Rising food prices in recent years is a universal phenomenon. It is mainly the outcome of poor weather conditions, rising oil prices and the growing trend among food grain producing countries towards a protectionist agriculture policy in general and also to restrict the export of food grains in recent years by surplus wheat producing countries like Ukraine and other former Russian states to eliminate chances of food shortage and to control price levels within the country.
Besides that vast farm areas previously producing wheat, rice and other food grain products in rich and emerging economies have made a shift towards cultivation of crops used for production of bio-fuels. According to the IMF commodity price system data - base report for 2007, the production of corn based ethanol in advanced counties like USA and emerging economies of Latin America, Brazil in particular is said to be consuming almost 15% of the total world corn crop. Similarly supply of sugar cane, palm kernel and rape seed has been affected due to growing utilisation of these crops for producing bio-fuels as a substitute of petrol and its related products. Consequently, food prices continue to surge unabated.
During the period from 2008 till end of 2010, food prices escalated by almost 30% on a global basis, thus pushing a large number of the world's population below the poverty line. It is said that due to the growing food insecurity in South East Asia alone, 64 million people are either on the verge of becoming part of their impoverished population or already have been categorised as poor.
The year 2010 in general has been responsible for a steep rise in food prices due to the unusual bad weather conditions in South Asia, including Pakistan and India, which experienced the most disastrous floods playing havoc with crops, human life and their assets mostly in the rural areas. At the same time, rising cost of fuels impacting energy prices also caused substantial increase in the cost of transport and overall cost of production of value-added, agriculture-based products. Accordingly, these countries are faced with hyper food as well as core inflationary conditions.
Pakistan, where the menace of hoarding and speculative trading is thriving the country continues to record a substantial rise in food as well as core inflation, hence a major chunk of the population suffers from food insecurity. On the other hand, the government's effort to remove artificially created shortages of food items through imports further worsens the trade deficit position.
Forecasts given by various international agencies regarding the continuation of the surge in food prices is valid on the basis of the fast change in the lifestyle of the high and middle-income bracket families of the concerned rich and emerging economies and also of the elite section of society in the low-income economies. Considerable change has been noted in the diet of people. The rich population prefers to eat high protein food, fruits and seafood etc. The consumption of staple grain is gradually declining in such countries as such land under cultivation of food grains is being diverted towards growing animal feed items and also being used as grazing grounds for animals to boost livestock and dairy farming. Thus, due to increase in demand for major food crops from the low-income developing countries food grains exporting countries have comfortably raised the prices causing not only an increased drain of forex reserves of developing countries like Pakistan, but also compelled such countries to make provisions for providing subsidised food to the economically disadvantaged class as part of their social safety nets programme, thus impacting the fiscal position adversely.
In countries like Pakistan, where there is a frequency of natural calamities like floods and drought conditions coupled with unethical practices of hoarding for creating an artificial shortage of food grains, it has become a routine process to make an irrational rise in prices every now and then and making even essential food items inaccessible to a major section of population thus mitigating the chances of their coming out of the poverty line.
In order to control food prices and reducing it to a level where essential food items are within easy reach of the impoverished class, the basic need is to match structural supply to structural demand of these food items by enhancing yield per acre, by providing quality seeds, fertilisers and know-how regarding the use of modern farming technology. At the same time, there is a need to bring additional area under cultivation after reclamation of soil. No doubt, all the provincial governments have plans to bring more lands under cultivation through developing the required infrastructure for land levelling and reclamation. There is a need to bring prices of quality seeds and fertilisers within the reach of farmers having small holdings by monitoring its pricing mechanism and curbing the trend of cartelization of suppliers.
It has been pointed out by research of the experts of the Sindh Agriculture Research Institute Tandojam that growers in Sindh are unaware of ground preparation techniques for collective farming and sometimes they are found using fertilisers far in excess of what is required and above all, they have failed to produce a new variety of crops introduced by the institute. As such, there should be a direct link between the agriculture research laboratories producing and testing high yield agriculture inputs, including seeds etc and farmers of adjoining areas.
However from the long-term perspective, the negative change in climate pattern due to global warming and at the same time increasing demand for food grains particularly in low-income developing countries and growing trend towards reduced acreage under food grain cultivation all over the world, will cause further mismatch between food grains demand and supply particularly in low income countries causing further rise in prices. This will continue to add to the number of poor unless these countries make supply adjustments on a continuous basis to match the structural increase in demand for major agriculture food products.
The low-income developing countries like Pakistan, households spend a higher percentage of their total income on essential food products that makes up a larger portion of the cost of food produced in the country, which is contrary to the rich countries where the cost of labour, transportation and modern marketing strategies add value to food products, which is not in the form of additional calories, but adds to already high price of food items, and is how rich economies govern, the overall global price level of food items adding to the severity of both food and core inflation in the poor countries.
Moreover, generally, ineffective monetary and fiscal policies of low-income economies fail to rectify the situation and accordingly stagnant economic growth and growing poverty is the ultimate outcome. In this regard it is essential that a tight monetary policy to arrest rising inflation must be accompanied by steps to strengthen the social safety nets to protect the impoverished population of these countries. In Pakistan, despite the State Bank of Pakistan consistently implementing a tight monetary policy, inflation is still at a galloping rate, which harming the overall economic growth of the country and has also nullified the impact of the social safety net measures taken to protect the poor. Stagnant growth of all sectors of economy due to reasons stated above and most importantly due to lack of good governance and the poor status of security, both on the borders and within the country, has further added to the misery of poor.
Assuming that a higher growth rate of the economy (of 4.2%) is achieved during the next fiscal year and all macroeconomic indicators are improved, as projected by the economic managers of the country, still one does not see a reduction in food prices in the foreseeable future as projected in the World Economic Outlook of 2008, which says that the world may face increased scarcity of inputs important for food cultivation like additional land, water and energy resources etc, unless countries strive to use the latest technologies on farms for higher yield growth.
In general, poor people all over the world will not have any respite from rising food prices in the foreseeable future and despite the provision of the social safety nets to protect their interests, very few countries could make headway towards this MDG. According to the UNDP's 2010 report on the country's wise status of MDGs, it was revealed that countries who could reduce poverty substantially despite rising food prices internationally, were able to do so by investing in expanding economic opportunities, strengthening legal rights and enhancing the participation of women in the political process and most importantly substantial investment on education and healthcare that enhances access to services to all, especially to women and girls.
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