Escalating Food Price Inflation

Intriguingly, the tendency of increase in global food prices is gradually coming down and this process is now one-year old with price levels coming down to 2.5 per cent from their peak recorded when Russia attacked Ukraine in February last year.

This trend of decrease in the food prices is due to a combination of factors including ample supplies, subdued import demand and the extension of a deal allowing the safe export of Ukrainian grain via the Black Sea.

The decline in the index reflected lower prices for cereals, vegetable oils and dairy products which have managed to offset rises in sugar and meat prices. It is however acknowledged that while prices dropped at the global level, they are still very high and continue to increase in domestic markets, posing additional challenges to food security.

This difficulty is particularly experienced in net food importing developing countries with the situation aggravated by the depreciation of their currencies against the U.S. dollar or the Euro and a mounting debt burden. These conditions are faced by Pakistan that is additionally facing the difficulty of recovering from unprecedented flooding particularly the wheat crop that is estimated to yield far less output than usual.

It is forecast that Pakistan is facing lower food output because of less-than-normal rainfall in the second half of the year and it has come as yet another warning that agricultural production is under severe threat due to climate change.

It has increased agricultural production risks primarily to the heavy reliance of farming on favourable weather conditions as Pakistani agriculture sector has seen these changes severely impact their output over the last decade.

The trend has significantly stressed the production of food, including wheat and other crops. Warmer-than-normal weather last year had affected the wheat harvest and forced the government to import the cereal in large quantities to feed the people. It is very well known that after last year’s heat wave that caused wheat grains to shrink with farmers in wheat-growing regions suffering high levels of losses.

Over the years, the farming sector has proved to be a major factor responsible for Pakistan’s falling economic growth. Its poor performance has retarded industrial growth, affected textile exports and put pressure on the fragile current account.

In the last decade and a half year, agriculture’s real annual growth has been restricted to 2.2 percent-2.6 per cent a year considered dismal when compared to the expansion in the services and industrial sectors.

This productivity level is fairly hopeless when viewed in the backdrop of the fact almost two out of three Pakistanis are somehow linked to and depend on agriculture for their livelihood.

There are multiple reasons that can be cited for the decline of crops, including lack of investment, low mechanization, poor seed technology and varieties, obsolete and bad government policies affecting farmers’ choices but the fact remains is that it is the sluggishness of the manpower in this sector that contributes heavily to it.

The stagnation in farming means that the trade balance will keep worsening while food insecurity and poverty will continue to surge unless the trend is reversed. That will require a change in decades-old policies followed by Pakistani agriculture and bring in increased use of technology and massive private investment in the value chain.

Though the agriculture sector offers enormous business opportunities to investors but their participation will remain limited unless the government decides to pull itself out of the supply chain and stops interfering in the market.

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The government should also invest in agricultural research and development to minimise the negative impact of climate change on the farm sector. With more than half the population facing moderate to serious food insecurity, the time for action is fast running out.

Keeping in views such problems it is not surprising that Pakistan is badly beset with rampant inflation. The food inflation is directly related to the balance of payments crisis that sharply decreased the value of rupee with the result that the prices of imported goods increased leading to an increase in the general price level. Pakistan’s heavy reliance on oil imports and the rise in oil prices has also contributed to inflation.

The multi-decade-high food inflation rate is primarily driven by soaring food and fuel prices particularly the prices of vegetables, meat and other food items have witnessed significant increases in recent months. The food inflation is also persistent due to global supply chain disruptions caused by pandemic-related restrictions, and higher production costs for farmers. Inflation, particularly food inflation is among the most pertinent issues affecting Pakistan’s economic stability as it has seriously impeded the purchasing power of the people.

The persistent pressure of inflation simply unending for years has caused substantial ramifications for the country’s economy such as increasing unemployment and decreasing living standards that are fanning social unrest destabilising Pakistan. The pressure of inflation is very tough as the annualised food inflation shot up to 41.9 per cent in urban areas and 47 per cent in rural areas of Pakistan as compared to at 14.3 per cent and 14.6 per cent respectively in just the month of February this year implying that food inflation has more than tripled in just one year.

This painful food inflation has hit Pakistanis amidst a sharp economic slowdown with GDP growth of just 1.3 per cent in this financial year while this projection stood at 6 per cent in 2022 rendering about two million people jobless. One can vividly imagine the disastrous impact of such sharp decline amidst the whopping food inflation on people whose incomes have fallen due to the economic crisis. Already vast majority of financially constrained people are living on meagre incomes by working in the shadow economy, supplemented by debts, charity, government’s cash handouts and subsidies.

The most worrying aspect of the situation is that it is predicted to last indefinitely kept intact by higher international commodity prices, rupee’s depreciation, lack of administrative checks on retail prices amidst worsening political crisis, hoarding of food commodities and the rampant smuggling of food items to neighbouring Afghanistan. In the eight months of this fiscal year the foreign exchange starved Pakistan was constrained to spend $6.687 billion on food imports and it is estimated that by the end of the financial year the expenditure incurred on food import will exceed $10 billion.

In this context it is pointed out that the spectre of any reduction in high food prices could only be visible when the agricultural production will increase and energy prices come down.

Reducing consumer inflation makes agricultural inputs cheaper and helps stabilise the country politically also as hoarding and smuggling of food items fall correspondingly.

At present however the food inflation is increasing on daily basis and observers are amazed to witness the escalating price increases that have unfortunately failed to push the responsible authorities from making efforts to control them. By the looks of it the food inflation will soon deprive an even larger number of people from eating three square meals a day.

The most crucial factor in controlling and then reducing food inflation is actually the high level of prohibitive actions taken by the administrative machinery of the state. TW