INFLATION MAIN CAUSE OF ECONOMIC AILMENTS
The present out-of-control price mechanism would further boost poverty and unrest in society, casting inevitable impact on the country's economic growth.
KHALIL AHMED, Senior Correspondent
Jan 29 - Feb 04, 2007
No one would disagree that soaring food prices are the basic reason behind the abject poverty hitting over 37 million people in our country. Looking at the analysis that one per cent increase in food price inflation increases poverty by 0.5 per cent, one comes to know that the prevalent out-of-control price mechanism would further boost poverty and unrest in society and would leave inevitable impact on the economic growth of our country.
No matter how well the economy performs, in case the authorities prove themselves helpless in controlling the ever-increasing food inflation, the situation would continue deteriorating like present day Zimbabwe where the current inflation rate is over 1,200 per cent. It has been admitted by many that the double-digit growth in food inflation is not likely to come down. The food inflation rose by 11.26 per cent during the first quarter of the current fiscal year and the first half of the current fiscal ended with the food inflation at alarmingly high levels reaching 12.7 per cent. The recent hike in food prices reminds us of the upward trend of food prices reaching 12.5 percent during 2004-05.
Undoubtedly, it is the fact that the world food prices are high and have been rising steadily, the major factor being the demand-supply mechanism. One of the instances is that of milk powder prices which shot up in Europe and pushed up import prices in Pakistan putting unbearable burden on the lower and middle-income strata. The prices of imported palm oil have also increased in the international market pushing prices up in our country as well. Since palm oil, soya bean oil and corn oil are being converted into bio diesel in many countries, the shortage has surfaced. Sources quote that the European Union has decided to devote five per cent of its oil seeds for converting into bio fuel. Though the oil prices have come down to around $53 per barrel, yet the impact of high prices is pervasive everywhere and has become the major reason of high food prices across the globe.
In our country, there are various reasons for the increase in food prices and in this regard concrete measures are to be taken every time to avoid such havoc in future. Some of the common reasons for the high food prices could be high prices in the international market, heavy rains, high oil prices, poor crop during the year, hoarding & profiteering by cartels, at times Ramazan factor, mismanagement, speculation, distribution problem which disturbs the balance of supply & demand and last but not the least huge share of duties and taxes by the government on food items.
It needs to be emphasized that one of the major reasons if not the only reason for the food inflation is poor agriculture output in Pakistan. Economic Survey of Pakistan 2005-06 reads: "Nearly twenty-two per cent of total output (GDP) and 44.8 per cent of total employment is generated in agriculture. It also contributes substantially to Pakistan's exports... 44.8 per cent of country's work force is employed in agriculture, but 65.9 per cent of country's population living in rural areas is directly or indirectly linked with agriculture for their livelihood. Whatever happens to agriculture is bound to affect not only the country's growth performance, but to a large segment of the country's population as well. Over the last five years, growth in agriculture has witnessed a mixed trend.... However, the performance of agriculture during the fiscal year 2005-06 has been weak.... Major corps, accounting for 35.2 per cent of value added in agriculture, registered a decline of 3.6 per cent as production of two of the four major crops, namely cotton and sugarcane has been significantly less than last year for a variety of reasons.... The production of third major crop, namely wheat, remained more or less at last year's level at 21.7 million tons thereby registering a meagre growth of 0.4 per cent. The production of rice -ñ the fourth major crop -ñ has been the sole major crop which registered an impressive growth of 10.4 per cent, but failed to turn the negative growth in major crops to a positive one."
It is beyond the comprehension of a common man that why Pakistan being an agro-based economy is contingent on other countries for food items. Pakistan pays huge amount on import of food items ranging from meat to vegetables. Pakistan imports sugar, fertilizer, onion, milk, pulses, palm oil, meat and there is frequent import of various other food items. Pakistan imports milk powder from Europe, sugar from India, China etc, and onions from China, India, Iran and Afghanistan. Thanks to the recent bumper crop of wheat otherwise instead of announcing export of around 500,000 tonnes, Pakistan would have announced import of wheat also.
Pressure on the monthly budget of the income group earning Rs3,000 to Rs12,000 has mounted over the period of at least a couple of years. Commodities showing double-digit inflation are milk, meat, cold drinks, ice cream, potatoes bananas, wheat, pulses and vegetables. High prices of key kitchens items like potatoes, tomatoes and onions made headlines; onions being the recent sought-after product with soaring prices.
If one could recall, onion price was just Rs 8 per kg before rising to Rs10 in January last year. However, the commodity has attracted the attention of all and sundry particularly from September till present due to high prices reaching Rs40 per kg. Various reasons were given in this regard; one of the reasons being over 80 per cent damage to Sindh crop due to heavy rains. Frequent imports and new arrivals from local sources have brought the price hike down to Rs 24 per kg at present which is still beyond the affordability level of millions in our country. Elections are fast approaching and the present government needs to tackle such issues prudently to win the hearts of the masses. It is to be remembered that the Bharatiya Janata Party of India lost elections in some northern states during last general elections believed to be because of spiraling onion prices in the country.
Some circles believe that food price hike is also attributed to the speculation phenomenon. This could be true as when the government recently allowed export of 500,000 tons of wheat, the prices of wheat products are said to have surged. One of the widely believed reasons for the high food prices is high government taxes. Recent sharp rise in the cooking oil is due to high prices in the international market but the impact could have been reduced drastically had the government thought of not charging or reducing huge share of duties and taxes, which is believed to be around Rs19 per kg. It is to be known that the cooking oil price has been increased to Rs15 per kg recently. One government official was heard saying that government is willing to reduce duty in case the benefit is passed on to the consumers. On the other hand the sellers of the commodity tell a different version. The end result is the suffering of the consumers with low income particularly. It is also said that the role of middleman has brought many difficulties to the price rise phenomenon. It is the duty of the concerned authorities to evaluate the entire supply chain from the grower to the consumer and eliminate inefficiencies and cartels to relieve the end-users of an unending pain. Recently, in Karachi milk and yogurt prices have been slashed by Rs 2 per kg, a praiseworthy step. This has been welcomed by the Karachiites and it is hoped that further such steps would be taken to benefit the citizens.
The concept of weekly Sunday, Tuesday and Friday Bazars in various cities have proved successful, however, at times the consumers do feel that the products sold in such bazaars are substandard with no price differential at times.
Pakistan saw a double-digit inflation at 11 per cent in March and April 2005 when the Consumer Price Index (CPI) rose to 11.1 per cent. In April 2005, food inflation was at 15.7. It is hoped that the citizens will not experience such scenario. Well, it should be expected that inflation will ease off and the target of 6.5 percent general inflation hopefully will be achieved.
Pakistan has recently been urged by the Asian Development Bank to lower its inflation with a view to further improving the country's economy. Rising inflation would damage the economic growth of Pakistan so it is essential to take prudent measures to tackle the situation sooner rather than later. It could be concluded that inflation undoubtedly is a factor for ailments of the economy. Food for thought!