FOOD INFLATION: GREED & MISMANAGEMENT

SHAMSUL GHANI
(feedback@pgeconomist.com)

Sep 19 - 25, 2011

While rupee kept sliding during the last three years, our monetary policy reliance on bookish approach to control inflation failed to produce desired results. Consumer economics seem trapped in a vicious circle. A weak rupee pushing commodity prices upward, while high interest rate increasing the cost of doing business to send prices further up.

The sum effect is that the poor consumers find themselves in an inflationary vortex that is sucking in whatever monetary resources this poor lot owns. The State Bank policies during the last three years or so have neither been able to check the free fall of rupee, nor they have been effective in controlling inflation. Anyway, State Bank held the dubious distinction of keeping the highest interest and inflation rates in the region. The recent change in SBP stance, after the change of the Governor, gives some hope of economic rejuvenation. Circumstantial factors have also added a lot to the misery of poor consumers. The flood factor has played havoc once (with the prices of commodities) and is in the process of making a comeback, hopefully not a vicious one this time.

INDICES COMPARISON MONTHLY & ANNUAL

INDEX MONTH OF JULY 2011 AS COMPARED TO PREVIOUS YEAR MONTH OF JULY 2011 AS COMPARED TO PREVIOUS MONTH JUNE
FY-11 FY-10 FY-09 FY-11 FY-10 FY-09
CPI 13.77 12.34 11.17 1.80 1.23 1.54
SPI 17.34 13.90 9.74 2.22 1.85 2.78
WPI 21.13 18.75 0.50 (0.64) 1.67 0.70

During flood periods communication is totally or partially broken and food item prices keep on rising in accordance with the supply situation as well as the appetite of market forces for profits.

In the absence of any effective price control mechanism and administrative monitoring, the prices of vegetables usually soar unbelievably.

Low-income consumers, being a disarrayed and totally ineffective force, witness the high-flying prices from the ground as the limited supply finds its way to the kitchens of the affluent and large income groups. Tomato, potato, onion, garlic, and chilies are the basic vegetables/condiments that form part of a wide range of dishes.

Their inevitability to the Pakistani cuisine makes them dearer at the slightest pretext. Perishable food items get the worst hit during food price hikes. On month-to-month basis, perishable food index rose by 12.55 percent in July 2011 in comparison to non-perishable food items, which recorded an increase of 1.89 percent.

This shows how disorganized and uneducated is our consumer culture. Instead of forcing the hoarders to sell perishable lots at buyers' prices, they queue up to eliminate hoarders' risk of holding perishable stock. We surely need strong pressure groups in the form of consumer societies guided by sincere and educated people to act as an effective market force that decides for the common consumer what to buy and at what price.

Such societies may develop a matrix of product substitutes from the available indigenous product mix and guide the consumers to shift from one product to another when the prices of a certain product are being unscrupulously worked up.

CONSUMER PRICE INDEX (GENERAL & FOOD) BASE YEAR 2000-01

GROUP GROUP WEIGHT % INDICES CHANGE IN JUL-11 OVER
Jul -11 Jul-10 Jul-09 Jun-11 Jul-10
General 100 259.15 254.57 227.79 1.80 13.77
Food & Bev 40.34 303.58 294.29 258.19 3.16 17.58
- Non-perishable 35.20 302.63 297.02 257.22 1.89 17.65
-Perishable 5.14 310.15 275.55 264.76 12.55 17.14

Our agriculture is a feudal property and is, therefore, infected with the diseases of corruption, mismanagement and exploitation. A few years back, a report concluded that:

1. Ours is an imperfect marketing system.
2. High marketing margins result in higher food prices.
3. Government has failed to play its role in correcting the marketing imperfections.

The production and marketing systems of our agriculture and horticulture sectors are defective per se. Until and unless we correct these systems, we cannot expect to attain food security goals.

According to FAO, "Food security exists when all people, at all times, have physical and economic access to sufficient, safe, and nutritious food to meet their dietary needs and food preferences for an active and healthy life".

Amongst a number of economic approaches to improve food security, the 'Food Justice' approach is more relevant in our case. This view assumes that the world agriculture produces and has potential to produce quantities of food that can feed the entire world population irrespective of any economic constraints or social biases and inequalities.

It further assumes that food is a basic human right and that food crises are created not by the food shortage but by the exploitative attitudes. This idealistic approach is chiefly advocated by the world NGOs. But, unfortunately, this approach is impracticable at least for the time this country is ruled by the feudalists and anti-masses elite groups who are averse to the idea of justice.