FOOD SECURITY AND FOOD INFLATION
SHAMSUL GHANI firstname.lastname@example.org
Nov 30 - Dec 06, 2009
The global food crisis of 2007 and 2008 in the wake of high oil prices had exposed developing economies to food insecurity. Cash-rich developed economies used sound financial position to their advantage by stockpiling food items. Besides, the sovereign hedge funds added fuel to the fire by entering the food market making in turn the lives of weaker, food deficient nations extremely difficult. This gave momentum to the inflationary forces. China's inflation hit the 12-year high level of 8.7 per cent in February 2008. In order to control its domestic inflation, China decided to build sizeable reserves of soya oil, soya bean, and palm oil. India, who had managed to keep its inflation under 4 per cent during last so many years, was seen staring at a record high rate of 7.4 per cent. It had to take some hurriedly planned measures like slapping of export ban on non-basmati rice and pulses, huge cut in import duties on food items etc.
Besides India, Vietnam and Indonesia also clamped ban on rice export to control food inflation by improving domestic supply position. The world financial organizations sounded the alarm bells to warn of an impending food crisis. They substantially increased the credit and grant allocations for the poor African, Latin American and Asian countries to enable them to improve their food situation.
The increasing demand from China and India triggered by their huge size of population, kept the world food markets going with prices maintaining their upward course. The world food reserves were touching an alarmingly low mark. Who could have imagined that the economy of the modern world would be so drastically changed within a short period of time when the prices of food items would be raised by 130 percent? The reasons given by the analysts were varied: population growth, limited arable land, dearth of irrigation water, reduced soil fertility, primitive farming methods and use of low quality seeds by the developing nations, skyrocketing energy prices, alternate use of maize and beans for bio-fuel, changing climate, global warming etc. These factors, no doubt, had their bearing on the situation, but none of them could have changed the scenario so drastically. Speculative commodity trading backed by huge sovereign / hedge funds was at the back of that unprecedented food crisis.
The infirmities and inadequacies of the modern days' financial system came to the rescue of the humankind. With all the rage and fury of a tsunami, the global financial meltdown swept away a number of global financial giants. The sovereign and hedge funds were no exception. The overheated oil and commodity markets tumbled. The developing economies got a respite as far as food situation was concerned. Global food prices came down to manageable limits. This served as a lesson to the developed economies, which had a chance to size-up the devastating force of a mega food crisis. The July 2009 summit of G8 forced them to show their fear of an impending threat of global hunger. The developed economies attending the summit pledged $20 billion for world agriculture.
The estimated number of food insecure people throughout the world is around one billion. Can we make them food secure by just allocating $20 per person? The issue is not that simple.
Agricultural output is the product of a number of factors: population, arable land, water resources, level of advancement of the economy, education, political and economic stability and a strong financial position. The uneven concentration of population and the distribution of land and water resources are the basic problems. China houses 20 percent of the world population but possesses only 10 per cent of the world's arable land and only 6 percent of the world irrigation water resources. Thanks to its technological advancement and a strong financial position, it manages to feed its entire population via purchase from world food markets. But, in doing so, China will definitely put pressure on region's weaker economies who would find themselves trapped in food inflation quagmire. China, South Korea and cash-rich GCC countries have taken to the outsourcing option to achieve food security. So far so good. But, what about the weaker economies which don't have such options?
When we talk of food security, we are talking with reference to the entire world. Rich economies can somehow manage to be food secure but what about the resource deficit economies - shall they have to survive under some international doles?
It was just last year when amidst the severe food crisis, social unrest and street violence had started raising their ugly heads in countries like Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar Philippines and Indonesia. The hardest hit were the poor nations where 75 per cent of household income is earmarked for food against an average of 15 per cent in case of developed nations. In US, only 10 per cent of the income is spent on food. In case of Pakistan, food expenses are as high as 41 per cent. Food inflation in Pakistan has not subsided in line with the global food prices deceleration. Wheat flour and sugar prices keep rising here unabatedly. Cartelization of these commodities has played havoc with the lives of those subsisting on or below the poverty line. The ongoing food inflation in Pakistan has added another 17 million people to the already 60 million who are faced by severe food insecurity threat.
Pakistan is fortunately one of those countries who have a reasonably strong natural resource base. Together with a huge irrigation canal system, we have had ample water resources but could not harness them to develop agriculture. The complacency has marked us as a water-stressed country of present times. We should have introduced effective land reforms at the outset. According to a World Bank economist, Pakistan does not have much agriculture land to bring under cultivation. If it is true, then how the recent farmland selling to other countries can be justified? The government does not seem interested in tackling this highly sensitive issue of food security.
Our agriculture sector is left to be guided by the forces of nature. Our GDP for FY-09 could well have been negative, had the Mother Nature not smiled at us. According to the State Bank's annual report 2009, major crops output rose by 7.7 percent against the 4.5 per cent target. Livestock also rose by 3.7 percent against a target of 3.2 per cent. Extended monsoon / winter rains, and no major incidence of virus attacks contributed to the high agro yield. But, the vagaries of nature never follow a set pattern.