IMPACT OF HIGH FUEL PRICES ON FOODS

S.KAMAL HAYDER KAZMI
(feedback@pgeconomist.com)

Research Analyst
, PAGE
Mar
1 - 7, 2010

In many countries high fuel prices are a major driving force behind rising food prices. High fuel prices affect both production input prices and transportation costs. For example, in Pakistan the cost of most commonly used fertilizer has more than doubled over the last year.

The dramatic increase in international food and fuel prices in recent times is a problematic issue for developing countries and the most vulnerable to these price shocks are the poor.

In Pakistan, soaring petroleum prices have contributed to the increase in prices of almost all agricultural crops. The high fuel costs have also led to a doubling of freight rates, contributing to further increases in food import bills. The rising cost of fuel affects the cost of fertilizer and electricity and consequently reflects in the prices of basic food items such as grains and wheat. Increases in food prices are also due to structural weaknesses in the agricultural sector.

Despite being notoriously known as water-deficient, Pakistan has substantial potential for hydroelectric power and irrigation, but inter-provincial disputes prevent exploitation of available hydro resources. Outdated farming methods, price distortions, and problems with water availability and utilization contribute to underdeveloped agriculture sector.

PRICES OF ESSENTIAL ITEMS IN SUCCESSIVE GOVERNMENTS

GOV. LAK KNU GAK ZAB GZH BB NS BB NS GPM YRG
YEARS 1947-51 1951-53 1958-69 1972-77 1977-88 1988-90 1990-93 1993-96 1997-99 1999-2008 2008 TILL DATE
Flour per kg 20 paisa 25 paisa 50 paisa Rs 1 Rs 2.50 Rs 3.25 Rs 4 Rs 6.60 Rs 8 Rs 17 Rs 30.13
Sugar per kg 60 paisa 75 paisa Rs 1.75 Rs 6 Rs 9 Rs10 Rs 13 Rs 21 Rs 21 Rs 30 Rs 69.07
Ghee per kg Rs 2.50 Rs 3 Rs 5 Rs 9 Rs 15 Rs 20 Rs 32 Rs 48 Rs 48 Rs 135 Rs 114.48
Dal per kg 25 paisa 35 paisa Rs 1.50 Rs 2.50 Rs 9 Rs 10 Rs 18 Rs 18 Rs 20 Rs 42 Rs 87.56
Meat per kg Rs 1.25 Rs 1.75 Rs 12 Rs 16 Rs 40 Rs 50 Rs 80 Rs 110 Rs 110 Rs 285 Rs 314.47
Petrol per liter 15 paisa 0.35 paisa Rs 2.75 Rs 3.45 Rs 7.75 Rs 12 Rs 14 Rs 18.55 Rs 27 Rs 62 Rs 72.08
GOV: Government, LAK: Liaqat Ali Khan, KNU: Khuaja Nazim uddin, GAK: Gen Ayub Khan, ZAB: Z.A Bhutto, GZH: Gen Ziaul Haq, BB: Benazir Bhutto, NS: Nawaz Sharif, GPM: Gen. Pervaiz Musharraf, YRG: Yousuf Raza Gilani,

POVERTY

The impact of high food and fuel prices on poverty is severe. The impact of food price increases on poverty levels in Pakistan is substantially greater than the impact of energy price increases. The impact of food price inflation on poverty levels is significantly higher for rural populations as compared to urban populations. Food price inflation can lead to significant increases in poverty levels. Nationwide, a 20% increase in food prices leads to an 8% increase in the poverty headcount.

EDIBLE OIL

There has been an unprecedented increase in the prices of petroleum products in the international market, which has raised the input cost of manufacturers. The price hike is a worldwide phenomenon and caused due to rise in petroleum prices and shortage of edible oil because of its use as alternate fuel. There is an expectation of at least 8 to 10 percent increase in price of edible oil by the mid of 2010 in Pakistan. The edible oil is an essential food item and the government should give it as much importance as it is giving to wheat. The prices of edible oil will be moving up in next two to three years all over the world.

FOOD INDUSTRY

Pakistan's food industry is estimated to grow at 10 per cent per annum. The most rapidly growing items are dairy products fish processed, bakery items, sugar, biscuits and confectioneries, fruit juices and other soft beverages. Fish preparation, fruit preserves, dry fruits, some beverages and sugar, and honey preparation will witness rapid growth in exports. Food products (except rice) do not from a significant proportion of exports from the country and there is a considerable potential for expanding such exports especially to Europe and the Gulf region. Pakistan needs modern technology and research in the field of agriculture.

AVERAGE INDICES JULY-DEC FY10 OVER JULY-DEC FY09 AND FY08 IN %

INDEX 2009-2010 2008-2009 2007-2008
CPI 10.31 24.43 8.01
SPI 9.76 30.96 11.03
WPI 5.25 27.98 10.26

CONCLUSION

Increase in fuel prices worsens standard of living of common people besides increasing costs of production in food and agriculture, transport and industry. The wheat flour, vegetables, and meat are being sold at exorbitant rates and the public transporters have started charging extra on the ground that petroleum prices were increased. The prices of essential food items have double within a year. Foods are going beyond the reach of common person.