SHIFT IN CONSUMPTION PATTERN TO SECURE FOOD

SHAMSUL GHANI
(feedback@pgeconomist.com)
Sep 12 - 18, 20
11

World food prices, after giving some respite in the second quarter of 2011, have started to show up traditional robustness as the world analysts fine-tune their theme of world food insecurity.

Food pricing has many reasons from rising demand, real or perceived fears of crop failures, and insensitive corporate behavior to overinvestment in trading by speculative funds, the Middle East uprisings and uncalled for US military excursions, and the diminishing global investments in the agro sector.

Following the pattern of recent past, food riots have started to erupt all around the world as food insecurity hits the bottom lines of populations first and most. According to a report, the most affected by these riots is the MENA region-Middle East and North African countries-but their shift to Europe and Sino-Indian region is building up.

The not-very-distant settling down of Libyan dust might send the oil prices further up to be followed by a similar rise in food prices.

A July 2011 Reuters report states: Red-hot food inflation that has vexed policymakers around the world seemed to take a breather last month, when corn and wheat prices tumbled on reports that crop shortages were easing.

The selloff was also driven by global economic worries that prompted funds to exit grains in droves. But, prices are climbing again, and have already made up half of the June's losses.

With grain supplies still tight and worldwide demand growing quickly, food price inflation looks set to remain high and even worsen in the years ahead.

It will likely take years of near-perfect crops to replenish global stockpiles of corn and wheat, the staples of the world food system, and minimize the risk of price hikes.

As the report suggests, wheat and corn occupy the top spots in world food economy. While hostile weather and forced export-ban decisions subject wheat prices to unpredictable fluctuations, the fear of dwindling stockpiles aggravates the market situation further as rich and developed economies tend to keep their grain stockpiles at a maximum.

The hand-to-mouth nations are the ones to take the maximum brunt of rising grain prices. The oil cobra with its viciously raised (and expanded) head has recently entered the grain zone to divert the use of corn from food to ethanol - a substitute for oil. This situation has further increased pressure on food security and an economic 'civil war' between food and energy is in the offing.

The most telling influence on world food economics has been the speculative role of sovereign and hedge funds investors who, taking lead from the intricacies and infirmities of free market capitalism, have played havoc with the world commodity, especially food, markets.

The reversals of 2008 in the wake of financial meltdown during which these forces were duly punished, brought some respite to the world food consumers.

Having nursed their bruises, these forces appear to be ready to have another go at commodity markets. In the United States - the Mecca of free market capitalism - some half-hearted efforts were made to check the onslaught of these forces - one of these efforts being the creation of Commodity Future Trading Commission (CFTC).

Tom Bower writes in his book "OIL - Money, Politics, and Power in the 21st Century": Created by Congress in 1974 to protect market users and the public from fraud, manipulation and abusive practices in the commodities trade, the CFTC initially supervised 13 commodity exchanges with staff recruited from the congress, especially the agricultural committees.

Political favorites, some with limited experience, were appointed commissioners to supervise those monitoring the markets. Relying on the traders' reports submitted to Nymex as its primary tool to identify suspicious price movements, the agency was deprived of adequate funding by the congress, undermining its prestige from the outset.

After 1984, as the trade of contracts tripled and the trade in options multiplied tenfold, the 600 staff struggled with an inadequate computer system and a falling budget to identify market manipulation and excessive speculation in 25 commodities, the value of which was growing towards $5.4 trillion a month.

PAKISTAN'S MAJOR CROPS (AREA '000 HECTARES, PRODUCTION '000 METRIC TONS, COTTON PRODUCTION '000 BALES)

Crops Targets for the year 2010-11 Achievements
2010-11 2009-10 2008-09
Area Production Area Prod. Area Prod. Area Prod.
Wheat 9,045 25,000 8,895 24,214 9,132 23,311 9,046 24,033
Rice 2,710 6,176 2,365 4,823 2,883 6,883 2,963 6,952
Maize (Corn) 1,064 3,536 939 3,341 935 3,262 1,052 3,593
Gram 1,122 623 1,066 525 1,067 562 1,081 741
Bajra (Millet) - - 548 346 476 293 470 296
Jowar - - 221 139 248 154 263 165
Barley - - 83 - 84 71 86 82
Sub Total (Food crops) 13,941 35,335 14117 33,388 14,825 34,536 14,961 35,592
Sugarcane 1.070 53,690 988 55,309 943 49,373 1,029 50,045
Cotton 3,200 14,010 2.689 11,460 3,106 12,914 2,820 11,819
Total Crop Area 18,211   17,794   18,874   18,810  

Fortunately, the Pakistan's food economy is not so complicated. We produce, and are capable of producing enough food to feed the entire population. For this reason alone, we should not have been subjected to food inflation pressure.

Barring circumstantial price hikes, food inflation can be attributed to low per-hectare yield, poor water resource management, unplanned shift in crop mix, lack of economic planning and traditionally fixed food habits.

Owing to a low degree of technological advancement, our agriculture remains dependent on erratic weathers. Generally low rains and in some cases high rains - resulting in flood situation - adversely affect our production to create a supply gap.

But, circumstantial changes in production volume are not very much responsible for sustained food inflation.

Despite a strong water base, we have not been able to benefit from the bounties of nature. Our failure to build dams, purely for political reasons, has landed us in a serious energy crisis which when extended is bound to erode our strong agriculture base.

Our total crop area is in the stagnant zone. In the face of growing population, this situation poses a serious threat to our food security. Improved water resources and proportionate increase in the crop area are immediately needed to avert impending food crisis.

The total crop area is arbitrarily assigned and reassigned to the national crops depending on cash generating capacity of a particular crop in the given circumstances, without any thought to the long-term food security objectives.

In the wake of rising cotton prices, the cotton crop area went up by 19 percent during FY-11. With the cotton prices bubble having burst, the move would now appear na´ve.

No doubt, higher cotton and textile exports bring foreign exchange to support external economy, but external account balance is not to be maintained at the cost of food security. The lack of education and absence of food planning has hardened our food habits.

We produce wheat that, more often than not, is sufficient to satisfy the nation's requirement. On the contrary, we produce rice that is almost three-times the requirement of the nation.

Following a prototype external economy model, we export the entire excessive rice production. And, whatever is left out, finds way into the local market to be sold at prices matching the international market prices. With proper economic planning, national food habits can be altered by selling most of the produced rice in the local market at affordable prices.

With wheat occupying the top slot in the world food system, the local consumption shift from wheat to rice will reduce pressure on wheat and result in higher food security and lower food inflation.