Food inflation affects everybody but it hurts the weakest the most
The increasing inflation in Pakistan has made the life of its citizens miserable as items of everyday use are getting out of the reach of an ever larger number of people by the day. There are several reasons for rising prices, some perennial and some resulting from what government is doing or failing to do.
A steep rise in prices by definition affects consumers adversely but the impact of food inflation can be particularly disastrous. As food is a recurring necessity and has to be consumed by every person regardless of their financial status, its shortage and high prices can make life tough, especially for low-income groups. For millions below the poverty line, the most important questions every day is about how to manage the next few meals. Even for those who are better off, the rapid increase in food prices has disturbed budgets and changed spending patterns.
Figures released by the Pakistan Bureau of Statistics (PBS) show that food inflation in the country has been in double digits since August 2019. It was between 10.4 per cent and 19.5 per cent in urban areas and between 12.6 per cent and 23.8 per cent in rural areas. According to the PBS figures for September 2020, food inflation rate in urban areas was 12.4 per cent and in rural areas 15.8 per cent.
The situation forces one to think hard about the reasons behind this price hike. The fact that a country nominally self-sufficient in wheat production is waiting desperately for foreign supplies to arrive to meet the local demand is quite disturbing. In case of sugar, large stocks were exported using subsidy from the tax-payers’ money to make it competitive in the market. Now its prices have spiralled upwards in the domestic market and the government is importing it from other countries. Apart from these commodities, the prices of edible oil, pulses, vegetables, spices, meat, etc, have also risen drastically.
Zaigham Khan, an analyst and development sector specialist, points out that wheat was procured by the government for Rs1,400 per maund. The flour produced from it is now selling for a whopping Rs2,800 per maund. This, he says, is amazing as there is negligible waste and all wheat products have a ready market. What are the factors driving this large gap? Is wheat being smuggled out of the country, he asks.
On sugar, Khan says, it was available for Rs55 per kg to Rs60 per kg when the government allowed export of a million tonnes and subsidised the exporters. The situation today is that the retail price of sugar has risen beyond Rs110 per kg in the market.
Khan says the country is going through ‘stagflation’ where economic growth rate is low while the rate of unemployment and prices of goods and services are high. The predictions by global monetary bodies, he says, are that Pakistan’s economic growth rate next year will hover around one percent, inflation 10 per cent and the population growth rate 2.5 per cent. This will have an impact on food prices as well.
To overcome the shortage of wheat, the government of Pakistan has decided to import the grain. However, the process is slow for several reasons. The delay in arrival of imported wheat has perturbed Prime Minister Imran Khan. It has been suggested that the main reason for this delay is that the bureaucrats are not taking the lead out of fear that the National Accountability Bureau (NAB) might questions their decisions in the future by calling into question the terms of the purchase agreements and wheat import orders.
Then there are some perpetual issues that need to be taken care of before food prices can be controlled. According to official estimates, out of the total production cost, the share of fertilisers is 20 per cent, land preparation 10 per cent, seed and sowing operations 15 per cent, harvesting and threshing 17 per cent and land rent about 38 per cent.
Khalid Mahmood Khokhar, the Pakistan Kissan Ittehad (PKI) president, says there are reports that huge quantities of wheat have left the country through smuggling routes because the international prices of the commodity were higher than the support price of Rs1,400 per maund.
When the cost of these inputs increases the price of the produce increases as a result, says Zahid Amir Baig, president of the Agricultural Journalists’ Association, Pakistan (AJA-P). He says the prices of imported fertilisers, seeds, fuel, edible oil and agricultural machinery have increased drastically as a result of devaluation of rupee against dollar during the current government’s tenure.
This has pushed the food prices up. Besides, he says, agricultural research in the country is not up to the mark so that high-yield seeds are not available to most farmers and the produce per acre remains low. The lack of storage capacity limits government’s capacity to hold commodity stocks which often lie in the open and are destroyed by rains, etc.
Baig says under the on-going International Monetary Fund (IMF) programme, the government has agreed to raise energy prices and taxes and withdraw subsidies. This too has pushed food prices up because the costs of production and transportation have increased. He says the government should cut the import bill by promoting extraction of edible oil from cottonseed, sunflower, corn and olive. The prices of pulses, he says, have also increased because these are mostly imported.
It is estimated that Pakistan is importing edible oil worth $2.5 million annually. The imported oil makes up 85 per cent of the total consumption in the country. The moong is being imported from Brazil, Argentina and some African countries; maash from Burma and Thailand.
Zaigham Khan is of the view that food processing can help save the crops when farmers destroy them due to the low prices they are offered. “Why can we not make tomato paste and preserve it when it is Rs 5 per kg so that there is no shortage later?”
Haroon Akram Gill, a climate change campaigner, says that prices of several agricultural commodities increased this year due to shortages caused by out-of-pattern rains in Sindh. He says while local action cannot stop climate change, the harm can be mitigated by training farmers in climate change adaptation.
As weather patterns change, he says, so should the sowing patterns but unfortunately most farmers are sticking to the practices learnt from their elders and practiced over their lifetimes. They must be persuaded to sow a crop earlier if the weather is favourable, he says.
Khalid Mahmood Khokhar, the Pakistan Kissan Ittehad (PKI) president, points out that the prices of farm products are raised by middlemen during their movement from the farm gate to the retailer’s outlet. “There are many stages in between where prices are multiplied. The farmer gets a small fraction of what he deserves.” He says in the absence of formal farm credit, it is aarhtis who advance crucial loans to farmers and exploit them to the fullest.
The situation can be improved by linking farmers to the market, subsidising the inputs, providing farm credit on soft terms and producing quality seed and fertilisers locally, he concludes. Khokhar says there are reports that huge quantities of wheat have left the country through smuggling routes because the international prices of the commodity were higher than the support price of Rs1,400 per maund offered by the government to the farmers.
Even in India where the farm sector is heavily subsidised, he says, the support price of wheat is Rs 1,775 per maund (in Pak rupee terms). “If the government offers this price, I am sure the stocks will double. Besides, smuggling will no longer be attractive.”
The writer is a staffer and can be reached at [email protected]com