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Archive for April 23rd, 2008

There has been increasing concern growing over the global food crisis, which has affected numerous countries across the world, including Pakistan. This week’s Economist cover story [see attached image] noted, “For the first time in 30 years, food protests are erupting in many places at once.” Our contributor, Abida Mukhtar, a consultant based in Lahore, [and also the author of last week’s post on the issues facing the Pakistani textile industry], discusses the global crisis as well as rising food prices in Pakistan:

Food prices have risen more than 40 percent globally since last summer. With international bodies, such as the United Nations Food and Agriculture Organization (FAO) and World Bank warning that the trend is likely to continue, it is a matter of serious concern, especially for developing countries.

The recent increase in food prices is somewhat of a global phenomenon. Analysts depict that there is new demand in the world for food. With Asian nations growing faster and faster, so grows their demand for food. The diets of the BRIC (Brazil, Russia, India and China) nations have changed tremendously in the past years, which have resulted in producers struggling to meet their demand. The increase in domestic demand has put pressure on domestic and international prices. For example, the BRIC nations have an increasing demand for meat, which is directly correlated to increase in demand for animal feed (mostly corn and wheat), that has pushed up the prices of those food items. In addition, the increase in domestic demand of BRIC nations has not only put pressure on prices at home, but also curtailed the level of their food exports as producers are not equipped to meet their domestic demands so rapidly.

Rising input prices for farmers has also added to escalating foods prices. The past year has seen an increase in mainly all key production costs -energy, seed, fertilizers, and land. Farmers require usage of energy i.e. petrol for their tractors, which has escalated more than more than 100 percent in the past year, rising from $50 to $60/barrel in the early part of 2007, to $114 in April 2008. Crude oil prices also have direct impact on fertilizers, as it contains contain nitrogen that is used in fertilizers. Farmers are also using more fertilizers to increase their productivity of crops, so the rise in price of fertilizers.

The current innovation in energy production has produced a new type of demand-Bio Fuel. Prior to Bio Fuel, demand for agricultural product was determined by food and animal feed. It is estimated that by 2017, the United States will require production of 300 million tones of maize (corn) to satisfy the demand for Bio Fuel alone. Current production levels of the United States are 300 million tons, out of which half of it is exported to the world. This illustrates that the US farmers have to boost the production of corn; otherwise the growing demand will continue to hike up world prices.

Unpredictable weather has also played a role to escalate prices. Drought, floods, heat waves and unpredictable climate change has had a negative impact on food production. For instance, in Australia, because of unpredicted floods, wheat production was half of what it was forecasted to be. This resulted in Australia importing wheat and pushing up prices further.

Therefore, unlike the common belief in most developing countries, the hike in food prices is not a domestically created issue. Growing demands of BRIC nations, rising input costs, new demands (Bio-Fuel) and unpredictable weather has escalated food prices. As warned by International organizations, the past months have witness unrest across the world-one week violence in Egypt, riots in Haiti, and protests in Cameroon, Yemen, Bolivia, and Indonesia. Some nations have been hit more than the others. According to the World Bank spring report, Pakistan is one of the 32 nations that is predicted to have severe food crises and subsequent social unrest if domestic policies are not altered.

With a population of more than 160 million people, Pakistanis consume approximately 22 million tons of wheat annually. Although Pakistan has been self-sufficient in wheat production and is one of the major rice exporters, Pakistan witnessed wheat shortage for the first time last year.

Although global factors have added to wheat shortage and rising food prices, the reasons for wheat shortage are quite different in Pakistan. One of the main reasons is that electricity shortage has curtailed the production of ‘milling wheat into flour.’ Analysts reveal that Pakistan had a bumper crop in the year 2006/2007. However, because of the attractive world wheat prices, the government exported half-million tons of wheat, which resulted in domestic shortage. It has subsequently resulted in increasing wheat prices-from 15 rupees per kg in Jan 2007 to 24-25 rupees in Jan 2008.

The previous government also reduced wheat subsidies that had a negative impact on farmers. Farmers always produce commodities that have an attractive price, with the reduced subsidies; they switched to other cash crops such as sugar cane. The previous government blames the wheat shortage on illegal smuggling to Afghanistan, Central Asia and Russia. However, the black market is a weak excuse by the Pakistani government, since it has existed in the past and should be included in the factors when projecting wheat forecasts. The shortages resulted in near-riots in many cities of Pakistan, especially North-West Frontier Province (NWFP). January 15th 2008 saw the deployment of armed troops around the border to curtail the black market. Moreover, after the release of the World Bank spring report that predicted ‘agriculture shortages,’ the government deployed armed troops to supervise the distribution of wheat and flour.

The new coalition government raised the support price it pays farmers to buy wheat to ensure adequate supplies. However, due to the broader mismanagement of funds of the previous government, the widening fiscal deficit and rising food prices, the situation is tough for the new government.

Nevertheless, all is not lost. Pakistan is a rich land. Currently, the Punjab province produces around 16 million tons of wheat annually. With R&D, the agricultural produce can increase to cater the demand. Moreover, smarter policies and better irrigational systems can turn the semi-barren land of Sindh and NWFP into agriculture produce land. Although these are long-term plans, they will be beneficial in the future. Currently, the government can pursue other mediums to control the food crisis such as ‘support price of wheat crop at cultivation time’ or price ceilings, to curb inflation and to help the poor to maintain some standard of living.

 

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