FOOD PRICE HIKE
A MAJOR CONCERN
SHAMIM AHMED RIZVI
Jan 07 - 13, 2008
The outgoing year of 2007 would certainly go down in the economic history of Pakistan as worst for the common person because of the unprecedented hike in the food prices. Food inflation was soared by over 12 percent during the year as the prices remained uncontrollable despite all rhetoric and claims of concerned authorities.
According to Federal Board of Statistics data prices of essential items - cooking oil, wheat flour, tomato, milk, and fruit-registered an increase in a big way to raise food inflation by over 12 percent in November, compared to the corresponding month last year.
Despite achieving impressive growth rate of 7 percent and being the fastest growing and emerging economy in the region, the consumers in the country have been experiencing the highest-ever rate of food inflation for the last one year due to the sudden increase in the essential commodities by large amounts in 2007. The growing rate of inflation would put further pressure on the economy and may prove a threat to macro-economic stability during the coming year. The latest episode of artificial crisis of wheat and rice also triggered the consumer price hike over the last 3 months.
During the entire year of 2007, there was a continuous increase in the average price of food items such as wheat, flour, rice, milk (including powdered and packed) vegetable ghee, cooking oil, compared to the last corresponding year. The prices of better quality flour in the country have increased up to 26 rupees / kg this year (from 18-20 rupees/kg in last year) while rice (old basmati) prices surged to 60 to 75 rupees / kg from last year's maximum rate of Rs 40-50, while new basmati rice is being sold around 60 rupees this year in Karachi, that was available at 35-40 rupees / kg last year which recorded an increase of 20 rupees / kg.
Similarly, the prices of cooking oil of different popular brands also were hiked by 30 rupees per liter as these brands are being sold at 112 to 116 rupees currently while during past year it was available at Rs 86 / liter. The same has happened with the prices of fresh and packed dairy milk which increased to 34 rupees / kg and 46 rupees / kg respectively this year from 25 and 28 rupees last year. The prices of eggs also surged significantly this year.
More disturbing is the fact that price pressure continues to mount despite the SBP's efforts to curtail it. Major reason being that the overall price index of the food group, which constitutes 40% of the overall CPI, surged by 15% in October and again observed a double digital growth of 12% in November this year, although lower than previous month. On the other hand core inflation (which is essentially non-food and non-energy components) depicted a relatively more stable trend.
There is no doubt that the food inflation has come to be regarded as a global phenomenon; more so from its spread in free economies where fluctuations in prices depend on the interplay of market forces of supply and demand. Typically, in Pakistan, behavior of prices, abrupt increase in the open market in particular, has remained a riddle. Many factors have been identified as its causes. For one, it has been attributed to increasing prosperity of people, resulting in more money in the hands of people, thereby enabling them to chase costlier goods for their satisfaction. To justify this approach reference is too often made to widespread use of cell phones, which have witnessed tremendous popularity not only in large cities and business centers but also in far flung villages yet to be turned to electrification and frequently promised farm-to-market roads.
As against this, eminent economists and experts whose views reflect the common man's perceptions have feared worst to happen in days to come. Some of them see it in evil foreboding in soaring wheat prices, deepening with unchecked smuggling of wheat to Afghanistan. No wonder most of them including the groups worst affected by rising incidence of prices view it as dangerous for the poor and calling for earnest efforts to contain food inflation.
An eminent economist and the former Finance Minister, Sartaj Aziz, while commenting on the subject in a TV talk show said that non-food inflation has been part and parcel of the development model pursued in Pakistan relying on consumerism and were supposed to be set at 8 percent per annum, triggered the food inflation. However what was sheer mismanagement, Sartaj opined, was in the case of wheat crop. He pointed out that right from the beginning the wheat crop estimates were faulty. That was followed by export decision and the international factors stepped in to further aggravate the situation. He said with the Pakistani wheat got cheaper in the regional market, the situation encouraged smuggling. The real price of flour has been conveniently readjusted to Rs 24 per kg witnessing three times increase during the last eight years when a kilo of flour cost only Rs 8. He concluded that with the development model linked nonfood inflation remaining at 8 percent the food inflation crossed the 14 per cent mark in real terms.
It is pertinent to note here that all standard inflation measuring statistical tools like Sensitive Price Indicator, Consumer Price Indicator and Wholesale Price Indicator have at least 50 per cent weight age derived from the food items. Due to that factor any inflationary pressure in the food group is readily reflected in the government own measuring tools.
The inflation in the food sector was caused among other factors by what has been termed the mismanagement of agriculture sector by policy planners. Farmer organizations do not mince words to say that the step-motherly attitude of the government has been responsible for perpetual increase in prices of flour, many of the major vegetables and also of meat sources.
In the context of flour price and supply issue people at the helm of affairs did not mince words to say that until the wheat supply dichotomies among provinces are not settled flour crisis would remain in place. One official argued that when all the other provinces get less wheat, it was natural that they depended upon the Punjab resource to satisfy their needs.
The other bothersome domestic budget item for the common man was the edible oil. The one kg bag which was selling at Rs 75 at the start of the year has ended up at Rs 112 per kg at the close of the year. Though the industry laments continued inflation in the international market specially the palm oil which is mostly used in production of edible oil in Pakistan,
Another area where the middle income groups felt the inflationary heat was the dried milk sector that again reflected in international inflationary factors. Here it is worthy to note that despite all claims that "pure milk" from the farm gets the dairy industry going; the dried milk still accounts for a major input into the product and the milk packaging industry "dutifully" passes on all shocks to end consumers. The factual position also belied the policymakers' claims that the local dairy market was not exposed to the international pressure; while in actual sense it was so.
Neglected farming practices especially in the case of tomato caused its prices to shoot as much as Rs 80 per kg. The complete neglect of agriculture sector coupled with apathy on part of the government added up to make the genie of food inflation got out of control.
On Tuesday last Daily Dawn published a survey conducted by its reporting staff showing the fluctuation in the Prices of 40 items of daily use between first January 2007 and 2008. The chart is reproduced below which would give a fair idea to our readers of the magnitude of food inflation during year 2007.
Here is chart of 40 selected item's prices on January 01, 2007 as compared to January 01, 2008. The unit of measurement is one kg except where otherwise explained.
JANUARY 1, 2007
JANUARY 1, 2008
Wheat Flour (Atta No. 2.5)
Atta Fine Mill
Asharfi Fine 10kg bag
Ghee 16kg tin
Cooking Oil Dalda 2.5kg tin
Dalda 2.5 ltr tin
Vegetable Ghee (Loose)
Cooking Oil 5 ltr Dalda
Cooking Oil (Loose)
Tea Packet (Brooke Bond Supreme 250 gms)
Red Chillies (Whole Dandicut)
Red Chillies (Powder National 400 gms)
Beef (with bones)
Beef (without bones)
Egg (per dozen)
Milk fresh (per liter)
Milk Powder (Nido 1kg)
Garlic Powder (National 60gm)
Coriander Powder (National 400gm)
Turmeric Powder National 100gm)
Every Day Tea whitener (1000gm)
Tapal Danedar (200gm)
Lipton Yellow Label (200gm)
Tetra Milk (Mil Pak, Olper etc)