Implications of food security Crises

source: http://jang.com.pk/thenews/apr2008-weekly/busrev-07-04-2008/p5.htm


By M. Sharif

Persisting food inflation in the country pushed the SPI up by 17.35 percent during the week that ended on 28 March. It also pushed above all the inflation across the globe in general particularly among the developing countries. Increase in cost of farm inputs along with the increase in global population is estimated to be around nine billion by 2050. With an increase of 2.5bn from the existing 6.5bn, most of which are likely to be the citizens of developing countries and some emerging economies, is threatening the food security of a large number of people. Pakistan is one of those countries that is already facing this problem if one were to take a serious note of the rate of food inflation persisting in the country during the past two years, irrigation water shortage, increase in the cost of farm inputs, constraints, difficulties faced during marketing of agricultural commodities and a weak supply side.



Dimensions of problems - global level

Analysts are of the view that ensuring adequate food supplies across the globe and with in the national boundaries of food deficit countries is emerging a major challenge of the 21st century wrapped in politics of food scarcity. Following are the attributing factors towards the emerging challenge: -

(1) The demand of food items is on the increase in a wealthier Asia where people are willing to pay any price to get food items of their choice and the farmers in these countries are facing a difficulty to meet the demand. Imports have therefore to be on the increase and export restrictions have to be imposed to meet the domestic demand.

(2) Severe weather conditions in food crops growing countries have decreased production. According to an estimate world’s wheat stocks are at a 30-years low that is likely to increase food insecurity unless the situation was reversed.

(3) Cost of farm inputs and transportation has increased over the past few years. Consequently, the cost of grains has been increasing for the past five years. It gives a clear message that the era of cheap food has ended and the world may have to brace costlier food. The problem could be addressed by increasing the investment in food crops and other food items but it has been found that instead there is shift of investment money into commodities.

(4) There is shift in priorities to use farmland; it is being used to grow fuel-friendly crops.

(5) The population growth and growth of a wealthier class in China and India and other emerging markets of the world are heading towards higher food consumption. It is likely to be further strain on the supply side of food items that are already under inflationary pressure.

(6) Drought and a declining US dollar are also adding to the food woes.

According to UN records, global food prices have increased by 35 percent during 2007. They conspicuously accelerated the trend in increasing food prices that had started five years ago in 2002. Since then the prices have increased by 65percent. During 2007, according to UN Food and Agriculture Organization, the world food index and dairy prices have increased by 80percent and the grain prices by 42 percent. According to analysts, “the recent rise in the global food commodity prices is more than just a short-term blip. Society will have to decide the value to be placed on food and how the market forces can be reconciled with domestic policy objectives,” of the food policy in the global as well as the national context.

The most relevant question in this respect is: can market forces be allowed to operate on their own by manipulating supply-demand constraints or does it have to be some sort of intervention by the national governments to ensure food security? For example, India and Vietnam, the two major rice-exporting countries have imposed a ban on export of rice to protect domestic supplies. There is a lot of discontent among the people of developing countries about the increase in the food prices. A strong perception exists among them that it is failure of their governments to implement pro-people and pro-agriculture policies that have caused higher food prices and food insecurity for them. They are right in their assertion to a great extent. It is being feared that public discontent might increase further. Particularly the developing countries are facing higher trade and current account deficits. A weak supply of agricultural commodities would be nerve testing for developing and poor countries, because it is was forecasted that during the next decade prices of corn would increase by 27 percent, oil seeds by 23 percent, rice and wheat by 9 percent. The situation calls for strategies which are as follows:

(A) The affected states must re-organize their priorities where the increase in agricultural products at minimum cost should get top priority to meet the domestic needs.

(B)The WTO need to regulate trade of agricultural products in the international market in such a fashion that it hurts the needy countries the least.

(C) The heart of the free market trade system that seeks profits optimally in a short time. It is not taking roots because it dis-favours most of the developing and poor countries that produce agricultural commodities. Industrial countries are protecting their own farmers by providing huge subsidies to the agricultural sector. Such a step puts serious limits on poor and developing countries to earn profit on their agricultural products. They are not agreeing to make a compromise on the issue of agricultural subsidies.



National scenario

Pakistan has been in the grip of a food crisis since the past few months as the prices of wheat flour, edible oil and other food items have increased to be bearable by the low income groups of the society. People had to stand in long queues in front of utility and other make shift stores established by the district governments in small and large cities to procure comparatively cheap flour at subsidized rates. The wheat crisis is likely to once again erupt because of the government’s decision to increase the support price of wheat procurement from last year’s price of Rs425 per 40kg to Rs510 which has increased to Rs625 per 40 kg to the dissatisfaction of farmers who are demanding to raise price to Rs1200 per 40kg, compatible with the international price.

The discrepancy of the farmers is that the government pays a high price to the farmers of wheat exporting countries when it has to import wheat as it did only late last year but is reluctant to pay a high price to its own farmers. They also assert that cost of production of wheat has increased to a minimum of Rs600 per 40kg because of the higher cost of farm inputs and the support price with a profit margin of Rs 25 per 40kg has little justification. Nevertheless, the government is to provide incentives for the farmers to grow staple food to ensure food security.

It is to be appreciated that the production of cash crops has a direct bearing on the production of other food items and their prices in the country. It has a direct bearing on overall inflation that the SBP has not been successful to reduce during the past three years despite pursuing a tight monetary policy. Apart from high food inflation, a number of other factors such as expansionary fiscal policy, emphasis on consumption based growth and a weak supply side of the economy are responsible for high inflation that according to the SBP’s Q2 report is likely to be 9 percent by the end of the current fiscal year.

The food security problem in Pakistan is basically that it is an agricultural country and its economy is agrarian that has emerged because of the following factors:

(i) The agriculture sector has not gained the desired level of investment, technology impetus and patronage of the government as the industrial sector has enjoyed over the past many years. Consequently, there has been virtually no increase in value-addition, production of commodities and per hector yield in cash crops like wheat, rice and cotton at least during the past eight years despite the increase in use of fertilizers and agricultural credit.

(ii) Fixation of support prices for cash crops has remained short of the expectations of the farmers and announced belatedly from time to time with the result that the farmers have remained somewhat reluctant to opt for any big initiatives to produce surplus cash crops. The differential between support/market prices and cost of production has remained at a bare minimum over the years to the disadvantage of farmers and the agricultural sector.

(iii) Management, domestic and export marketing have remained problematic and to a greater extent subject to vicious interests of profit seekers at the cost of public interest. There is a strong perception that last year production of wheat was over stated by around 1.5million tons to beef up higher growth of at least 7percent with the result that 0.8million tons of wheat was pre-maturely exported at a price of $200 per ton against the permitted export of 0.5million with the result that when the price of wheat shot up in the international market. There was hoarding and smuggling to neighbouring countries. An artificial wheat scarcity was created from October 2007 to January2008. The government was forced to import 2 million tons of wheat at $1bn to the public exchequer at the rate of $500 per ton.

(iv) Agriculture has remained neglected. SBP’s Q2 report states, “ relatively weak aggregate performance of the crops, in the face of the strong international prices of most agro-commodities, indicate not only the sector’s vulnerability to the vagaries of nature but also the urgent need to enact reforms targeting distortions in the incentive structure for farmers, and the substantial wastage due to inadequate infrastructure.”

The population in the country is on an increase and well to do segments of the society are hinged on higher food consumption with the result that food security is becoming more and more insecure. Food inflation is now controlling the overall inflation in the country. In such a situation the only option for the government is to give due priority to the agricultural sector and provide sufficient incentives to the farmers to produce more agro-commodities.



Conclusion

Food security is the issue of the 21st century that Pakistan can poorly afford to keep under the carpet as was done by the government during the last eight years. The problem has imploded because of long neglect. The country has all the resources required for optimum output. If managed judiciously, they can help to produce not only sufficient agro-commodities for domestic consumption but they can also produce surplus for exports. It is time that agricultural sector is given its due.