NO RESPITE IN THE OFFING
Oct 11 - 17, 2010
During 2007-08, global food prices had seen unprecedented rise but that was due to the onslaught of speculative forces that were soon punished by the inherent weaknesses of the global financial system. The dust has long settled down and inflationary economies everywhere have transformed into recessionary economies. Rates of inflation all over the world have drastically come down. Pakistan still has the highest rate of inflation in the region.
Pakistan is basically an agro-economy. There is no reason why the prices of wheat, rice, and sugar produced locally in abundance keep rising all the time. We often hear of bumper wheat, rice, and sugarcane crops, then why is the country having around 80 million people on or below the poverty line? This poverty line has fast moved upward. After drowning the lower middle classes and then sucking the middle classes into the vortex, it is slowly but surely moving towards the upper middle classes of this country. It is time for the ruling elite and the opposition to disengage themselves from phony issues and do something real for the masses, not for the sake of the masses but for the sake of the democratic system. The reasons for food inflation in Pakistan are multifarious and multifaceted.
Basic systemic faults: Pakistan's economy is governed by capitalistic economic model based on laissez faire that demands continuous supply of fresh investment in business to survive in a market that has no or few regulations. Interest-based money market, deficit financing, and fiat money system provide this additional investment. Under laissez faire, prices are bound to increase with the passage of time. New economic theories keep on evolving to impart aggressiveness to the system. Currently, the world economy is guided by Miltonian theories-advanced by Milton Friedman who, as a free market economist, is far more aggressive than his predecessor Lord Maynard Keynes as he said that in case of excessive production, the prices should not be allowed to come down through demand and supply mechanism, rather excessive production should be shifted to new markets in the third world countries.
We saw that commodity prices prior to the global financial meltdown were sky rocketing and global hedge funds and sovereign funds were adding fuel to that fire. The global financial meltdown brought the commodity prices down, but that hardly happened in Pakistan. Why?
Circumstantial food price hikes: Owing to a low degree of technological advancement, Pakistan's agriculture remains dependent on erratic weathers. Generally low rains and in some cases high rains-that caused the recent foods - adversely affect production to create a supply gap. This gap results in higher food inflation. But, circumstantial changes in production volume are not very much responsible for sustained food inflation.
VESTED INTERESTS: The feudal fabric of Pakistan's society is one of the basic causes of growing food inflation. The feudal lords manipulate the food situation (and therefore food prices) by shifting weight from one crop to the other, depending on which crop in a particular season is going to pay more. For example, after increase in government wheat procurement price from Rs625 to Rs950 per 40 kg immediately after the present setup assumed power, the wheat production increased at the cost of sugarcane production. The beneficiaries to increase in food procurement prices are always the bulk landholders.
Since democratic system in the country is predominantly feudal, most of the policies are pro-feudal adding fuel to the fire of inflation. There is talk of further increase in the wheat procurement price from Rs950 to Rs1000 per 40 kg.
LOW PER-HECTARE YIELD AND POOR INFRASTRUCTURE
Pakistan's per-hectare yield is one of the lowest in the world. To feed the ever-increasing population, cultivable area must be kept on increasing but limited availability of arable land is a barrier. Poor infrastructure, century-old irrigation system, lack of technological advancement, use of substandard farm inputs, and off and on shortage of water affect agriculture production giving rise to food inflation.
Fixed food habits: The lack of education and absence of food planning has hardened our food habits. Wheat, more often than not, is sufficient to satisfy the nation's requirement. Rice is almost triple the requirement of the nation. Following a proto-type external economy model, the country exports the entire excessive rice production. And whatever is left out finds way into the local market to be sold at prices matching the international market prices. With proper economic planning, national food habits can be changed by selling most of the produced rice in the local market at affordable prices. This will reduce pressure from wheat and result in higher food security and lower food inflation.
Hoarding, Smuggling and Absence of Price Control Mechanism Feudal elites who rule us, in alternation, under the garbs of democracy and dictatorship also control the agriculture of this country. Being the large landholders, they decide what to produce and how much to produce. They manipulate prices through hording, unethical marketing, and distribution tactics. If able to get higher prices, they never hesitate to export out or even smuggle out agriculture produce leaving the national consumers high and dry. They openly resist any price control mechanism. They do everything to take the sting out of the competition commission of Pakistan. The commission, if allowed to work, can act as an effective price control mechanism.
There is also a need to develop consumer pressure groups. These groups can exhort people to change their consumption habits in line with the change in food commodity prices.
SUGARCANE PRODUCTION IN PAKISTAN
YEAR CULTIVATED AREA (HECTARES) SUGARCANE PRODUCTION
2005-06 907 44666 2006-07 1029 54742 2007-08 1241 63920 2008-09 1029 50045 2009-10 (provisional) 943 49373
With production pattern given in the table and with no unusual variance, how can the sugar price pattern of last five years be justified. Sugar price has jumped from Rs25 per kg to the existing Rs80-100 per kg.