FOOD INFLATION WITNESSES A RECORD RISE
May 7 - 20, 2012
Food inflation in Pakistan has witnessed a record rise, triggering prices of essential daily food items including rice, cooking oil, milk, pulse masoor, poultry, meat, tea, and wheat 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, taking a giant leap from 30 per cent last year to above the 45 per cent in the current year.
As per the estimates, from 2007-08 to 2011, food prices in Pakistan have increased by 81 percent. Food and Agriculture Organization's (FAO) Food Price Index, which measures international food price inflation, averaged 228 points in 2011. This present index value is 23 percent (42 points) more than in 2010, exceeding the previous high of 200 points in 2008, the highest level since the FAO started measuring international food prices in 1990.
In many developing countries, political organizations are perceived to have a critical role in providing food security. The failure to provide food security undermines the very reason for the existence of the political system. Another major negative impact of rising food prices is the precipitous rise in poverty in Pakistan.
In a recent report, the Asian Development Bank (ADB) calculates that a 20 percent rise in food prices increases the number of the poor by 4.5 percent through pushing an additional seven million people below the $1.25-a-day poverty line in Pakistan.
By this calculation alone, the number of poor people in Pakistan has increased by about 30 million in the last four years.
Pakistani authorities and policymakers need to devise plans for food production and distribution to cope with the impending social unrest. Policymakers must focus on increasing the production of food in Pakistan by removing market imperfections to increase incentives for the small farmers - our key to food security.
The country is the seventh largest producer of wheat in the world. However, our yields are significantly below the world average. Innovative microcredit programmes for small farmers have shown that agriculture production has been negatively affected by the small farmers' inability to access credit for procuring inputs.
Moreover, small famers, in the absence of risk mitigation options like crop insurance, become risk-averse and grow less, as they cannot cope with the high risk of producing extra crops.
In short, the upfront investment for inputs is high, whereas returns are uncertain. To avoid this, small farmers often retreat into subsistence growing or look for alternative livelihoods.
Policymakers must ensure that farmers have access to quality inputs like seeds, fertilizers, tools, training, as well as credit. Priority should also be placed on improving rural infrastructure such as roads, irrigation systems, and storage facilities. In the medium term, Pakistani policymakers must also come up with innovative ways to ensure a more equitable distribution of food.
Rationing of the most basic commodities like flour, sugar, ghee, milk powder, and tea is one such option. If that is not possible then a new food-support programme - that provides food and thus insulates the poor against food inflation - must be instituted for the deserving.
In order to check inflation, the government must bring its fiscal house in order. Reducing unnecessary expenditures - Public Sector Enterprises (PSEs) like Pakistan Steel Mills, Pakistan International Airlines, Railways etc, is now crucial for weaning the government away from inflation-inducing money printing.
Unchecked inflation, especially in food prices, has placed Pakistan on a very dangerous trajectory.
Prices of a majority of edible commodities are likely to remain on the higher side in 2012 due to rising cost of production on account of increases in rates of power, petrol and gas, traders said.
The price of grocery items would remain on the higher side in the year ahead, as the government was rising power and petrol tariffs and other utilities. "Every increase in prices of fuel and utilities take rates of grocery and other essential commodities on the higher side," a trader said.
According to the State Bank of Pakistan's inflation monitor, among 40 largest cities of Pakistan, highest inflation was observed in Larkana during December 2011.
Larkana city observed 16 percent inflation in December 2011 compared with 15.3 percent in November 2011. Analysis showed that both components of inflation, comprising food and non-food, witnessed increase, as food inflation surged to 14.5 percent from 13.8 percent and non-food inflation 16.4 percent in November 2011 to 17 percent in December 2011.
According to SBP, the Consumer Price Index (CPI) inflation on year-on-year basis in federal and provincial capitals of Pakistan was lower than overall inflation observed during December 2011. Among five largest cities, the highest inflation was observed in Karachi, which was 9.1 percent, while the lowest inflation was observed in Quetta which was 7.8 percent, during the period under review.
Among federal and provincial capitals, the inflation in Islamabad, Lahore and Peshawar was 8.3 percent, 8.3 percent and 7.9 percent respectively during December 2011.
In Karachi, food inflation was higher than non-food inflation, and food inflation stood at 9.8 percent, while food inflation stood at 8.6 percent. Sialkot was the cheapest city of the country, where the CPI inflation stood at 5.9 percent with 5.1 percent of food inflation and 6.4 percent of non-food inflation.
Dera Murad Jamali came up with second highest inflation of 12.3 percent with 13.2 percent food and 11.7 percent non-food during December 2011. Bahawalpur was on third number with 12.1 percent CPI inflation.
Nawabshah, Sahiwal, Bahawalnagar, and Mithi observed 12 percent, 11.5 percent, 11.3 percent and 11.2 percent CPI inflation during last month with fourth, fifth, sixth and seventh positions respectively.
Pakistan is one of 16 countries that will benefit from World Population Foundation (WPF) project launched for food-insecure people in response to rising food and fuel prices. 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 constrains 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 luxury expenses both on federal and provincial levels. Secondly, we need to revisit our tax 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 work force. Similarly, we have to increase food production by strengthening our agriculture sector that has an untapped potential to feed the whole nation. Moreover, the government should work accurately to discourage cartels made by the sugar, cement, fertilizers, LPG, poultry and many others.
The Competition Commission of Pakistan (CCP) was established in 2009 to provide a legal framework for creating a business environment based on healthy competition for improving economic efficiency, developing competitiveness, and protecting consumers from anti-competition practices. But, ground realities suggest that culprits are able to get away through the loopholes in our legal system and feeble enforcement mechanism.