Source: http://dawn.com/2008/04/12/ebr5.htm
By Mubarak Zeb Khan
ISLAMABAD, April 11: Trade deficit hit an all-time high of $14.486 billion in the first nine months of the current fiscal year, up by 44.27 per cent from $10.041 billion recorded last year, mainly due to surging oil prices and high import of consumer items.
The deficit exceeded the exports of $13.476 billion.
The gap widened as the import of mobile phones, gold, luxury vehicles, perfumes, cosmetics, bullet proof vehicles etc penetrated the local market due to changing lifestyles.
The import bill of wheat and palm oil witnessed highest-ever increase due to rise in their prices in the international market.
The trade deficit escalated to $13.54 billion in 2006-07 from $1.412 billion in 1999-2000. The trend shows that the trade deficit in the current fiscal year will cross the figure of $20 billion putting an extensive pressure on the balance of payments.
If the non-debt creating inflows -- foreign direct investment, portfolios investment, GDRs and grants -- did not match the gap, the new government will be left with no option but to seek debts from donor agencies and domestic sources for financing the balance of payments.
Official figures released on Friday by the Federal Bureau of Statistics (FBS) showed that the import bill increased by 24.73 per cent to $27.962 billion in July-March 2007-08, against $22.419 billion last year. It witnessed an alarming increase of 45.78 per cent in March 2008 when it stood at $3.823 billion against $2.622 billion in the same month last year.
Exports grew by 8.87 per cent to $13.476 billion in July-March against $12.377 billion last year. The export growth recorded the highest-ever increase of 17.29 per cent in March 2008. This growth was the second straight in a row in the current fiscal year, which is unprecedented because the average growth over the past two years has been six per cent per month.
Analysts said the government should rationalise duty and taxes to regulate imports of the luxury items.
They say government should also focus on the value-added sector and diversify the export base instead of focusing on textile sector which is fetching maximum financial support.
With the rising oil bill, it is expected that the import bill will cross the figure of $36 billion by the end of June 2008. Last year the import bill was around $30 billion.
The export target of $19.2 billion has now become a far cry as the textile exports are steadily on the decline for last few months despite doling out huge subsidies from the national kitty. As the food inflation recorded the highest-ever increase, the government was compelled to slap a ban on export of certain food commodities to avert domestic shortages.
Due to this highest-ever trade deficits in goods and services the current account deficit has also reached an alarming level. The current account deficit will cross over $10 billion by the end of June 2008. Last year the current account deficit was $8.114 billion from over $500 million of 1999-2000.
Saturday, April 12, 2008
Thursday, April 10, 2008
Budget deficit exceeds Rs 195 billion up to February: Finance Minister
Source: http://geo.tv/4-10-2008/16580.htm
Thursday, April 10, 2008
ISLAMABAD: Federal finance minister Ishaq Dar has termed the statistics given by the former government false regarding economic growth rate and said that the present government would revive the economy through some strict measures.
He said that despite tough challenges, the government would bring the monetary deficit to the manageable limit of six per cent by reducing it from about 10 per cent within 2 ½ months.
Ishaq Dar said that the present government has inherited the very weak economy full of debts and the bank borrowings would be thoroughly made limited.
He was addressing a joint press conference with federal information minister Sherry Rehman after the federal cabinet’s second meeting under prime minister Syed Yousuf Raza Gilani at the prime minister’s secretariat on Wednesday.
The finance minister provided the federal cabinet a detailed balance sheet of the national economy up to March 31, 2008.
Prime minister had given two weeks time to the ministry of finance for preparation of the balance sheet but the economic team headed by the finance minister worked day and night and prepared the balance sheet within just eight days.
Ishaq Dar said that we believe in transparency and until the government would not tell the facts to the people no solution of the issues would be achieved.
Presenting the facts and figures, he said that debts of Rs.2,946 billion were achieved from 1947 to 1999 while Rs.2,749 billion were borrowed from 1999 to 2008.
He told that the government debts valued at Rs.2,946 billion up to June 1999 and it went up to Rs.5,280 billion up to March 2008 besides an aid of 300 million dollars from Saudi Arabia.
The finance minister told that despite heavy increase in the world prices of oil the former government did not use the formula of automatic adjustment due to which a heavy subsidy of Rs.138.6 billion on petroleum products has been kept in the present budget but it does not include any provision.
Thursday, April 10, 2008
ISLAMABAD: Federal finance minister Ishaq Dar has termed the statistics given by the former government false regarding economic growth rate and said that the present government would revive the economy through some strict measures.
He said that despite tough challenges, the government would bring the monetary deficit to the manageable limit of six per cent by reducing it from about 10 per cent within 2 ½ months.
Ishaq Dar said that the present government has inherited the very weak economy full of debts and the bank borrowings would be thoroughly made limited.
He was addressing a joint press conference with federal information minister Sherry Rehman after the federal cabinet’s second meeting under prime minister Syed Yousuf Raza Gilani at the prime minister’s secretariat on Wednesday.
The finance minister provided the federal cabinet a detailed balance sheet of the national economy up to March 31, 2008.
Prime minister had given two weeks time to the ministry of finance for preparation of the balance sheet but the economic team headed by the finance minister worked day and night and prepared the balance sheet within just eight days.
Ishaq Dar said that we believe in transparency and until the government would not tell the facts to the people no solution of the issues would be achieved.
Presenting the facts and figures, he said that debts of Rs.2,946 billion were achieved from 1947 to 1999 while Rs.2,749 billion were borrowed from 1999 to 2008.
He told that the government debts valued at Rs.2,946 billion up to June 1999 and it went up to Rs.5,280 billion up to March 2008 besides an aid of 300 million dollars from Saudi Arabia.
The finance minister told that despite heavy increase in the world prices of oil the former government did not use the formula of automatic adjustment due to which a heavy subsidy of Rs.138.6 billion on petroleum products has been kept in the present budget but it does not include any provision.
Monday, April 7, 2008
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.
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.
Parha Likha Punjab Programme scrapped, services terminated
source: http://www.thenews.com.pk/updates.asp?id=42876
Updated at: 2030 PST, Monday, April 07, 2008
LAHORE: Newly elected Punjab Government has rolled back Parha Likha Punjab Programme launched by the previous government and terminated services of a number of officers associated with it.
The provincial government has also ordered for withdrawal of notification issued on March 13 by Secretary Department of Literacy and Informal Education in connection with continuation of the programme.
The terminated posts under the Parha Likha Programme include those of Project Director, Director Research and Training, Director Administration, Deputy Directors, Procurement Officer, System Analyst, District Literacy Officer Mobiles, computer
Updated at: 2030 PST, Monday, April 07, 2008
LAHORE: Newly elected Punjab Government has rolled back Parha Likha Punjab Programme launched by the previous government and terminated services of a number of officers associated with it.
The provincial government has also ordered for withdrawal of notification issued on March 13 by Secretary Department of Literacy and Informal Education in connection with continuation of the programme.
The terminated posts under the Parha Likha Programme include those of Project Director, Director Research and Training, Director Administration, Deputy Directors, Procurement Officer, System Analyst, District Literacy Officer Mobiles, computer
Faltering economy: a reality check
Source: http://dawn.com/2008/04/07/ebr1.htm
By Yousuf Nazar
The State Bank of Pakistan’s quarterly report covering the economic performance for the first six months (July-December 2007) of the current fiscal year confirmed what was already in the public domain. Key economic targets for the current fiscal year will be missed and the government’s finances are under pressure. But a close examination of the official data has led us to raise the following critical questions:
Is the government revealing the correct real GDP growth numbers by under-stating the rate of inflation? Is the economy growing at 6-6 per cent?
Is oil price the only or real reason for the ballooning fiscal deficit and consequently for the rapid growth in money supply and inflation?
The answer to both the questions is a no in the light of information published by the bank itself. The report begins with a rather benign view of the economy by stating, “the country’s economy continues to show resilience to domestic and international shocks. Although these have taken their toll, the economy is expected to turn in a reasonable growth performance during FY08, albeit substantially lower than target.” The SBP has revised the key targets for the full year as follows:
Two of the most important indicators, real GDP growth and inflation, if correct, would justify the SBP’s remarks about the performance and growth expectations of the economy. But are they correct even if the estimates about cotton and wheat crops turn out to be right? Remember that the wheat crop estimates were deliberately overstated last year to present a better picture of the GDP growth but the previous year’s growth numbers have still not been officially adjusted.
In simple terms, GDP (gross domestic product) is the short hand for the income of a country. The real growth rate is calculated (in lay man’s terms) by adjusting nominal growth for inflation. For example, if the income of person grows by 10 per cent from Rs100 to 110 in a year and the inflation during the year was four per cent, it can be stated that his real income grew by approximately six per cent, leaving aside mathematical complications. The key to calculating the real growth is the inflation rate. If a rate lower than the actual rate is used, real growth rate will look better or vice versa.
The government maintains that the inflation rate during the current fiscal year will be in the range of 8–9 per cent. That is, no more than 0.2 to 1.2 percentage points higher than 7.8 per cent for FY 2007. However, its own month by month data comparing inflation rate in the current fiscal year to FY 2007 does not support this as shown in the following graph. It illustrates that increase in the consumer price inflation (CPI) and wholesale price inflation (WPI) during the current year has been much higher than 1.2 per cent as the government or the SBP appears to suggest.
This graph shows for the CPI and WPI, the percentage increase in a given month in 2007 and 2008 over the corresponding month of the previous year. For 2008, this number is significantly higher than eight or nine per cent as indicated by the sharp upturn from August 2007 onwards.
During the eight months from July 2007 to February 2008, the cumulative rise in the CPI was 9.15 per cent and 11.31 per cent in the WPI. Obviously, it will be higher for the entire 12-month period. Based on the eight months’ rise, the annualised inflation rate works out to be 14.03 per cent for the CPI and 17.43 per cent for the WPI. It is important to note that much of the real GDP data is calculated using the wholesale price index (WPI). In any case, pick any inflation index using 11 or 12 per cent average inflation rate, the real GDP growth may be around 3.5 per cent or even less in FY 2008 unless the (previous) government’s economic managers can provide a robust and full explanation of the glaring inconsistencies in what are the most important set of macroeconomic indicators.
Revision of growth estimates and even that of the entire set of national income accounts is not uncommon even in the developed world. The new government may wish to do this by appointing a permanent head of the Federal Bureau of Statistics and conducting a full and independent investigation into the data to get a picture of the true state of the economy.
Coming to the budget or fiscal deficit, the SBP report candidly acknowledges, “another troubling aspect is that the fiscal deficit may be under-stated. Evidence suggests that at least a part of the subsidy on fuel prices during July-February FY08 was not financed from government account.” It goes on to explain as follows:
“Instead, in order to mitigate the financial difficulties of the various institutions (particularly the oil marketing companies) with unpaid price differential claims, the government provided guarantees against which these public and private sector institutions could borrow the amounts from financial institutions. Such a financing structure simply shifts most of the cost of the financing from the current fiscal year to the fiscal deficit in future years.”
Leaving aside the issue of understating the real level of fiscal deficit due to the non-inclusion of guarantees to the oil companies, let us take a look at the government’s revenue and expenditure for the first half of FY 2008 in the table below:
Table: Revenue and Expenditure Summary
Government officials and many others have attributed the ballooning deficit to the rise in the oil prices but the data does not fully support this contention. Against a full year’s revenue target of Rs1475 billion, the government’s revenue for the first half were Rs625.6 billion. That is, the total revenue grew by only 1.8 per cent against the target of 20 per cent (per annum) and the tax revenues grew by only four per cent against the target of 21 per cent. (per annum).
The weakness in Q2-FY08 fiscal revenues stemmed from a variety of factors. For example, direct taxes declined due to a fall in expected taxable profits of key industries (e.g. banks, cement, etc.). Similarly, the weakness in non-tax revenues mainly reflected the delayed disbursement of logistic support grant (indicated by a fall in defence receipts), and low collections of surcharges on petroleum and gas.
On the other hand, expenditures appeared to have gone out of control in an election year as summarised below:
In the backdrop of 1.8 per cent increase in the total revenues, no effort seemed to have been made to control the expenditures that grew by 25.3 per cent. While current and unexplained expenditure increased by Rs120.2 billion (18.9 per cent), development expenditure jumped by Rs77.9 billion or 52.7 per cent. The net result was a deficit of Rs356.3 billion (3.6 per cent of full year GDP) for just the first six months only against the full year target of Rs398 billion or 4.2 per cent of the GDP. At this rate, the deficit is likely to exceed six per cent of the GDP.
Contrary to the widely held view, the subsidies for oil and other commodities contributed to no more than five per cent of the total current expenditure during the first half of FY 2008. This is evident from the following table in which subsidies are included in the Economic affairs’ expenses.
Interest payments on debt, defence, payments to provinces, and expenditure other than subsidies accounted for Rs161 billion or 83 per cent of the increase in current expenditure during the half-year ended December 2007 or 86 per cent of Rs187 billion rise in the budget deficit during the period.
Here it should also be noted that the sharp rise in the oil price came only towards the end of October 2007 when it broke the $90-a-barrel level after trading in the $70-80 range during July-September 2007. The hard fact is that interest payments, defence, and payments to the provinces were the three largest items and accounted for 75 per cent of the total current expenditure.
The overall picture emerging from this analysis is that President Musharraf’s administration did not exercise any financial discipline in the election year and did not take any action to stop the politically-driven escalation in spending even when the revenue growth stalled. This came at the cost of overall higher inflation and an all-time record fiscal deficit.
The deficit was financed mostly by borrowings from the State Bank or in simple terms by printing money as illustrated in the following table:
Compared to the first half of FY2007, the deficit more than doubled to Rs356.3 billion. The worst aspect was that 64 per cent of this was financed by highly inflationary bank borrowing compared to only 18.6 per cent in the previous year.
In conclusion, the hard evidence points to some unpleasant facts. The economic growth during FY08 is probably going to be much less what the government claims and which the multilateral lenders seem to accept without much questioning. The inflation is a lot higher than what the previous economic managers have been telling us. And most importantly, low single digit growth in tax revenues, election year spending spree together with interest on past borrowings, and not the oil price or subsidies, are the principal reasons behind the record level of budget deficit during the first-half of the current fiscal year.
yousufnazar@yahoo.com
By Yousuf Nazar
The State Bank of Pakistan’s quarterly report covering the economic performance for the first six months (July-December 2007) of the current fiscal year confirmed what was already in the public domain. Key economic targets for the current fiscal year will be missed and the government’s finances are under pressure. But a close examination of the official data has led us to raise the following critical questions:
Is the government revealing the correct real GDP growth numbers by under-stating the rate of inflation? Is the economy growing at 6-6 per cent?
Is oil price the only or real reason for the ballooning fiscal deficit and consequently for the rapid growth in money supply and inflation?
The answer to both the questions is a no in the light of information published by the bank itself. The report begins with a rather benign view of the economy by stating, “the country’s economy continues to show resilience to domestic and international shocks. Although these have taken their toll, the economy is expected to turn in a reasonable growth performance during FY08, albeit substantially lower than target.” The SBP has revised the key targets for the full year as follows:
Two of the most important indicators, real GDP growth and inflation, if correct, would justify the SBP’s remarks about the performance and growth expectations of the economy. But are they correct even if the estimates about cotton and wheat crops turn out to be right? Remember that the wheat crop estimates were deliberately overstated last year to present a better picture of the GDP growth but the previous year’s growth numbers have still not been officially adjusted.
In simple terms, GDP (gross domestic product) is the short hand for the income of a country. The real growth rate is calculated (in lay man’s terms) by adjusting nominal growth for inflation. For example, if the income of person grows by 10 per cent from Rs100 to 110 in a year and the inflation during the year was four per cent, it can be stated that his real income grew by approximately six per cent, leaving aside mathematical complications. The key to calculating the real growth is the inflation rate. If a rate lower than the actual rate is used, real growth rate will look better or vice versa.
The government maintains that the inflation rate during the current fiscal year will be in the range of 8–9 per cent. That is, no more than 0.2 to 1.2 percentage points higher than 7.8 per cent for FY 2007. However, its own month by month data comparing inflation rate in the current fiscal year to FY 2007 does not support this as shown in the following graph. It illustrates that increase in the consumer price inflation (CPI) and wholesale price inflation (WPI) during the current year has been much higher than 1.2 per cent as the government or the SBP appears to suggest.
This graph shows for the CPI and WPI, the percentage increase in a given month in 2007 and 2008 over the corresponding month of the previous year. For 2008, this number is significantly higher than eight or nine per cent as indicated by the sharp upturn from August 2007 onwards.
During the eight months from July 2007 to February 2008, the cumulative rise in the CPI was 9.15 per cent and 11.31 per cent in the WPI. Obviously, it will be higher for the entire 12-month period. Based on the eight months’ rise, the annualised inflation rate works out to be 14.03 per cent for the CPI and 17.43 per cent for the WPI. It is important to note that much of the real GDP data is calculated using the wholesale price index (WPI). In any case, pick any inflation index using 11 or 12 per cent average inflation rate, the real GDP growth may be around 3.5 per cent or even less in FY 2008 unless the (previous) government’s economic managers can provide a robust and full explanation of the glaring inconsistencies in what are the most important set of macroeconomic indicators.
Revision of growth estimates and even that of the entire set of national income accounts is not uncommon even in the developed world. The new government may wish to do this by appointing a permanent head of the Federal Bureau of Statistics and conducting a full and independent investigation into the data to get a picture of the true state of the economy.
Coming to the budget or fiscal deficit, the SBP report candidly acknowledges, “another troubling aspect is that the fiscal deficit may be under-stated. Evidence suggests that at least a part of the subsidy on fuel prices during July-February FY08 was not financed from government account.” It goes on to explain as follows:
“Instead, in order to mitigate the financial difficulties of the various institutions (particularly the oil marketing companies) with unpaid price differential claims, the government provided guarantees against which these public and private sector institutions could borrow the amounts from financial institutions. Such a financing structure simply shifts most of the cost of the financing from the current fiscal year to the fiscal deficit in future years.”
Leaving aside the issue of understating the real level of fiscal deficit due to the non-inclusion of guarantees to the oil companies, let us take a look at the government’s revenue and expenditure for the first half of FY 2008 in the table below:
Table: Revenue and Expenditure Summary
Government officials and many others have attributed the ballooning deficit to the rise in the oil prices but the data does not fully support this contention. Against a full year’s revenue target of Rs1475 billion, the government’s revenue for the first half were Rs625.6 billion. That is, the total revenue grew by only 1.8 per cent against the target of 20 per cent (per annum) and the tax revenues grew by only four per cent against the target of 21 per cent. (per annum).
The weakness in Q2-FY08 fiscal revenues stemmed from a variety of factors. For example, direct taxes declined due to a fall in expected taxable profits of key industries (e.g. banks, cement, etc.). Similarly, the weakness in non-tax revenues mainly reflected the delayed disbursement of logistic support grant (indicated by a fall in defence receipts), and low collections of surcharges on petroleum and gas.
On the other hand, expenditures appeared to have gone out of control in an election year as summarised below:
In the backdrop of 1.8 per cent increase in the total revenues, no effort seemed to have been made to control the expenditures that grew by 25.3 per cent. While current and unexplained expenditure increased by Rs120.2 billion (18.9 per cent), development expenditure jumped by Rs77.9 billion or 52.7 per cent. The net result was a deficit of Rs356.3 billion (3.6 per cent of full year GDP) for just the first six months only against the full year target of Rs398 billion or 4.2 per cent of the GDP. At this rate, the deficit is likely to exceed six per cent of the GDP.
Contrary to the widely held view, the subsidies for oil and other commodities contributed to no more than five per cent of the total current expenditure during the first half of FY 2008. This is evident from the following table in which subsidies are included in the Economic affairs’ expenses.
Interest payments on debt, defence, payments to provinces, and expenditure other than subsidies accounted for Rs161 billion or 83 per cent of the increase in current expenditure during the half-year ended December 2007 or 86 per cent of Rs187 billion rise in the budget deficit during the period.
Here it should also be noted that the sharp rise in the oil price came only towards the end of October 2007 when it broke the $90-a-barrel level after trading in the $70-80 range during July-September 2007. The hard fact is that interest payments, defence, and payments to the provinces were the three largest items and accounted for 75 per cent of the total current expenditure.
The overall picture emerging from this analysis is that President Musharraf’s administration did not exercise any financial discipline in the election year and did not take any action to stop the politically-driven escalation in spending even when the revenue growth stalled. This came at the cost of overall higher inflation and an all-time record fiscal deficit.
The deficit was financed mostly by borrowings from the State Bank or in simple terms by printing money as illustrated in the following table:
Compared to the first half of FY2007, the deficit more than doubled to Rs356.3 billion. The worst aspect was that 64 per cent of this was financed by highly inflationary bank borrowing compared to only 18.6 per cent in the previous year.
In conclusion, the hard evidence points to some unpleasant facts. The economic growth during FY08 is probably going to be much less what the government claims and which the multilateral lenders seem to accept without much questioning. The inflation is a lot higher than what the previous economic managers have been telling us. And most importantly, low single digit growth in tax revenues, election year spending spree together with interest on past borrowings, and not the oil price or subsidies, are the principal reasons behind the record level of budget deficit during the first-half of the current fiscal year.
yousufnazar@yahoo.com
Insurance cover for Kharif crops
http://dawn.com/2008/04/07/ebr2.htm
By Sabihuddin Ghausi
At long last, the stage is set to launch crop insurance in a significant manner from this Kharif by two big state institutions. The National Insurance Company Ltd (NICL) and the National Bank of Pakistan (NBP) are about to enter into an arrangement — probably within ten days — to provide insurance cover to farmers against crop losses from natural calamities and their exposure to bank loan risks.
‘’Top NBP executives were reluctant from the beginning to co-ordinate with NICL for getting insurance coverage of their production loans’’, a well-placed source in the insurance business disclosed. But the NBP changed its mind after the Prime Minister Syed Yusuf Raza Gilani, in his first speech in National Assembly put crop insurance as one of the key points on new government’s agenda.
Early last week, the NICL informed the NBP that its partners the international re-insurance companies have given a final notice of quitting support arrangement if no headway is made in crop insurance.
The NBP gave its consent to be a partner of NICL on April 2, 2008 in crop insurance after more than a year-long negotiation and correspondence. It was on Wednesday last that the President of Sindh Chamber of Agriculture, Syed Qamaruzzaman Shah told Dawn over telephone that the State Bank Governor Dr Shamshad Akhtar had informed him about launching of crop insurance from this Kharif.
The production loans to be offered for cotton, sugar cane and rice for this Kharif to the farmers by the NBP will have insurance cover. The NICL wants crop insurance to be mandatory for all borrowers. Bankers and insurance officials are now discussing whether a law will be needed to make the crop insurance mandatory for borrowers or simply a directive of SBP will serve the purpose.
Assuming all formalities for launch of crop insurance are completed within the next fortnight, bankers and insurance executives estimate a sum of Rs3-4 billion will come under insurance coverage which is hardly two per cent of the total agricultural loaning in 2007-08. About 100,000 farmers will benefit from crop insurance this year. The crop insurance will cover only a part of NBP loaning. The Zarai Tarraqiati Bank Limited (ZTBL), also a state-run bank, is still reluctant to join the insurance arrangement. Institution-wise, the ZTBL offers the highest amount of loans-Rs60 billion indicated for 2007-08- and its reach to farmers is also the highest.
Once, the crop insurance business gets going by next Rabi, we hope substantial expansion in the coming year’’ an insurance executive said. Agriculture now contributes over 20 per cent of the GDP and is worth over Rs1.4 trillion. It provides livelihood to the majority of the country’s 160 million people.
A small beginning was made in the year 2004 in the crop insurance by a few private insurance firms like East West, United Insurance, Adamjee Insurance and EFU. The East West Insurance Company has been offering crop insurance to borrowers of Punjab Bank for last four years. Its annual report for 2007 carries a few paragraphs on crop insurance but does not give figures about the volume of business.
‘’Yes, we did receive claims from farmers about damages by flood waters,’’ an official of East West Insurance in Lahore said. Most of the claims are from farmers on River Indus belt-Mianwali and Khushab. Insurance officials say that are no surveyors to assess crop losses and East West Insurance Company has been taking services of agro-economists, practicing agriculturists and knowledgeable people.
Almost a dozen districts in Punjab, seven in Sindh and a few in NWFP are considered to be ‘’flood prone’’ from where insurance companies expect loss claims. But natural calamities also hit in the form of earthquake as in October 2006 and drought for almost four years which afflicted agriculture in Sindh .
‘’We will entertain claims only after the provincial governments declare districts and parts of districts calamity affected,’’ an insurance executive explained who said the surveyors will determine the extent of damage to the crop or fruit orchards for which compensation can be paid. Insurance officials say that crop insurance will be viable only if it is made mandatory for borrowers of production loans. “The bigger the base of policy holders, the less will be impact of loss that is shared by the insurance firms,’’ he said.
But the total number of borrowers of agricultural loans is hardly half a million as the overwhelming majority of farmers---70 per cent according to an official Committee of the SBP on Rural Finance--do not enjoy access to bank loans. Small farmers do not have collaterals to offer. The provincial boards of revenue do not give them pass books.
In Sindh, as many as 250,000 small farmers have been denied pass books by the Board of Revenue, Sindh, despite repeated advice from the SBP for the last five years. Obviously, the majority of small farmers will remain outside the net of insurance cover if at any time, banks agree to co-ordinate with insurance companies for getting a cover.
‘’Documentation is a pre-requisite of insurance cover,’’ argued an insurance officer who wondered when a big part of urban economy is un-documented how it would be possible to bring agriculture under documentation and provide benefits of insurance business.” he asked.
The fact is that agriculture is key to Pakistan’s economic progress and provides strategic support to country’s industrial growth. Late Z.A. Bhutto introduced two land reforms and crop insurance in decade of the seventies. Benazir Bhutto also announced crop insurance in 1994 budget but could not make any headway because of the political events that overtook all other priorities.
The former Chief Minister of Punjab Chowdhry Pervez Elahi introduced crop insurance through Bank of Punjab and three private insurance companies in the year 2004. The benefits of crop insurance have so far been confined to only seven or eight districts of central Punjab, where, according to insurance business sources, the rate of farmers’ literacy is perhaps highest and they are far more progressive and well-connected in social terms.
While crop insurance is a way of life and established norm in developed countries, it is going through experimentation in the developing countries. In South Asia crop insurance was introduced in India in 1979-80 as a pilot scheme A Comprehensive Crop Scheme was introduced in 1985. The National Crop Insurance Scheme was introduced in 1999.
‘’A study comparing yields of 15 crops showed that the risk of loss is as high as 40-60 per cent,’’ a website report observes about crop insurance in India. The report says the crop insurance based on premium rate of one to three per cent is not an effective cover and it estimates the premium as high as 30 per cent.
How far these observations are relevant for Pakistan can be best understood by the insurance business people, farmers and the government. In India, the crop insurance losses are being shared by the Union and state (provincial) governments with the banks and insurance companies.
But in Indian Gujrat, a model co-operative dairy farming has done wonders for farmers and it offers many lessons for Pakistan where a beginning is being made in dairy business. The NICL is negotiating with a big company to provide insurance cover to animals. Private insurance companies also offer this cover but the volume is too small.
By Sabihuddin Ghausi
At long last, the stage is set to launch crop insurance in a significant manner from this Kharif by two big state institutions. The National Insurance Company Ltd (NICL) and the National Bank of Pakistan (NBP) are about to enter into an arrangement — probably within ten days — to provide insurance cover to farmers against crop losses from natural calamities and their exposure to bank loan risks.
‘’Top NBP executives were reluctant from the beginning to co-ordinate with NICL for getting insurance coverage of their production loans’’, a well-placed source in the insurance business disclosed. But the NBP changed its mind after the Prime Minister Syed Yusuf Raza Gilani, in his first speech in National Assembly put crop insurance as one of the key points on new government’s agenda.
Early last week, the NICL informed the NBP that its partners the international re-insurance companies have given a final notice of quitting support arrangement if no headway is made in crop insurance.
The NBP gave its consent to be a partner of NICL on April 2, 2008 in crop insurance after more than a year-long negotiation and correspondence. It was on Wednesday last that the President of Sindh Chamber of Agriculture, Syed Qamaruzzaman Shah told Dawn over telephone that the State Bank Governor Dr Shamshad Akhtar had informed him about launching of crop insurance from this Kharif.
The production loans to be offered for cotton, sugar cane and rice for this Kharif to the farmers by the NBP will have insurance cover. The NICL wants crop insurance to be mandatory for all borrowers. Bankers and insurance officials are now discussing whether a law will be needed to make the crop insurance mandatory for borrowers or simply a directive of SBP will serve the purpose.
Assuming all formalities for launch of crop insurance are completed within the next fortnight, bankers and insurance executives estimate a sum of Rs3-4 billion will come under insurance coverage which is hardly two per cent of the total agricultural loaning in 2007-08. About 100,000 farmers will benefit from crop insurance this year. The crop insurance will cover only a part of NBP loaning. The Zarai Tarraqiati Bank Limited (ZTBL), also a state-run bank, is still reluctant to join the insurance arrangement. Institution-wise, the ZTBL offers the highest amount of loans-Rs60 billion indicated for 2007-08- and its reach to farmers is also the highest.
Once, the crop insurance business gets going by next Rabi, we hope substantial expansion in the coming year’’ an insurance executive said. Agriculture now contributes over 20 per cent of the GDP and is worth over Rs1.4 trillion. It provides livelihood to the majority of the country’s 160 million people.
A small beginning was made in the year 2004 in the crop insurance by a few private insurance firms like East West, United Insurance, Adamjee Insurance and EFU. The East West Insurance Company has been offering crop insurance to borrowers of Punjab Bank for last four years. Its annual report for 2007 carries a few paragraphs on crop insurance but does not give figures about the volume of business.
‘’Yes, we did receive claims from farmers about damages by flood waters,’’ an official of East West Insurance in Lahore said. Most of the claims are from farmers on River Indus belt-Mianwali and Khushab. Insurance officials say that are no surveyors to assess crop losses and East West Insurance Company has been taking services of agro-economists, practicing agriculturists and knowledgeable people.
Almost a dozen districts in Punjab, seven in Sindh and a few in NWFP are considered to be ‘’flood prone’’ from where insurance companies expect loss claims. But natural calamities also hit in the form of earthquake as in October 2006 and drought for almost four years which afflicted agriculture in Sindh .
‘’We will entertain claims only after the provincial governments declare districts and parts of districts calamity affected,’’ an insurance executive explained who said the surveyors will determine the extent of damage to the crop or fruit orchards for which compensation can be paid. Insurance officials say that crop insurance will be viable only if it is made mandatory for borrowers of production loans. “The bigger the base of policy holders, the less will be impact of loss that is shared by the insurance firms,’’ he said.
But the total number of borrowers of agricultural loans is hardly half a million as the overwhelming majority of farmers---70 per cent according to an official Committee of the SBP on Rural Finance--do not enjoy access to bank loans. Small farmers do not have collaterals to offer. The provincial boards of revenue do not give them pass books.
In Sindh, as many as 250,000 small farmers have been denied pass books by the Board of Revenue, Sindh, despite repeated advice from the SBP for the last five years. Obviously, the majority of small farmers will remain outside the net of insurance cover if at any time, banks agree to co-ordinate with insurance companies for getting a cover.
‘’Documentation is a pre-requisite of insurance cover,’’ argued an insurance officer who wondered when a big part of urban economy is un-documented how it would be possible to bring agriculture under documentation and provide benefits of insurance business.” he asked.
The fact is that agriculture is key to Pakistan’s economic progress and provides strategic support to country’s industrial growth. Late Z.A. Bhutto introduced two land reforms and crop insurance in decade of the seventies. Benazir Bhutto also announced crop insurance in 1994 budget but could not make any headway because of the political events that overtook all other priorities.
The former Chief Minister of Punjab Chowdhry Pervez Elahi introduced crop insurance through Bank of Punjab and three private insurance companies in the year 2004. The benefits of crop insurance have so far been confined to only seven or eight districts of central Punjab, where, according to insurance business sources, the rate of farmers’ literacy is perhaps highest and they are far more progressive and well-connected in social terms.
While crop insurance is a way of life and established norm in developed countries, it is going through experimentation in the developing countries. In South Asia crop insurance was introduced in India in 1979-80 as a pilot scheme A Comprehensive Crop Scheme was introduced in 1985. The National Crop Insurance Scheme was introduced in 1999.
‘’A study comparing yields of 15 crops showed that the risk of loss is as high as 40-60 per cent,’’ a website report observes about crop insurance in India. The report says the crop insurance based on premium rate of one to three per cent is not an effective cover and it estimates the premium as high as 30 per cent.
How far these observations are relevant for Pakistan can be best understood by the insurance business people, farmers and the government. In India, the crop insurance losses are being shared by the Union and state (provincial) governments with the banks and insurance companies.
But in Indian Gujrat, a model co-operative dairy farming has done wonders for farmers and it offers many lessons for Pakistan where a beginning is being made in dairy business. The NICL is negotiating with a big company to provide insurance cover to animals. Private insurance companies also offer this cover but the volume is too small.
New policy framework for agriculture
Source: http://dawn.com/2008/04/07/ebr17.htm
By Ihtasham ul Haque
AFTER over six decades of industrialisation, agriculture still continues to be a major driving force to determine the overall GDP growth rate. But neglected, the agriculture growth has come down from an average 4.6 per cent in 2000 to three per cent over the last eight years.
Since the importance of agriculture can no longer be ignored, the new government plans to come up shortly with a new agriculture policy.
“We have prepared a new policy framework for development of agriculture, and no sooner the new government settles, it will be presented to it”, member, Food and Agriculture, Planning Commission Dr Abdullah Kausar Malik told Dawn. ‘Out of box’ solutions were likely to be offered to the farmers to improve the overall agricultural productivity, he added.
He regretted that the agriculture sector was neglected by Shaukat Aziz government which mainly focused on stock market and real estate. No real effort was made to boost the agriculture production, the main source of livelihood for over 66 per cent of country’s population.
“We can only propose policies and measures but cannot implement them as we are not the implementing authority”, said Dr Malik when reminded that official planners always criticised the rulers when they were no more in power.
“One of the major recommendations to the new coalition government is to inject substantial money into the agriculture sector through increased public and private investment.”
“A new wheat policy is also expected to be introduced by the new government. The commodity needs to be given full attention by the new government,” said Mr Malik adding that the PML (Q) government wasted full one year and did not find out the solution to wheat crisis. “It was due to political reasons that nobody listened to our views and warnings given over the issue were unheeded”..
“The ministry of food, agriculture and livestock is an implementing agency and whenever, we tried to convince former food and agriculture minister Sikandar Bosan, he refused to listen”.
The Planning Commission had opposed issuance of 4-5 more licenses in Punjab and Sindh for setting up of sugar mills. The issue was raised at the highest level and President Musharraf was then taken into confidence who ordered to stop the plan. “But those who knew how to get the job done, succeeded in having these new sugar mills established”, he said.
The overall prices of food commodities were increasing and no administrative measures were taken to address the issue.
In the new agriculture policy, administrative measures had been proposed including ways to ‘regulate’ flour and sugar mills. He said the Planning Commission favoured increased procurement price for wheat and other commodities unlike the thinking of the ministry of finance. The new wheat procurement price of Rs620 per 40kg will settle the flour prices at Rs17-18 per kg.
The new government will be advised that consumers should not be left on the mercy of so-called market forces and without any solid justification, no increase should be allowed in the prices of essential items like wheat, sugar, rice etc.
The new agriculture policy, Mr Malik said, would also offer increased amount of agricultural loans to farmers. “But this is not possible unless the government gears the banking system to serve the farmers.”
The banking sector was supposed to offer agricultural credit worth Rs300 billion this year but only Rs168 billion were given over which State Bank Governor Dr Shamshad Akhtar was also unhappy, he said.
“But now some of the banks including the Askari Commercial Bank plan to provide credit cards to farmers to timely buy agricultural inputs”, he said adding that initially agriculture credit ranging from Rs25,000 to Rs50,000 was expected to be offered by banks to farmers.
Mr Sartaj Aziz, former finance minister, said that distortions would have to be removed from the system to benefit the agriculture sector and to better its growth rate. “Inflation will not be controlled unless the agriculture policy is linked with the trade policy, fiscal policy and other economic policies”.
Wheat crop was an essential crop and should be given all the needed importance, he said and added that production and productivity in the agriculture sector was dependent not only on technological factors but also on the entire macroeconomic framework. This included price policy, fiscal policy, trade policy, exchange rate policy and the credit policy.
“Wheat is the most important crop in the agricultural economy of the country. It is grown each year on 8.3 million hectares which is 36 per cent of the total cropped area. It accounts for about 40 per cent of total value-added of major agricultural crops. By comparison cotton is 28 per cent, rice 15 per cent and sugarcane 10 per cent of major crops”.
He expected the new government to take immediate steps to address the multi-dimensional problems affecting the wheat economy of the country.
The former finance minister was of the view that the new government must evolve a comprehensive food security policy to ensure that all people at all times had physical and economic access to sufficient and nutritious food to meet their dietary needs and food preferences for an active and healthy life.
Former secretary food and agriculture and ex-chairman Pakistan Agricultural Research Council (Parc) Dr Zafar Altaf told Dawn that there was an urgent need to break ‘agriculture mafia’ which, according to him, had ruined the agriculture sector. He said the Fauji Foundation was selling fertiliser at higher prices despite getting subsidised gas and other incentives.
After the green revolution, he said, there was need for ‘genomic’ revolution to increase the overall agricultural production by greatly improving the soil. He regretted that both India and Pakistan could not pull themselves out from green revolution.
“It just requires Rs50-55 per acre expenditure to implement genomic revolution”, he said adding that initially there would be some dip but ultimately water holding capacity of the soil would be improved through genomic revolution.
He did not believe that there was a need to make any new investment in the agriculture sector. “You just give the fair price to farmers for their crops and it will certainly increase our overall productivity”, Dr Altaf said.
There would be just 17 or 17.5 million tons of wheat production this year, he said and added that some rains last week could slightly improve the crop. “I have been to many areas including Chakwal, Kallar Kahar and Bhaun the other day where wheat crop is in bad shape”, Dr Altaf added.
By Ihtasham ul Haque
AFTER over six decades of industrialisation, agriculture still continues to be a major driving force to determine the overall GDP growth rate. But neglected, the agriculture growth has come down from an average 4.6 per cent in 2000 to three per cent over the last eight years.
Since the importance of agriculture can no longer be ignored, the new government plans to come up shortly with a new agriculture policy.
“We have prepared a new policy framework for development of agriculture, and no sooner the new government settles, it will be presented to it”, member, Food and Agriculture, Planning Commission Dr Abdullah Kausar Malik told Dawn. ‘Out of box’ solutions were likely to be offered to the farmers to improve the overall agricultural productivity, he added.
He regretted that the agriculture sector was neglected by Shaukat Aziz government which mainly focused on stock market and real estate. No real effort was made to boost the agriculture production, the main source of livelihood for over 66 per cent of country’s population.
“We can only propose policies and measures but cannot implement them as we are not the implementing authority”, said Dr Malik when reminded that official planners always criticised the rulers when they were no more in power.
“One of the major recommendations to the new coalition government is to inject substantial money into the agriculture sector through increased public and private investment.”
“A new wheat policy is also expected to be introduced by the new government. The commodity needs to be given full attention by the new government,” said Mr Malik adding that the PML (Q) government wasted full one year and did not find out the solution to wheat crisis. “It was due to political reasons that nobody listened to our views and warnings given over the issue were unheeded”..
“The ministry of food, agriculture and livestock is an implementing agency and whenever, we tried to convince former food and agriculture minister Sikandar Bosan, he refused to listen”.
The Planning Commission had opposed issuance of 4-5 more licenses in Punjab and Sindh for setting up of sugar mills. The issue was raised at the highest level and President Musharraf was then taken into confidence who ordered to stop the plan. “But those who knew how to get the job done, succeeded in having these new sugar mills established”, he said.
The overall prices of food commodities were increasing and no administrative measures were taken to address the issue.
In the new agriculture policy, administrative measures had been proposed including ways to ‘regulate’ flour and sugar mills. He said the Planning Commission favoured increased procurement price for wheat and other commodities unlike the thinking of the ministry of finance. The new wheat procurement price of Rs620 per 40kg will settle the flour prices at Rs17-18 per kg.
The new government will be advised that consumers should not be left on the mercy of so-called market forces and without any solid justification, no increase should be allowed in the prices of essential items like wheat, sugar, rice etc.
The new agriculture policy, Mr Malik said, would also offer increased amount of agricultural loans to farmers. “But this is not possible unless the government gears the banking system to serve the farmers.”
The banking sector was supposed to offer agricultural credit worth Rs300 billion this year but only Rs168 billion were given over which State Bank Governor Dr Shamshad Akhtar was also unhappy, he said.
“But now some of the banks including the Askari Commercial Bank plan to provide credit cards to farmers to timely buy agricultural inputs”, he said adding that initially agriculture credit ranging from Rs25,000 to Rs50,000 was expected to be offered by banks to farmers.
Mr Sartaj Aziz, former finance minister, said that distortions would have to be removed from the system to benefit the agriculture sector and to better its growth rate. “Inflation will not be controlled unless the agriculture policy is linked with the trade policy, fiscal policy and other economic policies”.
Wheat crop was an essential crop and should be given all the needed importance, he said and added that production and productivity in the agriculture sector was dependent not only on technological factors but also on the entire macroeconomic framework. This included price policy, fiscal policy, trade policy, exchange rate policy and the credit policy.
“Wheat is the most important crop in the agricultural economy of the country. It is grown each year on 8.3 million hectares which is 36 per cent of the total cropped area. It accounts for about 40 per cent of total value-added of major agricultural crops. By comparison cotton is 28 per cent, rice 15 per cent and sugarcane 10 per cent of major crops”.
He expected the new government to take immediate steps to address the multi-dimensional problems affecting the wheat economy of the country.
The former finance minister was of the view that the new government must evolve a comprehensive food security policy to ensure that all people at all times had physical and economic access to sufficient and nutritious food to meet their dietary needs and food preferences for an active and healthy life.
Former secretary food and agriculture and ex-chairman Pakistan Agricultural Research Council (Parc) Dr Zafar Altaf told Dawn that there was an urgent need to break ‘agriculture mafia’ which, according to him, had ruined the agriculture sector. He said the Fauji Foundation was selling fertiliser at higher prices despite getting subsidised gas and other incentives.
After the green revolution, he said, there was need for ‘genomic’ revolution to increase the overall agricultural production by greatly improving the soil. He regretted that both India and Pakistan could not pull themselves out from green revolution.
“It just requires Rs50-55 per acre expenditure to implement genomic revolution”, he said adding that initially there would be some dip but ultimately water holding capacity of the soil would be improved through genomic revolution.
He did not believe that there was a need to make any new investment in the agriculture sector. “You just give the fair price to farmers for their crops and it will certainly increase our overall productivity”, Dr Altaf said.
There would be just 17 or 17.5 million tons of wheat production this year, he said and added that some rains last week could slightly improve the crop. “I have been to many areas including Chakwal, Kallar Kahar and Bhaun the other day where wheat crop is in bad shape”, Dr Altaf added.
Setting the development agenda
source: http://dawn.com/2008/04/07/ebr16.htm
The procurement price of wheat has been raised twice this harvesting season , from last year’s Rs425 to an aggregate Rs625 per 40 kg, to enable the government to build strategic stocks, smoothen supply chain and ensure food security.
The procurement price was determined by the surge in market demand and price of wheat. It was revised when the farmers refused to sell to the government agencies at Rs510 per 40kg, fixed by the care-taker government as it was below the market price. A de-regulated and liberalised market is now prompting a paradigm shift in official policies in favour of agriculture.
The adverse terms of trade agriculture has suffered for decades (and not adequately addressed by policymakers), is being corrected by the market forces. Over the past few years, the focus has been on the services sector and industrial consolidation. Agriculture has been largely neglected and its share in GDP has declined from around 25 per cent to just over 20 per cent in recent years, resulting in supply-demand imbalances and soaring imports of food stuff.
The latest State Bank quarterly report says that “prospects of achieving the targeted growth of 4.8 per cent for this fiscal year for agriculture “ remain dim.” Food imports are expected to reach $2.5 billion. The Trading Corporation of Pakistan has floated tenders for 1.25 million tons of wheat, slightly more than one-third of which had been imported up to January .Similarly, cotton imports amounted to $912 million during July-January to feed the textile industry. These imports are emerging a significant factor in widening trade and current account deficits.
Food security has become a major issue which cannot be resolved without placing agriculture at the centre of sustainable economic development, boosting investment in farming and delivering promptly on reforms. Agriculture which is the backbone of the national economy also provides raw materials for traditional industries and the market for industrial goods The two core issues need to be addressed are: removal of adverse terms of trade -- an impediment in rural capital formation and investment — and reduction in the wide gap between incomes of farm and industrial workers.
To quote Mr. Sartaj Aziz , a former finance minister “ the healthy increase in wheat productivity and production in 1990s was largely due to an improvement in terms of trade. That means relationship between the prices that the farmers pay for the inputs and those that they receive for their surplus output. It would be necessary to correct the adverse terms of trade for the agricultural economy by moderating the prices of the agricultural inputs and ensuring more remunerative support prices for the farmers.”
Currently, PML(N)-PPP coalition is expected to accord a high priority to agricultural development.
PPP manifesto says : “As a farmer-friendly party, the PPP will help the farmers boost production and obtain fair prices. The PML(N) is committed to provide at least 50 per cent of the total credit to farmers on the basis of “market value of the land rather than the produce index.”
The share of wheat in the total value-added of major agriculture crops is 40 per cent. Hence the rise in the official procurement price of wheat is expected to set the pace for increase in the price of other crops.
Mr Sartaj Aziz is the Chairman of the Policy Planning Committee of the PML(N) and has also served as chairman of its Manifesto Committee. The view of the two major political parties on priority for agricultural development is supported by the Planning Commission and the World Bank. There is a consensus that it is time to focus on agriculture.
The World Development Report 2008, quoted by the State Bank :”describes agriculture as the source of growth of the national economy and a provider of investment opportunities in the private sector. In addition, agricultural productivity acts as prime driver for stimulating growth in other parts of the economy and determines the price of food, which in turn, determines wage cost and competitiveness of the tradable sectors “
In fact the economy cannot be put on a sustainable path of growth without investment in modernisation and commercialisation of agriculture.—Jawaid Bokhari
The procurement price of wheat has been raised twice this harvesting season , from last year’s Rs425 to an aggregate Rs625 per 40 kg, to enable the government to build strategic stocks, smoothen supply chain and ensure food security.
The procurement price was determined by the surge in market demand and price of wheat. It was revised when the farmers refused to sell to the government agencies at Rs510 per 40kg, fixed by the care-taker government as it was below the market price. A de-regulated and liberalised market is now prompting a paradigm shift in official policies in favour of agriculture.
The adverse terms of trade agriculture has suffered for decades (and not adequately addressed by policymakers), is being corrected by the market forces. Over the past few years, the focus has been on the services sector and industrial consolidation. Agriculture has been largely neglected and its share in GDP has declined from around 25 per cent to just over 20 per cent in recent years, resulting in supply-demand imbalances and soaring imports of food stuff.
The latest State Bank quarterly report says that “prospects of achieving the targeted growth of 4.8 per cent for this fiscal year for agriculture “ remain dim.” Food imports are expected to reach $2.5 billion. The Trading Corporation of Pakistan has floated tenders for 1.25 million tons of wheat, slightly more than one-third of which had been imported up to January .Similarly, cotton imports amounted to $912 million during July-January to feed the textile industry. These imports are emerging a significant factor in widening trade and current account deficits.
Food security has become a major issue which cannot be resolved without placing agriculture at the centre of sustainable economic development, boosting investment in farming and delivering promptly on reforms. Agriculture which is the backbone of the national economy also provides raw materials for traditional industries and the market for industrial goods The two core issues need to be addressed are: removal of adverse terms of trade -- an impediment in rural capital formation and investment — and reduction in the wide gap between incomes of farm and industrial workers.
To quote Mr. Sartaj Aziz , a former finance minister “ the healthy increase in wheat productivity and production in 1990s was largely due to an improvement in terms of trade. That means relationship between the prices that the farmers pay for the inputs and those that they receive for their surplus output. It would be necessary to correct the adverse terms of trade for the agricultural economy by moderating the prices of the agricultural inputs and ensuring more remunerative support prices for the farmers.”
Currently, PML(N)-PPP coalition is expected to accord a high priority to agricultural development.
PPP manifesto says : “As a farmer-friendly party, the PPP will help the farmers boost production and obtain fair prices. The PML(N) is committed to provide at least 50 per cent of the total credit to farmers on the basis of “market value of the land rather than the produce index.”
The share of wheat in the total value-added of major agriculture crops is 40 per cent. Hence the rise in the official procurement price of wheat is expected to set the pace for increase in the price of other crops.
Mr Sartaj Aziz is the Chairman of the Policy Planning Committee of the PML(N) and has also served as chairman of its Manifesto Committee. The view of the two major political parties on priority for agricultural development is supported by the Planning Commission and the World Bank. There is a consensus that it is time to focus on agriculture.
The World Development Report 2008, quoted by the State Bank :”describes agriculture as the source of growth of the national economy and a provider of investment opportunities in the private sector. In addition, agricultural productivity acts as prime driver for stimulating growth in other parts of the economy and determines the price of food, which in turn, determines wage cost and competitiveness of the tradable sectors “
In fact the economy cannot be put on a sustainable path of growth without investment in modernisation and commercialisation of agriculture.—Jawaid Bokhari
The debt crunch and the Doha round
Source: http://dawn.com/2008/04/07/ebr15.htm
By M. Ziauddin
The rich world has been treating the Doha Development Agenda like its leadership does the two-state solution for Palestine. Talk about it at every talking opportunity even if it meant on daily basis, but do nothing.
In fact while mouthing unending rhetoric about globalisation and free world trade, the rich world has so far only lifted barriers against the free flow of financial resources that helped them among other things offshore companies to exploit the cheap labour in poor countries and the so- called emerging markets but kept raising ever higher tariff and non-tariff walls against free imports of agricultural products and manpower--the two most abundant and cheap commodities that the poor world could sell to the rich world.
Still, it does seem to have seen the writing on the wall. Just the other day using the point system (which Australia, a vast continent has been using for ages to keep the shirtless millions from its shores within which hardly more than 20 million people live) the UK believes it can promote brain drain from the poor country while at the same time consigning these countries with ever-growing burden of unskilled population.
But the islands of prosperity that the rich world thought it had created far away from the maddening poor world through its liberal financial policies first turned the rich world into one big gambling casino with every one and his auntie betting for windfall profits through private equities, hedge funds, off-balance sheet debt vehicles and derivatives with colourful abbreviations. All unregulated and backed by the same assets blown into ever bigger bubble at every transfer deal. And now the bubble has burst.
China and India had kept themselves largely out of this casino and therefore have succeeded not only in saving themselves but also many emerging markets in the process. China has so far proceeded cautiously, limiting the role of foreign banks and controlling even more tightly overseas brokerages, a sector in which local companies are especially weak.
And now of all the persons, Mr George Soros well known for his appetite for currency speculation has come out against what he calls market fundamentalist fallacy which he believes has caused the crisis. In an article in the Financial Times ( False ideology at the heart of the financial crisis--April 2) he says: Regulators ought to have known better because it was their intervention that prevented the financial system from unravelling on several occasions. Their success has reinforced the misconception that markets are self-correcting. That in turn allowed a bubble of excessive credit to develop, which extended through the entire financial system.
When the sub-prime mortgage crisis erupted it revealed all the weak points. Authorities, caught unawares, responded to each new disruption only after it occurred. They lacked the ability to foresee them because they were in the thrall of the market fundamentalist fallacy. They need a new paradigm. Market participants cannot base their decisions on knowledge, or what economists call rational expectations. There is a two-way, reflexive interaction between the participants’ biased views and misconceptions and the real state of affairs. Instead of random deviations, reflexivity may give rise to initially self-reinforcing but eventually self-defeating boom-bust sequences or bubbles.
Realising the folly ( apparently rather late) a representative of the richest club of one of the richest countries in the world says a deal on liberalising world trade is still possible and is more important than ever in the face of an uncertain global economy.
The Director-General of the CBI Richard Lambert said early last week while addressing visiting Japanese businessmen that the Doha Development Agenda was the only show in town when it comes to ridding the world of the subsidies and trade barriers which hold back prosperity and opportunity everywhere. But he warned that there are still big risks to a successful conclusion.
With the global financial markets reeling, “there are already the inevitable pressures to build up the barriers of regulation on to what has been an important driver of global growth in the past decade.”
”On top of this, we are also seeing a political pushback around the world against free trade and open markets - another prime force behind the rising growth and prosperity.
”There is, of course, a grim lesson in history. The Smoot-Hawley tariff act passed by the US Congress in the summer of 1930 was what turned the stock market crash into a Great Depression. Glass-Steagall legislation for the banking system followed shortly afterwards.”
But he argued that a deal “is still possible”, whilst warning that the current window of opportunity won’t stay open for long:
”Elections are looming in two of the key countries at the negotiating table – the US and India. Next year will bring a new European Commission. All this would put negotiations into the deep freeze for quite a while – and no one knows when and in what shape they might ultimately re-emerge.”
”Political opposition to trade liberalisation is strong because “although the benefits far outweigh the costs, they are thinly spread across the economy and take time to materialise. By contrast, the losers are much more visible and vociferous.”
”A final hurdle in the way of a successful round is that the political mood in the developed world has shifted against the idea of globalisation, which is taking the blame for growing income differentials and job insecurity in the rich countries of the West.”
”And by allocating the world’s resources more efficiently, reform would provide a means to spend more on other pressing problems, such as environmental degradation, hunger, malnutrition, and disease.
”A deal is close, and it is achievable. If we fail to grasp it now, the chance won’t come back for years. And this would not represent just a missed opportunity. Failure would seriously weaken one of the pillars of global prosperity – the rules-based multilateral trade regime.”
By M. Ziauddin
The rich world has been treating the Doha Development Agenda like its leadership does the two-state solution for Palestine. Talk about it at every talking opportunity even if it meant on daily basis, but do nothing.
In fact while mouthing unending rhetoric about globalisation and free world trade, the rich world has so far only lifted barriers against the free flow of financial resources that helped them among other things offshore companies to exploit the cheap labour in poor countries and the so- called emerging markets but kept raising ever higher tariff and non-tariff walls against free imports of agricultural products and manpower--the two most abundant and cheap commodities that the poor world could sell to the rich world.
Still, it does seem to have seen the writing on the wall. Just the other day using the point system (which Australia, a vast continent has been using for ages to keep the shirtless millions from its shores within which hardly more than 20 million people live) the UK believes it can promote brain drain from the poor country while at the same time consigning these countries with ever-growing burden of unskilled population.
But the islands of prosperity that the rich world thought it had created far away from the maddening poor world through its liberal financial policies first turned the rich world into one big gambling casino with every one and his auntie betting for windfall profits through private equities, hedge funds, off-balance sheet debt vehicles and derivatives with colourful abbreviations. All unregulated and backed by the same assets blown into ever bigger bubble at every transfer deal. And now the bubble has burst.
China and India had kept themselves largely out of this casino and therefore have succeeded not only in saving themselves but also many emerging markets in the process. China has so far proceeded cautiously, limiting the role of foreign banks and controlling even more tightly overseas brokerages, a sector in which local companies are especially weak.
And now of all the persons, Mr George Soros well known for his appetite for currency speculation has come out against what he calls market fundamentalist fallacy which he believes has caused the crisis. In an article in the Financial Times ( False ideology at the heart of the financial crisis--April 2) he says: Regulators ought to have known better because it was their intervention that prevented the financial system from unravelling on several occasions. Their success has reinforced the misconception that markets are self-correcting. That in turn allowed a bubble of excessive credit to develop, which extended through the entire financial system.
When the sub-prime mortgage crisis erupted it revealed all the weak points. Authorities, caught unawares, responded to each new disruption only after it occurred. They lacked the ability to foresee them because they were in the thrall of the market fundamentalist fallacy. They need a new paradigm. Market participants cannot base their decisions on knowledge, or what economists call rational expectations. There is a two-way, reflexive interaction between the participants’ biased views and misconceptions and the real state of affairs. Instead of random deviations, reflexivity may give rise to initially self-reinforcing but eventually self-defeating boom-bust sequences or bubbles.
Realising the folly ( apparently rather late) a representative of the richest club of one of the richest countries in the world says a deal on liberalising world trade is still possible and is more important than ever in the face of an uncertain global economy.
The Director-General of the CBI Richard Lambert said early last week while addressing visiting Japanese businessmen that the Doha Development Agenda was the only show in town when it comes to ridding the world of the subsidies and trade barriers which hold back prosperity and opportunity everywhere. But he warned that there are still big risks to a successful conclusion.
With the global financial markets reeling, “there are already the inevitable pressures to build up the barriers of regulation on to what has been an important driver of global growth in the past decade.”
”On top of this, we are also seeing a political pushback around the world against free trade and open markets - another prime force behind the rising growth and prosperity.
”There is, of course, a grim lesson in history. The Smoot-Hawley tariff act passed by the US Congress in the summer of 1930 was what turned the stock market crash into a Great Depression. Glass-Steagall legislation for the banking system followed shortly afterwards.”
But he argued that a deal “is still possible”, whilst warning that the current window of opportunity won’t stay open for long:
”Elections are looming in two of the key countries at the negotiating table – the US and India. Next year will bring a new European Commission. All this would put negotiations into the deep freeze for quite a while – and no one knows when and in what shape they might ultimately re-emerge.”
”Political opposition to trade liberalisation is strong because “although the benefits far outweigh the costs, they are thinly spread across the economy and take time to materialise. By contrast, the losers are much more visible and vociferous.”
”A final hurdle in the way of a successful round is that the political mood in the developed world has shifted against the idea of globalisation, which is taking the blame for growing income differentials and job insecurity in the rich countries of the West.”
”And by allocating the world’s resources more efficiently, reform would provide a means to spend more on other pressing problems, such as environmental degradation, hunger, malnutrition, and disease.
”A deal is close, and it is achievable. If we fail to grasp it now, the chance won’t come back for years. And this would not represent just a missed opportunity. Failure would seriously weaken one of the pillars of global prosperity – the rules-based multilateral trade regime.”
Wheat procurement and the consumers
Source: http://dawn.com/2008/04/07/ebr13.htm
By Sultan Ahmad
Prime Minister Yusuf Raza Gilani has raised the procurement price of wheat from Rs510 to Rs625 per 40 kilogramme--an increase of over 17 per cent.
He sought to quell the controversy over the wheat price by choosing the middle course between Rs510 which the caretaker government had proposed and Rs800 which the farmers had demanded. Some of the farmers had asked for Rs1000 per 40 kgs. While an increase in the procurement price will raise the income of farmers and farm workers, the floor prices in urban areas will go up.
To compensate industrial workers against high inflation, their minimum wages have also been enhanced to Rs6000. As many of the industries do not comply, the government will encourage trade unionism for pressurising the industry to pay minimum wages.
The success of procurement price-- utterly controversial for a long time—depends on the output of wheat which has to be close to official projections and not far short of that.
If the output is far short of the target and the national needs, growers will demand higher procurement price. But if the supply is adequate, all the parties can be reasonable. The last crop was over-estimated as it was below 22.5 million tones. And a lot of bitter controversy followed and wheat prices shot up..
A major factor determining the procurement price of wheat should be the cost of actual production that includes the cost of water , power, and fertilisers and other inputs. If all the cost factors go on rising and not accounted for, the farmers will feel discouraged and shift to cultivation of other competitive crops. The cost of living of those who survive on subsistence farming needs to be particularly taken care of.
When inflation is high and food inflation ranges between 12 - 18 per cent in many cities of Punjab and Sindh, small farmers need to be compensated. Steps should be taken not to let food prices aggravate inflation, as there is really no substitute for wheat as a basic food in Pakistan.
Now if the wheat prices are high, the movement of wheat has become even more expensive because of high cost of oil. So the transport policy should ensure that the high oil price do not translate into unrealistic high food prices.
The prospects of smuggling of wheat outside the country should also be kept in view, particularly to Afghanistan which is short of wheat and flour, and to the border districts of India. Earlier, wheat was exported when traders were told there would be half a million tones of surplus. But when it was revealed that there was no surplus, the smuggling did not stop, it continued. The administrative efficiency in checking smuggling, hoarding and profiteering is sadly lacking and needs to be improved.
Often the officials seek to profit by such inefficiency. The role of the local government is very important in checking smuggling but its performance is found to be grossly inadequate. The consumer who is ultimately the victim of all the social evils should be vigilant to curb such nefarious practices. The consumers feel helpless but if consumer resistance does not become a significant factor in our public life, smooth and equitable supply of the essential goods at fair prices cannot be ensured.
The government is trying to improve the distribution system through utility stores . It is also increasing the number of stores from under one thousand to six thousand. But their total number is inadequate to meet the needs of the country. However, one does not know whether the political parties in power can organise consumer resistance on a large scale in a country where shortages and scarcities are created even when there is plenty of stocks.
All official agencies need to work towards creating a fair distribution system and the political parties should realise that people cannot live by slogans alone.
To help the people, the prime minister has raised the minimum wages to Rs6000 from Rs4000 which is a substantial increase following the recent increase in wages. He has not specified whether all the farm workers are entitled to it or it applies only to industrial workers. Inflation hits all and not the better paid industry workers alone. It hits the middle classes hard. So all sections of the people who are not rich and can’t increase their emoluments automatically need relief. Finance minister Ishaq Dar has promised a new economic policy and relief to the hard pressed. Let us hope, he really helps people in fulfilling their needs.
By Sultan Ahmad
Prime Minister Yusuf Raza Gilani has raised the procurement price of wheat from Rs510 to Rs625 per 40 kilogramme--an increase of over 17 per cent.
He sought to quell the controversy over the wheat price by choosing the middle course between Rs510 which the caretaker government had proposed and Rs800 which the farmers had demanded. Some of the farmers had asked for Rs1000 per 40 kgs. While an increase in the procurement price will raise the income of farmers and farm workers, the floor prices in urban areas will go up.
To compensate industrial workers against high inflation, their minimum wages have also been enhanced to Rs6000. As many of the industries do not comply, the government will encourage trade unionism for pressurising the industry to pay minimum wages.
The success of procurement price-- utterly controversial for a long time—depends on the output of wheat which has to be close to official projections and not far short of that.
If the output is far short of the target and the national needs, growers will demand higher procurement price. But if the supply is adequate, all the parties can be reasonable. The last crop was over-estimated as it was below 22.5 million tones. And a lot of bitter controversy followed and wheat prices shot up..
A major factor determining the procurement price of wheat should be the cost of actual production that includes the cost of water , power, and fertilisers and other inputs. If all the cost factors go on rising and not accounted for, the farmers will feel discouraged and shift to cultivation of other competitive crops. The cost of living of those who survive on subsistence farming needs to be particularly taken care of.
When inflation is high and food inflation ranges between 12 - 18 per cent in many cities of Punjab and Sindh, small farmers need to be compensated. Steps should be taken not to let food prices aggravate inflation, as there is really no substitute for wheat as a basic food in Pakistan.
Now if the wheat prices are high, the movement of wheat has become even more expensive because of high cost of oil. So the transport policy should ensure that the high oil price do not translate into unrealistic high food prices.
The prospects of smuggling of wheat outside the country should also be kept in view, particularly to Afghanistan which is short of wheat and flour, and to the border districts of India. Earlier, wheat was exported when traders were told there would be half a million tones of surplus. But when it was revealed that there was no surplus, the smuggling did not stop, it continued. The administrative efficiency in checking smuggling, hoarding and profiteering is sadly lacking and needs to be improved.
Often the officials seek to profit by such inefficiency. The role of the local government is very important in checking smuggling but its performance is found to be grossly inadequate. The consumer who is ultimately the victim of all the social evils should be vigilant to curb such nefarious practices. The consumers feel helpless but if consumer resistance does not become a significant factor in our public life, smooth and equitable supply of the essential goods at fair prices cannot be ensured.
The government is trying to improve the distribution system through utility stores . It is also increasing the number of stores from under one thousand to six thousand. But their total number is inadequate to meet the needs of the country. However, one does not know whether the political parties in power can organise consumer resistance on a large scale in a country where shortages and scarcities are created even when there is plenty of stocks.
All official agencies need to work towards creating a fair distribution system and the political parties should realise that people cannot live by slogans alone.
To help the people, the prime minister has raised the minimum wages to Rs6000 from Rs4000 which is a substantial increase following the recent increase in wages. He has not specified whether all the farm workers are entitled to it or it applies only to industrial workers. Inflation hits all and not the better paid industry workers alone. It hits the middle classes hard. So all sections of the people who are not rich and can’t increase their emoluments automatically need relief. Finance minister Ishaq Dar has promised a new economic policy and relief to the hard pressed. Let us hope, he really helps people in fulfilling their needs.
The next globalisation battle
Source: http://dawn.com/2008/04/07/ebr14.htm
By Ashfak Bokhari
At last, the International Monetary Fund has been engaged by the United States to tame the Sovereign Wealth Funds (SWFs) whose share-buying spree in the advanced capitalist world has earned them hostility in recent years and their investments are being looked at with suspicion by both the officials and businessmen although these proved to be timely blessings for the sinking enterprises of repute.
The IMF staff paper released on March 22 says the Fund will draw up a blueprint of voluntary best practices for the SWFs to allay corporate America’s fears of political motivations on the former’s part. It also talks, to pretend fairness, about the SWFs’ concerns and their fears that protectionist barriers might be erected by western governments to hamper their investments as they did earlier in case of Unocal and DP World.
The working paper was released a day after the US Treasury said it has reached a series of agreements with the Abu Dhabi Investment Authority (ADIA) and Singapore’s Government Investment Corporation (GIC) covering investments in the US markets.
Creating funds to manage and invest surplus government funds is not a new phenomenon. In 1953, eight years before its independence from Britain, Kuwait established the Kuwait Investment Board to invest its surplus oil revenue. That was perhaps the first-ever “sovereign wealth fund” (SWF), although the term would not exist for another 50 years. Today’s SWFs are large pools of capital controlled by a government and invested in private markets abroad.
The funds are growing rapidly in both number and size. The largest ones were recently described as the Super Seven by the Time magazine. They are China, Russia, Abu Dhabi, Kuwait, Norway and two Singapore funds. The IMF estimated in September 2007 that SWFs control as much as $3 trillion, a figure variously estimated but growing by one trillion dollars a year. This tally could jump to $12 trillion by 2012.
Eyebrows have been raised by neo-liberal ideologues, anti-Arab lobbies, conservative economists and political analysts at the size and growth of these funds as they find the corporate-led globalisation being hijacked by a new state-led combine of financial powers.
At a time when the United States is undergoing a severe financial crisis in the wake of the collapse of several sub-prime mortgage firms and there are laud fears of depression similar to 1929, the SWFs have emerged as a stabilising factor. Their investment in the US and European banks in the first two months of this year nearly equalled half of their investments in 2007 –– a record $48.5 billion in 2007, and $24.4 billion in 2008 (two months). Singapore led the investment spree in the past 14 months: $41.7 billion or 57 per cent of the total invested since 2007, far exceeding the $10.7 billion spent by the United Arab Emirates and $8 billion by China.
The Financial Times of London has, it is interesting to note, accused the SWFs and Singapore, in particular, of taking advantage of the credit crunch in the US and the growing financial instability in the West by buying stakes in some of the world’s biggest banks. Singapore, the FT report alleged, has an ambition to become a leading financial centre. Temasek, the Singapore fund, had clinched a $4.4 billion investment in Merrill Lynch in December to save it from going bankrupt.
What is amazing in the chain of this extraordinary event, still unfolding itself, is public sector’s growing role of a saviour in the private markets of the western world, thus, turning Thatcherism and Reaganomics, the ideology of free market economy, into laughing stock after two decades.
The United States has for years preached the gospel of privatisation, calling on other countries to sell their government-owned industries to private entities. Here, it is the opposite of this gospel that is taking place. Many are asking whether cross-border investment is evolving into something new that could be called cross-border nationalisation, raising the possibility of government interference in free markets –– this time, America’s free market being interfered and their private enterprises being taken over or nationalised by the state sector of the non-West countries.
For years, says the International Herald Tribune, the Bush administration had shrugged off concerns about the trillions of dollars that the United States owes to China, Japan and oil-producing countries in the Middle East, arguing that these debts give no undue leverage to their governments. But now when these governments have started converting their debt holdings into “sovereign investment funds” and are acquiring assets in the United States and elsewhere, Americans have stated worrying without fully understanding the new phenomenon.
In a sense, the SWFs are the product of decades of the United States importing more than what it exports which built up dollar reserves of China, Japan and East Asian giants and ultimately gave birth to Sovereign Funds. Similarly, high energy prices have added trillions of dollars to profits of oil and natural gas producers, from Norway and Russia to the Middle East in recent years.
According to The Washington Post, soaring oil prices are these days facilitating one of the biggest transfers of wealth in history. Oil consumers are paying $4 billion to $5 billion more for crude oil every day than they did just five years ago and they deposited more than $2 trillion into the coffers of oil companies and oil-producing nations in 2007 alone.
With crude oil prices exceeding $100 a barrel, in fact, more than one per cent of the world’s gross domestic product is being re-distributed. Earlier oil shocks generated giant shifts in wealth but they eventually faded and economies readjusted. Current rise in petroleum prices has arrived over four years ago, and many believe it will represent a new plateau even if prices drop back somewhat in coming months. This phenomenon has helped Russia increase its federal budget ten-fold since 1999 while paying off its foreign debt and building the third-largest gold and hard-currency reserves in the world, about $425 billion.
Meanwhile, Warren Buffett, the American billionaire, has joined the debate by taking side of the Sovereign Funds. He blames the US economic policies for making way for this phenomenon and that SWFs’ recent buying spree was America’s doing, not “some nefarious plot by foreign governments”. These investments, he says, are a direct result of the US trade deficit, national debt and weak currency.
“This is our doing,” he says, the sovereign funds are only recycling debt issued by the US. Mr Buffett said. “When we force-feed $2 billion daily to the rest of the world they must invest in something here. Why should we complain when they choose stocks over bonds?”
However, two American economists, Sebastian Mallaby and Paul A. Volcker, have in a recent op-ed piece, made a surprise observation about the SWFs. They said that the next globalisation battle lurks over the horizon but one can already guess its contours. It will be shaped by two revolutions in finance and business: the growth of vast government-controlled investment funds abroad and the muddled progress toward shareholder democracy in the United States. Taken together, these changes will give foreign governments a say in how corporate America is run.
By Ashfak Bokhari
At last, the International Monetary Fund has been engaged by the United States to tame the Sovereign Wealth Funds (SWFs) whose share-buying spree in the advanced capitalist world has earned them hostility in recent years and their investments are being looked at with suspicion by both the officials and businessmen although these proved to be timely blessings for the sinking enterprises of repute.
The IMF staff paper released on March 22 says the Fund will draw up a blueprint of voluntary best practices for the SWFs to allay corporate America’s fears of political motivations on the former’s part. It also talks, to pretend fairness, about the SWFs’ concerns and their fears that protectionist barriers might be erected by western governments to hamper their investments as they did earlier in case of Unocal and DP World.
The working paper was released a day after the US Treasury said it has reached a series of agreements with the Abu Dhabi Investment Authority (ADIA) and Singapore’s Government Investment Corporation (GIC) covering investments in the US markets.
Creating funds to manage and invest surplus government funds is not a new phenomenon. In 1953, eight years before its independence from Britain, Kuwait established the Kuwait Investment Board to invest its surplus oil revenue. That was perhaps the first-ever “sovereign wealth fund” (SWF), although the term would not exist for another 50 years. Today’s SWFs are large pools of capital controlled by a government and invested in private markets abroad.
The funds are growing rapidly in both number and size. The largest ones were recently described as the Super Seven by the Time magazine. They are China, Russia, Abu Dhabi, Kuwait, Norway and two Singapore funds. The IMF estimated in September 2007 that SWFs control as much as $3 trillion, a figure variously estimated but growing by one trillion dollars a year. This tally could jump to $12 trillion by 2012.
Eyebrows have been raised by neo-liberal ideologues, anti-Arab lobbies, conservative economists and political analysts at the size and growth of these funds as they find the corporate-led globalisation being hijacked by a new state-led combine of financial powers.
At a time when the United States is undergoing a severe financial crisis in the wake of the collapse of several sub-prime mortgage firms and there are laud fears of depression similar to 1929, the SWFs have emerged as a stabilising factor. Their investment in the US and European banks in the first two months of this year nearly equalled half of their investments in 2007 –– a record $48.5 billion in 2007, and $24.4 billion in 2008 (two months). Singapore led the investment spree in the past 14 months: $41.7 billion or 57 per cent of the total invested since 2007, far exceeding the $10.7 billion spent by the United Arab Emirates and $8 billion by China.
The Financial Times of London has, it is interesting to note, accused the SWFs and Singapore, in particular, of taking advantage of the credit crunch in the US and the growing financial instability in the West by buying stakes in some of the world’s biggest banks. Singapore, the FT report alleged, has an ambition to become a leading financial centre. Temasek, the Singapore fund, had clinched a $4.4 billion investment in Merrill Lynch in December to save it from going bankrupt.
What is amazing in the chain of this extraordinary event, still unfolding itself, is public sector’s growing role of a saviour in the private markets of the western world, thus, turning Thatcherism and Reaganomics, the ideology of free market economy, into laughing stock after two decades.
The United States has for years preached the gospel of privatisation, calling on other countries to sell their government-owned industries to private entities. Here, it is the opposite of this gospel that is taking place. Many are asking whether cross-border investment is evolving into something new that could be called cross-border nationalisation, raising the possibility of government interference in free markets –– this time, America’s free market being interfered and their private enterprises being taken over or nationalised by the state sector of the non-West countries.
For years, says the International Herald Tribune, the Bush administration had shrugged off concerns about the trillions of dollars that the United States owes to China, Japan and oil-producing countries in the Middle East, arguing that these debts give no undue leverage to their governments. But now when these governments have started converting their debt holdings into “sovereign investment funds” and are acquiring assets in the United States and elsewhere, Americans have stated worrying without fully understanding the new phenomenon.
In a sense, the SWFs are the product of decades of the United States importing more than what it exports which built up dollar reserves of China, Japan and East Asian giants and ultimately gave birth to Sovereign Funds. Similarly, high energy prices have added trillions of dollars to profits of oil and natural gas producers, from Norway and Russia to the Middle East in recent years.
According to The Washington Post, soaring oil prices are these days facilitating one of the biggest transfers of wealth in history. Oil consumers are paying $4 billion to $5 billion more for crude oil every day than they did just five years ago and they deposited more than $2 trillion into the coffers of oil companies and oil-producing nations in 2007 alone.
With crude oil prices exceeding $100 a barrel, in fact, more than one per cent of the world’s gross domestic product is being re-distributed. Earlier oil shocks generated giant shifts in wealth but they eventually faded and economies readjusted. Current rise in petroleum prices has arrived over four years ago, and many believe it will represent a new plateau even if prices drop back somewhat in coming months. This phenomenon has helped Russia increase its federal budget ten-fold since 1999 while paying off its foreign debt and building the third-largest gold and hard-currency reserves in the world, about $425 billion.
Meanwhile, Warren Buffett, the American billionaire, has joined the debate by taking side of the Sovereign Funds. He blames the US economic policies for making way for this phenomenon and that SWFs’ recent buying spree was America’s doing, not “some nefarious plot by foreign governments”. These investments, he says, are a direct result of the US trade deficit, national debt and weak currency.
“This is our doing,” he says, the sovereign funds are only recycling debt issued by the US. Mr Buffett said. “When we force-feed $2 billion daily to the rest of the world they must invest in something here. Why should we complain when they choose stocks over bonds?”
However, two American economists, Sebastian Mallaby and Paul A. Volcker, have in a recent op-ed piece, made a surprise observation about the SWFs. They said that the next globalisation battle lurks over the horizon but one can already guess its contours. It will be shaped by two revolutions in finance and business: the growth of vast government-controlled investment funds abroad and the muddled progress toward shareholder democracy in the United States. Taken together, these changes will give foreign governments a say in how corporate America is run.
Changing the petroleum pricing structure
Source: http://dawn.com/2008/04/07/ebr12.htm
By Tariq Ahmed Saeedi
While high international oil price impact its domestic price, the local consumers can be somewhat benefited, if the price structure, especially of the ex-depot rates of motor gasoline (petrol) and of light diesel oil, was to be managed with prudence.
After a moratorium of more than a year, the government finally raised the domestic prices last month to adjust these gradually with the foreign market prices. First, the ex-depot price of local motor gasoline was jacked up by around Rs4 per litre bringing it to Rs58.70, followed by an upward revision that increased the gasoline to Rs62.81, again a rise of around Rs4. The break- up of price of petroleum products shows a combination of prescribed and ex-depot price wherein general sales tax inflates the price of motor gasoline.
Equalising of the ex-depot price to the level of prescribed price of motor gasoline can give a relief of about Rs10 per litre to consumers because of the low determination of the prescribed price. The ex-depot price of motor gasoline in the latest petroleum products price rise was determined as Rs62.81 while prescribed price was Rs51.25 per litre. Similarly, ex-depot price of light diesel oil per litre was Rs38.59 compared to Rs30.73 prescribed price.
Usually, prescribed price has a difference of more than Rs10 with the maximum ex-depot price and absorbs usually ex-refinery import parity price, excise duty, petroleum development levy, dealers’ commission and distributors’ margin of oil marketing companies while ex-depot price per litre of motor gasoline includes general sales tax and inland freight margin.
After application of these levies, the government is unlikely to lose by waiving GST and freight margin over ex-depot price. There is no likelihood of setback in distributor or dealer profit margins in case of bringing ex-depot price at par with the prescribed price.
General sales tax and inland freight margin result in approximately 18 per cent cost addition to the ex-depot price per litre, wherein only GST head adds up to nearly 15 per cent to the consumer price per litre.
Chairman, Petroleum Dealers Association, Abdul Sami Khan says that 30 per cent taxes on petrol (motor gasoline) throughout supply chain must be withdrawn to lower consumer price of petrol to a suitable level.
“Of course, commission of oil marketing companies should be brought to a justifiable level,” he adds. The government can bring down petrol price by eliminating sales tax at least on retail and sales outlet to consumers.
In the past, the motor gasoline price per litre for direct and retail consumer was different. Government departments, public sector companies, defence, and Pakistan Railways were provided a Rs3 concession on market price of premium motor gasoline per litre by oil marketing companies. But in the mid-2007 the disparity was removed.
The transport sector is directly hit if diesel or motor gasoline prices go up. High transport costs affect the public and also raise costs in supply chain of raw materials, consumer goods and exportable items.
The government should also have evaluated the impact density prior to fare-raise of Rs2 per kilometer of taxis and rickshaws as this would have shown that actual increase in cost of a diesel-run taxi per kilometer following latest revision of diesel price had not exceeded over Re0.20. However, Rs0.20 per kilometer fare-raise was allowed to inter-city bus transports.
Since public transports carry passengers-load in excess of pre-defined limit in violation of motor vehicle act they already earn more fares per journey than made-for. Instead of seat-by-seat travelling, the passengers are stuffed in buses and coaches to travel. It gives additional profits to transporters.
Dr Tahir Soomro, former EDO, Transport & Communications says that rise in public transport fare was inevitable as cost of rendering transport services increases. Increase in transport fare is justifiable.
Industry is dependent on imported oil products and their industrial requirements cannot be denied. However, when the import bill of crude oil is touching an all time high record, shift to alternate energy resource becomes imperative.
This shift is important for running public transportation sector. CNG use must be promoted, says Abdul Sami, who also holds chairmanship of CNG Dealers Association. CNG air-conditioned public transports can be introduced. Since Pakistan in general and Sindh in particular are self-sufficient in natural gas, we wouldn’t be running out of gas soon. So far, 2,000 CNG stations have been set up across the country and 1000 more are underway. The government needs to review the CNG rates and petroleum price structure.
By Tariq Ahmed Saeedi
While high international oil price impact its domestic price, the local consumers can be somewhat benefited, if the price structure, especially of the ex-depot rates of motor gasoline (petrol) and of light diesel oil, was to be managed with prudence.
After a moratorium of more than a year, the government finally raised the domestic prices last month to adjust these gradually with the foreign market prices. First, the ex-depot price of local motor gasoline was jacked up by around Rs4 per litre bringing it to Rs58.70, followed by an upward revision that increased the gasoline to Rs62.81, again a rise of around Rs4. The break- up of price of petroleum products shows a combination of prescribed and ex-depot price wherein general sales tax inflates the price of motor gasoline.
Equalising of the ex-depot price to the level of prescribed price of motor gasoline can give a relief of about Rs10 per litre to consumers because of the low determination of the prescribed price. The ex-depot price of motor gasoline in the latest petroleum products price rise was determined as Rs62.81 while prescribed price was Rs51.25 per litre. Similarly, ex-depot price of light diesel oil per litre was Rs38.59 compared to Rs30.73 prescribed price.
Usually, prescribed price has a difference of more than Rs10 with the maximum ex-depot price and absorbs usually ex-refinery import parity price, excise duty, petroleum development levy, dealers’ commission and distributors’ margin of oil marketing companies while ex-depot price per litre of motor gasoline includes general sales tax and inland freight margin.
After application of these levies, the government is unlikely to lose by waiving GST and freight margin over ex-depot price. There is no likelihood of setback in distributor or dealer profit margins in case of bringing ex-depot price at par with the prescribed price.
General sales tax and inland freight margin result in approximately 18 per cent cost addition to the ex-depot price per litre, wherein only GST head adds up to nearly 15 per cent to the consumer price per litre.
Chairman, Petroleum Dealers Association, Abdul Sami Khan says that 30 per cent taxes on petrol (motor gasoline) throughout supply chain must be withdrawn to lower consumer price of petrol to a suitable level.
“Of course, commission of oil marketing companies should be brought to a justifiable level,” he adds. The government can bring down petrol price by eliminating sales tax at least on retail and sales outlet to consumers.
In the past, the motor gasoline price per litre for direct and retail consumer was different. Government departments, public sector companies, defence, and Pakistan Railways were provided a Rs3 concession on market price of premium motor gasoline per litre by oil marketing companies. But in the mid-2007 the disparity was removed.
The transport sector is directly hit if diesel or motor gasoline prices go up. High transport costs affect the public and also raise costs in supply chain of raw materials, consumer goods and exportable items.
The government should also have evaluated the impact density prior to fare-raise of Rs2 per kilometer of taxis and rickshaws as this would have shown that actual increase in cost of a diesel-run taxi per kilometer following latest revision of diesel price had not exceeded over Re0.20. However, Rs0.20 per kilometer fare-raise was allowed to inter-city bus transports.
Since public transports carry passengers-load in excess of pre-defined limit in violation of motor vehicle act they already earn more fares per journey than made-for. Instead of seat-by-seat travelling, the passengers are stuffed in buses and coaches to travel. It gives additional profits to transporters.
Dr Tahir Soomro, former EDO, Transport & Communications says that rise in public transport fare was inevitable as cost of rendering transport services increases. Increase in transport fare is justifiable.
Industry is dependent on imported oil products and their industrial requirements cannot be denied. However, when the import bill of crude oil is touching an all time high record, shift to alternate energy resource becomes imperative.
This shift is important for running public transportation sector. CNG use must be promoted, says Abdul Sami, who also holds chairmanship of CNG Dealers Association. CNG air-conditioned public transports can be introduced. Since Pakistan in general and Sindh in particular are self-sufficient in natural gas, we wouldn’t be running out of gas soon. So far, 2,000 CNG stations have been set up across the country and 1000 more are underway. The government needs to review the CNG rates and petroleum price structure.
Increasing yield of ratoon sugarcane
Source: http://dawn.com/2008/04/07/ebr7.htm
By Atique-ur-Rehman and Dr Ehsan Ullah
SUGARCANE, an important cash crop, is grown on 4.5 per cent of the total cropped area of the country. Ranking fifth in the world in growing sugarcane on area basis, the country has 12th position as regards recovery of sugar from the cane.
One of the major reasons of low yield is the poor management of the ratoon crop. Sugarcane ratoon occupies more than 50 per cent of the total sugarcane area in the country. However, its contribution to the total cane production is about 25-30 per cent. Productivity of ratoon crop is 10 to 30 per cent less than the plant crop of sugarcane.
Ratoon sugarcane is not given due attention as a result its productivity is less than the plant crop. However, it has been established through research that if the crop is grown adopting proper ratoon management technology, the yield could be much higher than obtained from the plant crop.
Growing ratoon crop costs less than plant cane and therefore, achieving high yielding ratoon cane is a valuable objective. This crop is most economical by 25-30 per cent saving in operational cost along with seed material. There is no need for preparatory tillage to grow this crop. Ratoon cane matures earlier than plant cane and thus early supply of cane is assured. As the crop matures earlier, harvesting is easier and field is available for the timely sowing of the next crop.
The ratoon crop often gives better quality than plant cane and also better sugar recovery. Low yield of this crop is mainly due the low and differential ratooning potential of cultivars and suboptimal crop management. Other reasons for low yield of this crop include formation of toxic substances in the rhizosphere, low nutrient uptake ability of ratoon, depletion of soil nutrients, shallow ratooning, soil compaction and increased incidence of pests and diseases.
For growing ratoon cane crop, late maturing varieties with good yield are suitable. Early maturing varieties should be avoided because these are poor ratooners. Proper time for this crop is very important for good yield. Spring harvested crop give better ratoon than autumn harvested due to moderate temperature which is most conducive for stubble sprouting. Plant crop should be harvested close to the ground level for optimum tillering.
Yield of ratoon cane mainly depends on the number tillers from the stubbles of the previous crop. Timely stubble shaving or inter row cultivation is usually carried out to straighten the rows. This is done to expose the subterranean area and to facilitate the germination of deeply located healthy buds. This will loose the soil and help to develop a deep root system which is important for nutrient uptake and water absorption from deeper soil profile.
By harvesting of plant crop, there may be some gaps due to the death of stubbles. A good ratoon crop should have not more than 15 per cent gaps of the total population. Gap filling should be done with healthy and disease free plants..
Sugarcane ratoon crop has high demand for fertiliser because of shallow root system, decaying of old roots, sprouting of stubble buds and immobilisation of nitrogen. It is, therefore, recommended 25-30 per cent more fertiliser for ratoon crop than the plant crop. Experiments show that a nitrogen rate of about 210 kg ha-1 along some nitrogen fixers such as Azotobacter and Azospirillum has a significant effect on ratoon cane yield. Phosphorous and potassium both at the rate of 85 kg ha-1 are recommended for ratoon crop. In case of micronutrient deficient soils, foliar application of micronutrients play a vital role to optimise the yield.
Ratoon crop has shallow root system and hence require more number of irrigations. Moisture conservation practices such as mulching should be used to decrease number of irrigation. Mulching of previous crop residue helped not only to conserve soil moisture but also to increase the organic matter in to the soil. This also suppresses the weed growth and improves fertilizer use efficiency of the crop. In spite of crop residue, addition of cow dung, slurry or press mud may be used for this purpose. A number of irrigations of 15-20 with an interval of 20-25 days interval is sufficient for ratoon crop.
Excessive tillering of ratoon crop is a desired character for optimum yield. For this purpose earthing up and moulding up is done to facilitate the germinated buds to develop into a useful tiller. This also helps prevent the crop against lodging and weeding out the pest plants.
Lodging of the crop has an adverse effect on the yield by increasing the disease and other pest infestation. Proper practices to avoid lodging are necessary for good yield. To prevent the crop against lodging, propping is done by tying the canes together with dry leaves and bottom green leaves.
Protection of crop against diseases and insect pests is necessary for good yield. Insect pests specific to ratoon crop are termites, mealy bugs, top borer, stem borer, root borer, white fly, army worm, sugarcane leafhopper and field cricket. Diseases associated ratoons are smut, grassy shoot disease and ratoon stunting disease. These can be controlled by the removal of poor stubbles, growing disease resistant varieties and proper management practices.
Intercropping in ratoon cane crop is an important practice which can increases the income for the farmer from the same field. Intercropping of berseem and wheat shows a significant increase in the income per hectare. Besides the berseem and wheat, intercropping of pumpkin and water melon is also useful. Sugarcane crop planted in strips is most suitable for the intercropping of other crops.
By Atique-ur-Rehman and Dr Ehsan Ullah
SUGARCANE, an important cash crop, is grown on 4.5 per cent of the total cropped area of the country. Ranking fifth in the world in growing sugarcane on area basis, the country has 12th position as regards recovery of sugar from the cane.
One of the major reasons of low yield is the poor management of the ratoon crop. Sugarcane ratoon occupies more than 50 per cent of the total sugarcane area in the country. However, its contribution to the total cane production is about 25-30 per cent. Productivity of ratoon crop is 10 to 30 per cent less than the plant crop of sugarcane.
Ratoon sugarcane is not given due attention as a result its productivity is less than the plant crop. However, it has been established through research that if the crop is grown adopting proper ratoon management technology, the yield could be much higher than obtained from the plant crop.
Growing ratoon crop costs less than plant cane and therefore, achieving high yielding ratoon cane is a valuable objective. This crop is most economical by 25-30 per cent saving in operational cost along with seed material. There is no need for preparatory tillage to grow this crop. Ratoon cane matures earlier than plant cane and thus early supply of cane is assured. As the crop matures earlier, harvesting is easier and field is available for the timely sowing of the next crop.
The ratoon crop often gives better quality than plant cane and also better sugar recovery. Low yield of this crop is mainly due the low and differential ratooning potential of cultivars and suboptimal crop management. Other reasons for low yield of this crop include formation of toxic substances in the rhizosphere, low nutrient uptake ability of ratoon, depletion of soil nutrients, shallow ratooning, soil compaction and increased incidence of pests and diseases.
For growing ratoon cane crop, late maturing varieties with good yield are suitable. Early maturing varieties should be avoided because these are poor ratooners. Proper time for this crop is very important for good yield. Spring harvested crop give better ratoon than autumn harvested due to moderate temperature which is most conducive for stubble sprouting. Plant crop should be harvested close to the ground level for optimum tillering.
Yield of ratoon cane mainly depends on the number tillers from the stubbles of the previous crop. Timely stubble shaving or inter row cultivation is usually carried out to straighten the rows. This is done to expose the subterranean area and to facilitate the germination of deeply located healthy buds. This will loose the soil and help to develop a deep root system which is important for nutrient uptake and water absorption from deeper soil profile.
By harvesting of plant crop, there may be some gaps due to the death of stubbles. A good ratoon crop should have not more than 15 per cent gaps of the total population. Gap filling should be done with healthy and disease free plants..
Sugarcane ratoon crop has high demand for fertiliser because of shallow root system, decaying of old roots, sprouting of stubble buds and immobilisation of nitrogen. It is, therefore, recommended 25-30 per cent more fertiliser for ratoon crop than the plant crop. Experiments show that a nitrogen rate of about 210 kg ha-1 along some nitrogen fixers such as Azotobacter and Azospirillum has a significant effect on ratoon cane yield. Phosphorous and potassium both at the rate of 85 kg ha-1 are recommended for ratoon crop. In case of micronutrient deficient soils, foliar application of micronutrients play a vital role to optimise the yield.
Ratoon crop has shallow root system and hence require more number of irrigations. Moisture conservation practices such as mulching should be used to decrease number of irrigation. Mulching of previous crop residue helped not only to conserve soil moisture but also to increase the organic matter in to the soil. This also suppresses the weed growth and improves fertilizer use efficiency of the crop. In spite of crop residue, addition of cow dung, slurry or press mud may be used for this purpose. A number of irrigations of 15-20 with an interval of 20-25 days interval is sufficient for ratoon crop.
Excessive tillering of ratoon crop is a desired character for optimum yield. For this purpose earthing up and moulding up is done to facilitate the germinated buds to develop into a useful tiller. This also helps prevent the crop against lodging and weeding out the pest plants.
Lodging of the crop has an adverse effect on the yield by increasing the disease and other pest infestation. Proper practices to avoid lodging are necessary for good yield. To prevent the crop against lodging, propping is done by tying the canes together with dry leaves and bottom green leaves.
Protection of crop against diseases and insect pests is necessary for good yield. Insect pests specific to ratoon crop are termites, mealy bugs, top borer, stem borer, root borer, white fly, army worm, sugarcane leafhopper and field cricket. Diseases associated ratoons are smut, grassy shoot disease and ratoon stunting disease. These can be controlled by the removal of poor stubbles, growing disease resistant varieties and proper management practices.
Intercropping in ratoon cane crop is an important practice which can increases the income for the farmer from the same field. Intercropping of berseem and wheat shows a significant increase in the income per hectare. Besides the berseem and wheat, intercropping of pumpkin and water melon is also useful. Sugarcane crop planted in strips is most suitable for the intercropping of other crops.
Pricing of agricultural produce
Source: http://dawn.com/2008/04/07/ebr4.htm
By M. Shafi Niaz
Support and procurement prices of wheat are two different modes by which the price issue is tackled. Going by different public statements, the same word is commonly used to identify these two different modes. Thus it seems quite pertinent to define clearly these terms to prevent misperception among stakeholders.
Strictly speaking, there are five types of prices that are being used internationally and any one country uses one or more types that are found suitable to its local conditions.
These different types are: monopoly price; procurement price; support price; free-market price and administrative price. It indicates a wide range of agricultural pricing policies that have been opted to achieve the desired objectives.
Monopoly prices: These are the prices fixed by the government at which the producer must sell his produce to the government or its designated/authorised agency. Such prices are generally lower than the market prices. In such a policy, the movement of the produce from one place to the other is generally prohibited. The system is rigid and does work against the interest of the farmers but helps the welfare of the consumers.
Such a system was followed by the government at the time of independence and was applicable in the case of wheat and rice – particularly basmati rice. At times, the same system was also followed in the case of sugar industry. This allowed the sugar-mills to buy sugarcane from the growers at a fixed price to produce given quantities of sugar. The government used to purchase sugar from the mills at a pre-determined price which supplied to the public at a given price under the then prevalent system of rationing.
In fact, each sugar mill was allotted certain areas of sugarcane growers called ‘zones’. The farmers were obliged to sell their cane to the specified mills and no one else. The system worked against the interest of the farmers and the beneficiaries were the mill owners. The mills would buy the produce according to their will and needs. Sometimes, the lifting of sugarcane was so late that the sowing of the following crop which normally is wheat, was delayed adversely affecting the production of the crop.
Procurement Prices: These prices are fixed by the government to enable it to buy the produce from the farmers when required for either issuing to the consumers at a given price, and/or supply to the military personnel or to building strategic or otherwise reserve stocks to stabilise prices during the year. When the government gave up its fixed price policy in 1950, it was resorted to procurement price system.
According to this system, there is generally no restriction on the growers to sell their produce in the open market but the government would reserve the right to purchase the produce anytime at a price to be announced by it. The price thus fixed is generally lower than the market price, which worked against the interests of the farmers. At times it led the farmers to shift to another equally income-giving crop.
Support Prices: This is the minimum guaranteed price which the growers must get for his produce should the market price tend to fall below the fixed support price which generally happens immediately after the harvest is over, particularly when a bumper crop is reaped. In such cases, the government is morally bound to purchase all the produce offered to it by the growers.
In case, the free market price is higher than the support price, the farmers are free to sell their produce to anyone and anywhere. Such a policy is helpful to the farmers in raising their production of the relevant crop.
This gives security and certainty to the farmers when they know that at least they would get what they have spent and some more. The support price is generally somewhat higher than that the cost of production which, as in the case of Pakistan, had been meticulously determined keeping all the relevant factors in view by the Agriculture Prices Commission until couple of years back.
However, unfortunately, due to the pressure of international aid giving organisations like IBRD, Asian Development Bank and IMF, the local financial wizards i.e. the prime minister, the finance minister and special finance secretary succumbed to their pressure to give up support price system.
This system has almost fizzled out gradually. The Agriculture Prices Commission (APCom) has been forced to die its natural death. It then became an attached department losing its autonomous status and later was converted to Agriculture Policy Institute.
The Agricultural Development Commissioner,despite his multifarious duties, is given the additional charge of Chairman of API, a position that hardly exists under the changed status of the institute. The reports, if prepared by the new organisation, are hardly considered by the decision- making authorities. Some say that decisions are taken on ad hoc basis without taking into account the cost of production and other relevant factors while making recommendations of support price of any crop. The recent examples of such a nature are being cited for the wheat crop 2006-2007 and 2007-2008.
Free market prices: These are the prices which exist without any government control and generally represent the equilibrium prices arrived at by the supply and demand relationship.
In such a structure, the farmers benefit in a poor crop year when the supply turns out to be short of demand, but do suffer in a bumper crop year when the supply and demand position is reversed. In a situation when there would be excess supply or otherwise, the farmers feel insecure and uncertain as to the ultimate fate of their crop. And it was one of the main reasons when the government decided to adopt the support price system in 1981 as this would also help them to use it in favour of changing cropping pattern.
Administered prices: These are the prices which the government administers through the intervention for the benefit of producers as well as consumers. Therefore, it could be either monopoly prices, support prices, or the prices at which the government issues the agricultural commodities to the consumers.
At this stage of the wheat crop, when it is being harvested in Sindh to be followed by Punjab in mid-April, it would be right to say that the government is revising its support price. It should be the procurement price at which the government intends to procure wheat for its multiple purposes.
By M. Shafi Niaz
Support and procurement prices of wheat are two different modes by which the price issue is tackled. Going by different public statements, the same word is commonly used to identify these two different modes. Thus it seems quite pertinent to define clearly these terms to prevent misperception among stakeholders.
Strictly speaking, there are five types of prices that are being used internationally and any one country uses one or more types that are found suitable to its local conditions.
These different types are: monopoly price; procurement price; support price; free-market price and administrative price. It indicates a wide range of agricultural pricing policies that have been opted to achieve the desired objectives.
Monopoly prices: These are the prices fixed by the government at which the producer must sell his produce to the government or its designated/authorised agency. Such prices are generally lower than the market prices. In such a policy, the movement of the produce from one place to the other is generally prohibited. The system is rigid and does work against the interest of the farmers but helps the welfare of the consumers.
Such a system was followed by the government at the time of independence and was applicable in the case of wheat and rice – particularly basmati rice. At times, the same system was also followed in the case of sugar industry. This allowed the sugar-mills to buy sugarcane from the growers at a fixed price to produce given quantities of sugar. The government used to purchase sugar from the mills at a pre-determined price which supplied to the public at a given price under the then prevalent system of rationing.
In fact, each sugar mill was allotted certain areas of sugarcane growers called ‘zones’. The farmers were obliged to sell their cane to the specified mills and no one else. The system worked against the interest of the farmers and the beneficiaries were the mill owners. The mills would buy the produce according to their will and needs. Sometimes, the lifting of sugarcane was so late that the sowing of the following crop which normally is wheat, was delayed adversely affecting the production of the crop.
Procurement Prices: These prices are fixed by the government to enable it to buy the produce from the farmers when required for either issuing to the consumers at a given price, and/or supply to the military personnel or to building strategic or otherwise reserve stocks to stabilise prices during the year. When the government gave up its fixed price policy in 1950, it was resorted to procurement price system.
According to this system, there is generally no restriction on the growers to sell their produce in the open market but the government would reserve the right to purchase the produce anytime at a price to be announced by it. The price thus fixed is generally lower than the market price, which worked against the interests of the farmers. At times it led the farmers to shift to another equally income-giving crop.
Support Prices: This is the minimum guaranteed price which the growers must get for his produce should the market price tend to fall below the fixed support price which generally happens immediately after the harvest is over, particularly when a bumper crop is reaped. In such cases, the government is morally bound to purchase all the produce offered to it by the growers.
In case, the free market price is higher than the support price, the farmers are free to sell their produce to anyone and anywhere. Such a policy is helpful to the farmers in raising their production of the relevant crop.
This gives security and certainty to the farmers when they know that at least they would get what they have spent and some more. The support price is generally somewhat higher than that the cost of production which, as in the case of Pakistan, had been meticulously determined keeping all the relevant factors in view by the Agriculture Prices Commission until couple of years back.
However, unfortunately, due to the pressure of international aid giving organisations like IBRD, Asian Development Bank and IMF, the local financial wizards i.e. the prime minister, the finance minister and special finance secretary succumbed to their pressure to give up support price system.
This system has almost fizzled out gradually. The Agriculture Prices Commission (APCom) has been forced to die its natural death. It then became an attached department losing its autonomous status and later was converted to Agriculture Policy Institute.
The Agricultural Development Commissioner,despite his multifarious duties, is given the additional charge of Chairman of API, a position that hardly exists under the changed status of the institute. The reports, if prepared by the new organisation, are hardly considered by the decision- making authorities. Some say that decisions are taken on ad hoc basis without taking into account the cost of production and other relevant factors while making recommendations of support price of any crop. The recent examples of such a nature are being cited for the wheat crop 2006-2007 and 2007-2008.
Free market prices: These are the prices which exist without any government control and generally represent the equilibrium prices arrived at by the supply and demand relationship.
In such a structure, the farmers benefit in a poor crop year when the supply turns out to be short of demand, but do suffer in a bumper crop year when the supply and demand position is reversed. In a situation when there would be excess supply or otherwise, the farmers feel insecure and uncertain as to the ultimate fate of their crop. And it was one of the main reasons when the government decided to adopt the support price system in 1981 as this would also help them to use it in favour of changing cropping pattern.
Administered prices: These are the prices which the government administers through the intervention for the benefit of producers as well as consumers. Therefore, it could be either monopoly prices, support prices, or the prices at which the government issues the agricultural commodities to the consumers.
At this stage of the wheat crop, when it is being harvested in Sindh to be followed by Punjab in mid-April, it would be right to say that the government is revising its support price. It should be the procurement price at which the government intends to procure wheat for its multiple purposes.
Mass Starvation in a World of Plenty
Source: http://jtcontracelsum.blogspot.com/2008/04/mass-starvation-in-world-of-plenty.html
There's a Rampaging Green Elephant in the Room and It's Man Made
There is no shortage of food in the world—only bad policies and governance. Can this really be true? After all, hunger is now on the rise again. Central Africa, for example, is a region where more than one third of people are hungry—that is, they do not get sufficient food. In India and Bolivia between a third and a fifth of the population do not get adequate food—they are malnourished.
Yet, last year saw a record world cereal harvest. Rising food prices will stimulate new investment and even greater production in the future. So, the experts say, there is no shortage of food in the world. (The Economist, 28th March, 2008). But global food prices are telling a very different story—and prices rarely lie.
Food, like any other tradeable good or service, is subject to the normal cyclical market forces of supply and demand. For the past five years, world food stocks have been decreasing, even while production has increased. Why? Well, demand has also increased—and it has increased more quickly than supply. There have been two long term reasons for this.
The first is the gradual, steady rise in world population. While overall population growth has slowed since the mid last century, it is still “ticking over”. The US Census Bureau projects that at current growth rates world population will have doubled by 2050. More mouths to feed mean inevitably a growing demand for food.
The second factor is rising living standards, particularly throughout Asia and the Middle East. As living standards rise, the “first” thing people do is eat more food. The second thing they do is change what they eat. They move from a cereal or starch based diet to a higher protein (Western) diet.
These two factors have led to demand outstripping supply over the past five years. More mouths to feed, and more food being eaten per mouth, as it were. When this happens we can expect the normal market, cyclical market response. Prices rise, leading to a short term lessening of demand. But, a second factor normally comes into play—namely, higher prices lead to greater profits for food producers, which incentivises them to invest more, to produce more—which eventually leads to greater supply. Eventually, of course, the market settles down to a general equilibrium point.
The food aid people tell us that this normal market mechanism appears to be working, and that the supply of food—as measured by the amount of grown—is rising in response to the higher prices. So, we should expect that food prices will eventually peak and track down again. Right? Well, no—at least not anytime soon.
Why? As we have described, the food market was at the critical point of a cyclical re-adjustment. Food stocks were falling, demand was rising, and prices were trending upwards. Farmers got busier and supply started to react, trending upwards. Then came the rogue element. It entered the arena right at the critical moment. This rogue element dislocated the food market, moving what would have been a normal (and gradual) market adjustment of demand, supply, and price to a situation of severe dislocation, which can only be described as a global food shock—as far as we know, the first in human history.
In the past, severe dislocations to the world food markets have occurred due to extreme weather—and they have been relatively short lived. Not this time. Western governments, particularly the EU, the US and Canada have now adopted the view that the world was getting warmer primarily because fossil fuels were being burnt. The world, if it were to be saved, had to move radically and quickly to renewable fuel sources. The age of biofuel had come.
The effect of this has been to turn vast swathes of grain producing land into production hubs for the raw material to produce ethanol. The most commonly used raw material is corn. Consequently, a huge amount of grain has been suddenly removed from the world's food supply. So the world food aid people are right: more food crops are being produced than ever before—and there is theoretically no shortage. That is only half right. Yes, food crops are being grown, but it is being diverted away into ethanol production. Food is no longer food; it is fuel.
At a time when global food supply and demand were tightly stretched anyway, suddenly the world food market has been distorted by a giant politician-cum-green monkey wrench. The result: huge market dislocation and a global food shock.
The relatively recent US Energy Bill legislated a target of producing 20% of fuel via ethanol within fifteen years. To achieve this, it provided a federal subsidy for the production of ethanol, which in turn meant that ethanol plants could pay higher prices for corn. So the price of corn shot up from $2 a bushel to over $6.
There are currently 134 ethanol refineries in the US. There are another 77 presently under construction. In just one year, demand for corn from ethanol distilleries jumped from 54 million tons in 2006 to 81 million tons in 2007. This more than doubled the annual growth in world demand for grain. But, even more insidiously, it removed this amount of grain out of the world food supply chain. This will not abate—it will get worse. It is expected that ethanol production will consume 28% of US grain production in 2008. But this only represents 3 percent of current US gasoline needs. And it will not stop there. We are on a mission to save the planet. Remember the US has legislatively mandated 20% of US gasoline to come from ethanol by 2020's—and that's just a short twelve years away, in case you need reminding.
Add to this situation a further element in the equation: the amount of global arable land able to produce food is pretty much fixed. Most of the arable land in the world is already in food production. So farmers can't simply head to the hills and produce more food. Arable land is now a scarce global resource.
Well, I hear you say, that's no problem. I don't like cornbread, and I can pass on tortillas. Sorry, four realities make it a problem—a problem that everyone in New Zealand is noticing right now—and we are hardly to be considered vulnerable.
1.The global price of other grains also shoots up, because other grains are suddenly subject to double the normal annual increase in demand. If people can't get corn, they move to rice or soy beans or substitute some other grain. Unexpected rapid increases in demand create severe shortages, leading to sharp price rises. If people in New Zealand are complaining that they can no longer afford food, how do you think millions and millions of people who were already hungry or malnourished are faring? Famine, disease, starvation and death is facing them. And there is no end in sight.
2.Corn is most commonly used in the US to feed chickens and cattle. This is normal in northern hemisphere, colder climate farming regions. With huge rises in the corn price due to the ethanol behemoth “confiscating” food supplies, the prices of eggs, chicken, beef and other grain-fed proteins is rising rapidly.
3.This has produced transfer-demand to other proteins. Hence global prices have begun to rise drastically for dairy products, fish and meat. Demand has transferred across, prices are rising.
4.The price of every food group is consequently rising. This is unprecedented. Normally, when the supply of one food type (rice, or corn) falls leading to price rises, demand substitutes across to other foods, leading to an eventual downward adjustment in the price of that initial food, as the original demand pressure eases. But the world is faced now with price rises in all food types across the board. This is why it is accurate to characterise what is now occurring as a global food shock.
And the reason? It is the ethanol elephant coming into the room. As we noted above world food demand was already rising, stocks were falling. The market was already under pressure. Yet, markets are remarkably robust and there was every reason to have expected that gradually supply, demand, and prices would have adjusted in an orderly and productive fashion. But not this time. The global food market has been dislocated beyond comparison. Into the already tight food supply and demand matrix has come the ethanol elephant and it smashing everything in the room.
So, let's look at the data. According to Lester R Brown of the Earth Policy Institute:
“The World Bank reports that for each 1 percent rise in food prices, caloric intake among the poor drops 0.5 percent. Millions of those living on the lower rungs of the global economic ladder, people who are barely hanging on, will lose their grip and begin to fall off.
“Projections by Professors . . . of the University of Minnesota four years ago showed the number of hungry and malnourished people decreasing from over 800 million to 625 million by 2025. But in early 2007 their update of these projections, taking into account the biofuel effect on world food prices, showed the number of hungry people climbing to 1.2 billion by 2025. That climb is already underway.
“Since the budgets of international food agencies are set well in advance, a rise in food price shrinks food assistance. The UN World Food Programme (WFP), which is now supplying emergency food aid to 37 countries, is cutting shipments as prices soar. The WFP reports that 18,000 children are dying each day from hunger and related illnesses.”
Now, let us be clear. This situation—which will cause people to starve and others to slip into malnutrition leading to sickness, diseases, and death—is a man-made disaster. It has been caused by the folly of mankind—in particular, a knee jerk reaction to a purported threat to the planet and mankind from global warming. It will turn out that the “cure” to what we believe is a fabricated fantastical problem will be far worse and far more damaging than the original imagined malady. Count every child lost, every person slipping into the degradation of poverty and malnutrition and think of Al Gore and his blasted, benighted, demonic Inconvenient Truth.
Give me global warming any day, even if it were true. At least no-one dies from global warming. At least people would have time to adjust. But as a consequence of the megalomaniac madness of modern governments, determined to tilt at climate windmills, all the while slyly seeking party electoral advantage at the expense of genuine needs of their people, human beings can, and are most certainly, dying. But who cares about the poor and wretched of the earth when there is money to be made, elections to be won, and Nobel gongs to be awarded.
Next time you consume a piece of now very (and soon to be more) expensive cheese, think about how our western governments, the EU, Canada, the US, Australia, New Zealand, not to speak of the UN, and all the vested interests that circle around, dancing their dervishes to line their tawdry pockets, have combined to act in a way that is likely to cause the death of millions and millions of people. Hiroshima will be a mere side show. The Holocaust will have nothing on this baby. Stalin will be a mere babe in arms in comparison. We may well see the mass kulakisation of the third world on a grand scale. And, oh, let's not forget—to assuage starvation widespread cannibal activity returned amongst the Kulaks, as Stalin strove mightily to save the world for dialectical materialism. But at least it was all in a good cause. Worth the price, I'd say.
Let's hear it for our wonderful Athenian nobles and overlords. Let's put our bloodied hands together and honour them as they deserve.
Posted by John Tertullian and Contra Celsum at 10:32
Labels: Agriculture, Biofuels, Climate Change, Disease, Epidemics, Famine, Food, Global Warming, Starvation
3 comments:
Anonymous said...
Some questions on my mind:
If biofuel production were discontinued tomorrow, then wouldn't conventional oil consumption and demand increase proportionately? If effect, what we didn't use in ethanol we'd have to make up for in imported oil.
But Lester Brown said that oil prices directly affect the price of food for many reasons: fertilizer, insecticides, farm machinery, transportation, packaging, etc. I believe he said that 80% of the cost of food is related to these after charges and those all need oil byproducts.
By that reasoning, if oil prices go up due to increased demand, then food prices will also go up.
My question is whether anyone has done a comparison of the effects on food prices from either scenario? Without that it would be hard to say that food prices would go down "absolutely" if biofuels were no longer produced. It would seem that they would but you can't alter a massive agricultural system based on gut feelings.
I'm also curious exactly how many gallons of oil are replaced by biofuels (factoring in lower octane rating.) Doesn't biofuel production help keep the cost of imported oil down when the primary users - developed countries - produce their own oil substitute?
Lee J.
3 April 2008 16:08
John Tertullian said...
Hi
Thanks for your comments. Some thoughts:
1. Biofuels only account currently for 3% of US gasoline consumption, so discontinuing the programme will have a negligible effect upon demand for oil and therefore its price. But while the current contribution to energy made by biofuels is negligible, the present effect on food supplies is enormous.
2. You are right, there is now a link between cereals and the cost of energy. Thanks to the biofuel programme, food is now being classed as an energy commodity. But--and here is the iniquity in the current approach--people can make adjustments to their energy consumption patterns without threatening their lives. I can survive without oil; I cannot live without food. The former is a threat to my lifestyle, the latter to my life. The biofuel programme has transmitted what is essentially a concern over western lifestyles to one of a dire threat to life for millions of people.
3. It is primarily in the West that the cost of food comprises significant manufacturing overheads (packaging, warehousing, distribution, etc). Hence, although the price of raw cereals has risen by double or even treble in the last year, the cost of manufactured foods using those cereals in the West has increased by a much lower proportion. But in poor malnourished areas the base cost of the cereal represents a much, much larger proportion of the cost. So for these poor, the price of food is doubling and trebling. Add to this the fact that for these people food costs represent most of their daily expense. It is a vice from which they cannot escape.
4. Can the US biofuels programme be stopped? Probably not. There is too much political and financial capital invested in it. And the consequent suffering is predominantly outside the US, not within it. One thing that could be done, however, is reduce the taxpayer subsidy for ethanol; the industry would shrink rapidly if that were to happen. Its economics do not stack up without this artificial, political prop.
5. As we pointed out, food prices were rising anyway. Biofuel has made them rise far further than they would have. You cannot put such a huge demand increase into the market, representing twice the annual global increase in world food demand, without creating a massive distortion to the market. Take the distortion away, and let the market do its work. It will adjust as it always has done--with a minimum of dislocation and suffering.
JT
4 April 2008 09:12
Anonymous said...
Thanks JT for your valuable comments. If, as you say, the net effect on oil prices with ethanol production is "negligable," then things will eventually have to change.
Speaking of "distortion" of the market (#5), I've also noticed recently a lot of food protectionism (if that's the correct term) happening everywhere. Many of the world's largest grain producers are blocking exports and the news stories make it seem more dangerous to food prices and supply than anything else right now.
Countries like Indonesia (world's third-largest rice producer,) China, India, Vietnam, Egypt, and Argentina, among others, are blockading exports! If that doesn't distort the food market, nothing will. In my opinion, it could lead to hoarding, smuggling, black-markets, price rises, more global shortages, economic warfare, and other deformities caused by protectionism. Famine has also been used a weapon of war in the past.
This all seems quite serious.
Lee
There's a Rampaging Green Elephant in the Room and It's Man Made
There is no shortage of food in the world—only bad policies and governance. Can this really be true? After all, hunger is now on the rise again. Central Africa, for example, is a region where more than one third of people are hungry—that is, they do not get sufficient food. In India and Bolivia between a third and a fifth of the population do not get adequate food—they are malnourished.
Yet, last year saw a record world cereal harvest. Rising food prices will stimulate new investment and even greater production in the future. So, the experts say, there is no shortage of food in the world. (The Economist, 28th March, 2008). But global food prices are telling a very different story—and prices rarely lie.
Food, like any other tradeable good or service, is subject to the normal cyclical market forces of supply and demand. For the past five years, world food stocks have been decreasing, even while production has increased. Why? Well, demand has also increased—and it has increased more quickly than supply. There have been two long term reasons for this.
The first is the gradual, steady rise in world population. While overall population growth has slowed since the mid last century, it is still “ticking over”. The US Census Bureau projects that at current growth rates world population will have doubled by 2050. More mouths to feed mean inevitably a growing demand for food.
The second factor is rising living standards, particularly throughout Asia and the Middle East. As living standards rise, the “first” thing people do is eat more food. The second thing they do is change what they eat. They move from a cereal or starch based diet to a higher protein (Western) diet.
These two factors have led to demand outstripping supply over the past five years. More mouths to feed, and more food being eaten per mouth, as it were. When this happens we can expect the normal market, cyclical market response. Prices rise, leading to a short term lessening of demand. But, a second factor normally comes into play—namely, higher prices lead to greater profits for food producers, which incentivises them to invest more, to produce more—which eventually leads to greater supply. Eventually, of course, the market settles down to a general equilibrium point.
The food aid people tell us that this normal market mechanism appears to be working, and that the supply of food—as measured by the amount of grown—is rising in response to the higher prices. So, we should expect that food prices will eventually peak and track down again. Right? Well, no—at least not anytime soon.
Why? As we have described, the food market was at the critical point of a cyclical re-adjustment. Food stocks were falling, demand was rising, and prices were trending upwards. Farmers got busier and supply started to react, trending upwards. Then came the rogue element. It entered the arena right at the critical moment. This rogue element dislocated the food market, moving what would have been a normal (and gradual) market adjustment of demand, supply, and price to a situation of severe dislocation, which can only be described as a global food shock—as far as we know, the first in human history.
In the past, severe dislocations to the world food markets have occurred due to extreme weather—and they have been relatively short lived. Not this time. Western governments, particularly the EU, the US and Canada have now adopted the view that the world was getting warmer primarily because fossil fuels were being burnt. The world, if it were to be saved, had to move radically and quickly to renewable fuel sources. The age of biofuel had come.
The effect of this has been to turn vast swathes of grain producing land into production hubs for the raw material to produce ethanol. The most commonly used raw material is corn. Consequently, a huge amount of grain has been suddenly removed from the world's food supply. So the world food aid people are right: more food crops are being produced than ever before—and there is theoretically no shortage. That is only half right. Yes, food crops are being grown, but it is being diverted away into ethanol production. Food is no longer food; it is fuel.
At a time when global food supply and demand were tightly stretched anyway, suddenly the world food market has been distorted by a giant politician-cum-green monkey wrench. The result: huge market dislocation and a global food shock.
The relatively recent US Energy Bill legislated a target of producing 20% of fuel via ethanol within fifteen years. To achieve this, it provided a federal subsidy for the production of ethanol, which in turn meant that ethanol plants could pay higher prices for corn. So the price of corn shot up from $2 a bushel to over $6.
There are currently 134 ethanol refineries in the US. There are another 77 presently under construction. In just one year, demand for corn from ethanol distilleries jumped from 54 million tons in 2006 to 81 million tons in 2007. This more than doubled the annual growth in world demand for grain. But, even more insidiously, it removed this amount of grain out of the world food supply chain. This will not abate—it will get worse. It is expected that ethanol production will consume 28% of US grain production in 2008. But this only represents 3 percent of current US gasoline needs. And it will not stop there. We are on a mission to save the planet. Remember the US has legislatively mandated 20% of US gasoline to come from ethanol by 2020's—and that's just a short twelve years away, in case you need reminding.
Add to this situation a further element in the equation: the amount of global arable land able to produce food is pretty much fixed. Most of the arable land in the world is already in food production. So farmers can't simply head to the hills and produce more food. Arable land is now a scarce global resource.
Well, I hear you say, that's no problem. I don't like cornbread, and I can pass on tortillas. Sorry, four realities make it a problem—a problem that everyone in New Zealand is noticing right now—and we are hardly to be considered vulnerable.
1.The global price of other grains also shoots up, because other grains are suddenly subject to double the normal annual increase in demand. If people can't get corn, they move to rice or soy beans or substitute some other grain. Unexpected rapid increases in demand create severe shortages, leading to sharp price rises. If people in New Zealand are complaining that they can no longer afford food, how do you think millions and millions of people who were already hungry or malnourished are faring? Famine, disease, starvation and death is facing them. And there is no end in sight.
2.Corn is most commonly used in the US to feed chickens and cattle. This is normal in northern hemisphere, colder climate farming regions. With huge rises in the corn price due to the ethanol behemoth “confiscating” food supplies, the prices of eggs, chicken, beef and other grain-fed proteins is rising rapidly.
3.This has produced transfer-demand to other proteins. Hence global prices have begun to rise drastically for dairy products, fish and meat. Demand has transferred across, prices are rising.
4.The price of every food group is consequently rising. This is unprecedented. Normally, when the supply of one food type (rice, or corn) falls leading to price rises, demand substitutes across to other foods, leading to an eventual downward adjustment in the price of that initial food, as the original demand pressure eases. But the world is faced now with price rises in all food types across the board. This is why it is accurate to characterise what is now occurring as a global food shock.
And the reason? It is the ethanol elephant coming into the room. As we noted above world food demand was already rising, stocks were falling. The market was already under pressure. Yet, markets are remarkably robust and there was every reason to have expected that gradually supply, demand, and prices would have adjusted in an orderly and productive fashion. But not this time. The global food market has been dislocated beyond comparison. Into the already tight food supply and demand matrix has come the ethanol elephant and it smashing everything in the room.
So, let's look at the data. According to Lester R Brown of the Earth Policy Institute:
“The World Bank reports that for each 1 percent rise in food prices, caloric intake among the poor drops 0.5 percent. Millions of those living on the lower rungs of the global economic ladder, people who are barely hanging on, will lose their grip and begin to fall off.
“Projections by Professors . . . of the University of Minnesota four years ago showed the number of hungry and malnourished people decreasing from over 800 million to 625 million by 2025. But in early 2007 their update of these projections, taking into account the biofuel effect on world food prices, showed the number of hungry people climbing to 1.2 billion by 2025. That climb is already underway.
“Since the budgets of international food agencies are set well in advance, a rise in food price shrinks food assistance. The UN World Food Programme (WFP), which is now supplying emergency food aid to 37 countries, is cutting shipments as prices soar. The WFP reports that 18,000 children are dying each day from hunger and related illnesses.”
Now, let us be clear. This situation—which will cause people to starve and others to slip into malnutrition leading to sickness, diseases, and death—is a man-made disaster. It has been caused by the folly of mankind—in particular, a knee jerk reaction to a purported threat to the planet and mankind from global warming. It will turn out that the “cure” to what we believe is a fabricated fantastical problem will be far worse and far more damaging than the original imagined malady. Count every child lost, every person slipping into the degradation of poverty and malnutrition and think of Al Gore and his blasted, benighted, demonic Inconvenient Truth.
Give me global warming any day, even if it were true. At least no-one dies from global warming. At least people would have time to adjust. But as a consequence of the megalomaniac madness of modern governments, determined to tilt at climate windmills, all the while slyly seeking party electoral advantage at the expense of genuine needs of their people, human beings can, and are most certainly, dying. But who cares about the poor and wretched of the earth when there is money to be made, elections to be won, and Nobel gongs to be awarded.
Next time you consume a piece of now very (and soon to be more) expensive cheese, think about how our western governments, the EU, Canada, the US, Australia, New Zealand, not to speak of the UN, and all the vested interests that circle around, dancing their dervishes to line their tawdry pockets, have combined to act in a way that is likely to cause the death of millions and millions of people. Hiroshima will be a mere side show. The Holocaust will have nothing on this baby. Stalin will be a mere babe in arms in comparison. We may well see the mass kulakisation of the third world on a grand scale. And, oh, let's not forget—to assuage starvation widespread cannibal activity returned amongst the Kulaks, as Stalin strove mightily to save the world for dialectical materialism. But at least it was all in a good cause. Worth the price, I'd say.
Let's hear it for our wonderful Athenian nobles and overlords. Let's put our bloodied hands together and honour them as they deserve.
Posted by John Tertullian and Contra Celsum at 10:32
Labels: Agriculture, Biofuels, Climate Change, Disease, Epidemics, Famine, Food, Global Warming, Starvation
3 comments:
Anonymous said...
Some questions on my mind:
If biofuel production were discontinued tomorrow, then wouldn't conventional oil consumption and demand increase proportionately? If effect, what we didn't use in ethanol we'd have to make up for in imported oil.
But Lester Brown said that oil prices directly affect the price of food for many reasons: fertilizer, insecticides, farm machinery, transportation, packaging, etc. I believe he said that 80% of the cost of food is related to these after charges and those all need oil byproducts.
By that reasoning, if oil prices go up due to increased demand, then food prices will also go up.
My question is whether anyone has done a comparison of the effects on food prices from either scenario? Without that it would be hard to say that food prices would go down "absolutely" if biofuels were no longer produced. It would seem that they would but you can't alter a massive agricultural system based on gut feelings.
I'm also curious exactly how many gallons of oil are replaced by biofuels (factoring in lower octane rating.) Doesn't biofuel production help keep the cost of imported oil down when the primary users - developed countries - produce their own oil substitute?
Lee J.
3 April 2008 16:08
John Tertullian said...
Hi
Thanks for your comments. Some thoughts:
1. Biofuels only account currently for 3% of US gasoline consumption, so discontinuing the programme will have a negligible effect upon demand for oil and therefore its price. But while the current contribution to energy made by biofuels is negligible, the present effect on food supplies is enormous.
2. You are right, there is now a link between cereals and the cost of energy. Thanks to the biofuel programme, food is now being classed as an energy commodity. But--and here is the iniquity in the current approach--people can make adjustments to their energy consumption patterns without threatening their lives. I can survive without oil; I cannot live without food. The former is a threat to my lifestyle, the latter to my life. The biofuel programme has transmitted what is essentially a concern over western lifestyles to one of a dire threat to life for millions of people.
3. It is primarily in the West that the cost of food comprises significant manufacturing overheads (packaging, warehousing, distribution, etc). Hence, although the price of raw cereals has risen by double or even treble in the last year, the cost of manufactured foods using those cereals in the West has increased by a much lower proportion. But in poor malnourished areas the base cost of the cereal represents a much, much larger proportion of the cost. So for these poor, the price of food is doubling and trebling. Add to this the fact that for these people food costs represent most of their daily expense. It is a vice from which they cannot escape.
4. Can the US biofuels programme be stopped? Probably not. There is too much political and financial capital invested in it. And the consequent suffering is predominantly outside the US, not within it. One thing that could be done, however, is reduce the taxpayer subsidy for ethanol; the industry would shrink rapidly if that were to happen. Its economics do not stack up without this artificial, political prop.
5. As we pointed out, food prices were rising anyway. Biofuel has made them rise far further than they would have. You cannot put such a huge demand increase into the market, representing twice the annual global increase in world food demand, without creating a massive distortion to the market. Take the distortion away, and let the market do its work. It will adjust as it always has done--with a minimum of dislocation and suffering.
JT
4 April 2008 09:12
Anonymous said...
Thanks JT for your valuable comments. If, as you say, the net effect on oil prices with ethanol production is "negligable," then things will eventually have to change.
Speaking of "distortion" of the market (#5), I've also noticed recently a lot of food protectionism (if that's the correct term) happening everywhere. Many of the world's largest grain producers are blocking exports and the news stories make it seem more dangerous to food prices and supply than anything else right now.
Countries like Indonesia (world's third-largest rice producer,) China, India, Vietnam, Egypt, and Argentina, among others, are blockading exports! If that doesn't distort the food market, nothing will. In my opinion, it could lead to hoarding, smuggling, black-markets, price rises, more global shortages, economic warfare, and other deformities caused by protectionism. Famine has also been used a weapon of war in the past.
This all seems quite serious.
Lee
Sunday, April 6, 2008
Ministry sees new taxes as only way out of crisis
http://dawn.com/2008/04/06/top7.htm
By Ihtasham ul Haque
ISLAMABAD, April 5: At a time when the new government has yet to settle down, the finance ministry has been forced to propose taxes on agricultural and services sectors as the only way out of growing financial difficulties.
Dawn learnt on Saturday that the measure was proposed after the ministry acknowledged that the previous government had not achieved fiscal consolidation -– a key to macro-economic stability.
Sources also said that economic experts had warned the new coalition government that a ‘loose’ fiscal policy could lead to inflation, interest rate hike and crowding out of private investment, all of which can in turn hamper growth and poverty reduction efforts.
The sources said that experts of the PPP and PML-N had advised the new government to formulate its fiscal policy soon to avoid serious economic problems.
Finance Minister Ishaq Dar is busy finalising a white paper that will incorporate recommendations of these experts and is likely to be presented in parliament this month.
The sources said the government had also been advised not to limit the tax collection effort to the centre alone. They said that provincial governments would have to do much more to increase the provincial tax-to-GDP ratio from 0.5 per cent to 1 per cent of GDP in the medium term.
TAX ON AGRICULTURE: A new “fiscal policy statement”, to be prepared by the ministry of finance, has suggested expansion of the tax net to the agricultural and services sectors.
“As private sector savings are often low in developing countries, a sound fiscal policy can play a central role in mobilising resources by raising revenue and reducing less productive spending. The importance of sound and rule-based fiscal policy, therefore, cannot be over-emphasised in a developing country like Pakistan,” the document says.
The paper calls upon the government to base the taxation structure on moderate rates and a wider base through rationalisation of exemptions.
The report reveals some important structural shifts in patterns of revenue and expenditure.
On the revenue side, it says, the tax-to-GDP or revenue -to-GDP ratio exhibits a decline over the past one and half decade. On the expenditure side, total expenditure and its components also exhibits a decline as percentage of GDP.
Fiscal deficit as percentage of GDP also declined during the same period. However, reduction in fiscal deficit owes mainly to sharper reduction in expenditure -– more so development expenditure –- rather than improvement in revenue effort.
The official report is unsure whether the government could achieve a target of bringing down the fiscal deficit to four per cent of the GDP (Rs399 billion). The government has also projected a revenue surplus of Rs98 billion or just under one per cent of GDP.
http://dawn.com/2008/04/06/top7.htm
By Ihtasham ul Haque
ISLAMABAD, April 5: At a time when the new government has yet to settle down, the finance ministry has been forced to propose taxes on agricultural and services sectors as the only way out of growing financial difficulties.
Dawn learnt on Saturday that the measure was proposed after the ministry acknowledged that the previous government had not achieved fiscal consolidation -– a key to macro-economic stability.
Sources also said that economic experts had warned the new coalition government that a ‘loose’ fiscal policy could lead to inflation, interest rate hike and crowding out of private investment, all of which can in turn hamper growth and poverty reduction efforts.
The sources said that experts of the PPP and PML-N had advised the new government to formulate its fiscal policy soon to avoid serious economic problems.
Finance Minister Ishaq Dar is busy finalising a white paper that will incorporate recommendations of these experts and is likely to be presented in parliament this month.
The sources said the government had also been advised not to limit the tax collection effort to the centre alone. They said that provincial governments would have to do much more to increase the provincial tax-to-GDP ratio from 0.5 per cent to 1 per cent of GDP in the medium term.
TAX ON AGRICULTURE: A new “fiscal policy statement”, to be prepared by the ministry of finance, has suggested expansion of the tax net to the agricultural and services sectors.
“As private sector savings are often low in developing countries, a sound fiscal policy can play a central role in mobilising resources by raising revenue and reducing less productive spending. The importance of sound and rule-based fiscal policy, therefore, cannot be over-emphasised in a developing country like Pakistan,” the document says.
The paper calls upon the government to base the taxation structure on moderate rates and a wider base through rationalisation of exemptions.
The report reveals some important structural shifts in patterns of revenue and expenditure.
On the revenue side, it says, the tax-to-GDP or revenue -to-GDP ratio exhibits a decline over the past one and half decade. On the expenditure side, total expenditure and its components also exhibits a decline as percentage of GDP.
Fiscal deficit as percentage of GDP also declined during the same period. However, reduction in fiscal deficit owes mainly to sharper reduction in expenditure -– more so development expenditure –- rather than improvement in revenue effort.
The official report is unsure whether the government could achieve a target of bringing down the fiscal deficit to four per cent of the GDP (Rs399 billion). The government has also projected a revenue surplus of Rs98 billion or just under one per cent of GDP.
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