FOOD INFLATION REGISTERS RECORD RISE

KANWAL SALEEM
(feedback@pgeconomist.com)
Sep 12 - 18, 20
11

Food inflation in Pakistan has witnessed a record rise, triggering prices of essential daily food items including rice, sugar, cooking oil, milk, pulses, poultry, meat, tea etc., to high levels.

Following withdrawal of subsidies and a continued record surge in the prices of petrol, diesel, gas and electricity, food inflation has touched its highest ever mark in Pakistan.

During the last week of July, inflation reached 18 percent mark which is the highest amongst South Asian countries. The price of tomatoes compared to last year has more than doubled and petrol prices went up 30 percent.

During the holy month of Ramadan, the government subsidized some food items such as wheat flour, ghee, and rice, but after Eid the prices of essential items moved up causing more troubles for common persons.

Currently, there is no sign for the situation getting any better, with announcements for price hikes in gas, electricity, petrol, diesel, and food items. Both food and non-food groups of CPI contributed to this increase.

The UN World Food Program (WFP) estimates that the number of food-insecure people has increased from 60 million in 2007 to more than 90 million in 2010.

Pakistan is one of 16 countries that will benefit from WPF project launched for food-insecure people in response to rising food and fuel prices.

Flash flooding and a decade long war on terror witnessed a sharp surge in terrorist activities that compounded food problems to disproportional intensity. One result of these recurrent natural and man-made crises has been a sharp decline in food security across the country, despite sufficient national food production to meet the needs of Pakistanís population.

By 2009, almost 50 per cent of the population, or 83 million people, faced food insecurity, up from 38 per cent in 2003. In the aftermath of the floods, it is believed that this figure may yet have risen to 90 million.

Disparities in socioeconomic indicators between rural and urban populations have continued to widen, and progress in narrowing the gender gap remains limited.

Women face considerable difficulties in finding employment and accessing educational opportunities, particularly in areas where insecurity hinders mobility. The gravity of the problem dictates that the government of Pakistan must take some immediate steps to arrest growing food inflation.

First of all, it has to reduce its expenses both on federal and provincial levels. Secondly, we need to revisit our taxation system and revamp the existing mechanism of direct and indirect taxes. A capital gain tax must be imposed on wealthy families and individuals who have a long history of tax evasion.

Many reasons are contributing to rising food inflation and every factor deserves immediate attention.

Take for instance the depth of the energy crisis, which has overshadowed all other problems. If we are able to address the energy crisis, new opportunities in the industrial sector will offer jobs to millions in the unemployed workforce. Similarly, we have to increase food production by strengthening our agriculture sector that has an untapped potential to feed the whole nation. Moreover, the monopoly control system should work accurately to discourage cartels made by the sugar, cement, fertilizers, LPG, poultry and many others.

According to the surveys, 70 per cent price hikes are the result of the governmentís poor price control system. Government bodies have failed to disband the notorious elements behind hoarding and profiteering of basic commodities.

"One of the basic reasons is high input cost but another thing is that the government should take measures to control this high cost of inflation," experts said.

Pakistan is one of the largest producers of wheat, rice, milk, cotton and other commodities. But, the United Nations has ranked it among seven countries around the world where two-third of the people live in hunger.

Economists believe that the governmentís inefficient polices are responsible for soaring food inflation. "What we have seen over the last three or four years is wrong sort of pricing policies in the market ensuring that sometimes Pakistanís wheat price is fixed below the international prices, leading to smuggling of commodity outside the country," they said.

They added that the government has borrowed close to Rs400 billion (over US$470 million) for commodity related operations for buying cotton, wheat, sugar, all other commodities.

It is coming at a very high cost because in some cases the government buys these commodities at above market prices. Interest rates are also at record high levels. Experts apprehend another inflation-tsunami to hit the country when the rupee is further devalued in the near future.

They were of the view that the surge in oil prices would badly affect the industry because the cost of doing business would shoot up, which also hamper the countryís exports.

It may be noted that Pakistanís annual inflation went up by 13.92 per cent in the fiscal year 2010-11. The government has projected an inflation target of 12 per cent for 2011-12 amid reports of constant tight monetary policy for achieving it. Last year, too, inflation target was projected at 9.5 per cent but ended up with 13.92 per cent showing the government failure in keeping inflation within the target for the past three years.

Pakistan has witnessed double-digit inflation for the past five consecutive years, which according to some officials, could mean that 40 per cent of the population was pushed below the poverty line during these years. However, this claim was not supported by any research study or official data. But, contrary to this, a finance ministry report admitted that rise in the inflation hurts the poor more as their 50 per cent expenditures go to food. The main contributor, statistics show, was the food inflation during the year, which went up by 17.95 per cent in 2010-11 over the last year.

In terms of percentage, Pakistan has 40.34 per cent of food weight in CPI, suggesting that any change in price of food items, especially vegetables, dragged the overall inflation up.

Main products, which witnessed increase in the whole year, include moong pulse (76.57 pc), tomatoes (59.38 pc), spices (43.14 pc), onions (36.61 pc), vegetables (31.58 pc), gram pulse (30.86 pc), jewellery (29.68 pc), besan (29.63 pc), vegetable ghee (28.49 pc), mash pulse (27.53 pc), sugar (26.89 pc), honey (26.71 pc), meat (26.68 pc), and cooking oil (21.38 pc).

The central bank has kept its discount rate at 14 per cent in the past few months without any upward increase in it. As a result, this has led to partial increase in the non-food and non-energy core inflation, which rose to 10.4 per cent in June from 10.2 per cent in May.

The house index rent rose by 7.29 pc, medical care cost by 15.06 pc and transportation fare by 14.38 pc over the previous year.

The continued government borrowing from the central bank, which witnessed more than 74 per cent increase and totaled at Rs685.3 billion during the year 2011.

The impact of imported inflation was also very high during the outgoing fiscal year, especially due to import of essential food items like sugar, edible oil, pulses and tea.

The rise in the price in international market and massive depreciation of rupee further led to increase in the price of these commodities in the domestic market.