. He further said, "Engro strongly believes in its corporate social responsibility and with this initiative, it aims to expand its CSR program by catering to the development of the local communities, by launching programs that could empower the farmers and improve their livelihoods. We are determined to promote milk production in terms of quality and quantity through the development of the livestock business."

Expressing his views on the occasion, Azhar Ali Syed, Managing Director, Tetra Pak Pakistan said that Pakistan's dairy sector is at an important crossroads. Milk demand is growing by 15% while supply has been increasing by only 3-4%. This supply gap is going to increase to 3.6 billion litres by 2015. He said, "To address the challenges in the dairy sector, a viable solution is the establishment of a Dairy Hub. The aim of the program is to improve the productivity of animals in rural areas by providing skills, know-how and related agri-services to dairy farmers"

Dairy Hub - a Community Dairy Development Programme (CDDP) - is a one-heard concept that orgainses and develops small holder farmers' milk production. Dariy hub is one viable solution to meet the growing demands of the dairy industry besides providing agri-services and trainings and help farmers by educating them on animals feeding and diseases. This would lead to improved quality and quantity of raw milk, improved market access, an efficient value chain, enhanced small holder competitiveness, improved livelihoods in subsistence agriculture, increased employment in agriculture and enhanced skills of farmers.

The Dairy Hub CDDP has enlisted the support of several key players in the dairy industry besides the Livestock & Dairy Development Board (LDDB).

The programme kicked off with the development of the Kasowal Dairy Hub in June 2009 in joint collaboration with Engro Foods Ltd. In August plans were underway to establish a Dairy hub in Main channu with the cooperation of nestle Pakistan Ltd. This will be followed by a dairy Hub established in Kasur in collaboration with LDDB. some 6,000 smallholders and dairy farmers will benefit directly or indirectly through these three Dairy hubs leading to increase in productivity of about 90,000 animals.

The Diary hub launch event was also addressed by Saud Pasha, GM, Agri Services, Engro Foods who also presented a video highlighting the salient features of the Dairy Hub. later the Dairy hub was formally launched with cutting of the ribbon by the Chief Guest.