Those who are worried about the surge in domestic food prices are not alone in expressing their concerns. Such a prophecy now seems to be, more or less, universally accepted, with certain remedial measures already on offer to deal with the complicated situation.
According to Jacques Diouf, Director General of the UN's Food and Agricultural Organisation (FAO), "higher prices and volatility will continue in the next years, if we fail to tackle the structural causes of imbalances in the international agricultural system".
The world may be on the verge of another major food crisis, with farm subsidies and tariffs playing a major role in distorting the global supply-demand balance. As the world is heading towards a food crisis that could threaten political stability, rules are necessary to curb speculation in surging commodity prices. In particular, new transparent measures are needed to regulate the futures markets.
At the start of France's stewardship of the Group of 20 (G20), French President Nicolas Sarkozy was equally disturbed. Talking about the volatile and rising food prices, he remarked that "if we don't do anything, we run the risk of food riots in the poorest countries and a very unfavourable affect on global economic growth" and posed the question that "the day there are riots, which country at the G20 table will say this does not concern them?"
Not content with just highlighting the problem, Sarkozy also made certain proposals to tackle the issue of Worldwide shortage of food items and their rising prices. His suggestions included the creation of a data base for collecting information on world agricultural production, consumption and stocks, international collaboration to avoid sudden and unilateral measures such as the Russian ban on grain exports last summer that sent grain prices rocketing, seeking ways for the poorest countries to use financial insurance tools to protect themselves against rises in food prices, creation of a "code of good practices" that would exempt food aid from export taxes and a push for a global commodities markets regulation.
We feel that warnings of global food shortages and the resultant surge in prices are very timely and need to be taken seriously, especially when the unfolding situation involves humanitarian considerations and could easily spark food riots in the poor countries. In fact, abnormal rises in prices of items like wheat and sugar have already fuelled protests in parts of North Africa and the Middle East and some of the other underdeveloped countries do not appear to be immune anymore from such an eventuality.
Several factors have combined to create a supply-demand imbalance and strengthen the widespread apprehensions about the impending food crisis. There are worries about the continuation of poor weather conditions in most of the countries growing food crops that could affect the level of world stocks adversely. While supplies would be scarce, emerging economies like China and India have witnessed a huge surge in demand to fulfil the previously unmet appetite of their citizens.
The pressure on prices was so severe that the FAO's global price index hit a record high in December, 2010, outstripping levels in 2008 when soaring food prices had triggered riots in several countries. It is estimated that over the next 40 years, a 70 percent increase in agricultural production would be needed Worldwide, with a 100 percent increase in the developing countries to meet the demands of their growing population.
While some of the measures suggested by Sarkozy could be easy to undertake, actions like a collaboration to put a ban on grain exports to avoid rocketing prices would be very difficult to actually implement by individual countries when faced with a crisis situation within their own territories. Also, it appears very difficult to mobilise the needed resources, especially in the developing countries, to raise the agricultural productivity levels to meet the growing needs of their economies.
Nonetheless, highlighting the issue by eminent personalities at various levels reflects the urgency with which the matter of food shortages needs to be attended to, to avoid a food crisis and the resultant chaos. In particular, issues like farm subsidies and tariffs should not be difficult to resolve if sufficient public support could be mobilised in food surplus, developed countries.
Coming to Pakistan, the evolving situation presents both an opportunity and challenge for the country. Endowed with enough natural resources, the country has the potential to grow a sufficient quantity of food crops to feed its own population, as well as for exports, to earn the much-needed foreign exchange.
However, the capacity of the country has not been fully utilised, largely because of the lack of necessary infrastructure and poor policy framework, with the result that increasing food prices are pushing up the rate of inflation beyond tolerable limits. For instance, a jump of 20.36 percent in the sub-index of "food and beverages" was mainly responsible for the sharp increase of 15.46 in the CPI in December, 2010, over its level a year ago.
Domestic supply shortages could force the country to import higher quantities of various food items at inflated prices, with an increasing level of stress on its balance of payments position. As such, there is an urgent need to devise conducive policies and devote a much higher level of resources to the agricultural sector to meet domestic requirements and gain a competitive advantage in the coming years.