Food shortage, high prices of essential items and poverty

 By M. Sharif

Food shortage and poverty alleviation are presently the two serious socio-economic problems that have engulfed many developing countries including Pakistan. They have serious implications for political and economic stability of fragile governments, world economic order and global security. The twin crises are interlinked and likely to stay for some years. Tackling them needs global effort as well as effort by the governments that are seriously affected by them. Pakistan is one of the seriously affected countries. It needs global support, efforts by the government, public and private sector to address the issues on priority basis.

Contributory factors

Poverty alleviation is one of the longstanding issues. Affected states mostly in Africa and South Asia including Pakistan, WB and IMF have been trying to address it for past many years. The results have been mixed. UN had laid down a few benchmarks under MDGs that were to be achieved by 2015. One of the goals of the MDGs is to reduce poverty by half. With special reference to Pakistan, it is to be reduced to half in 2015 from around 34 per cent in 2001-02. Current surge in food and oil prices has made it difficult to reduce poverty and improve other social sector indicators according to the bench marks laid down in the MDGs by the developing countries.

It is being feared that poverty alleviation might get a big jolt. Oil prices have shot up steeply during past more than 16 months and were recorded $135 per barrel on 22 May 2008. Consequently, according to WB estimate, "soaring food and oil prices have pushed 100 million people back into poverty.

The phenomenal increase in oil prices in global market is attributable to increase in demand in emerging economies of China, India, Brazil and many other countries. Oil exporting countries also want to have surplus budgets and enough money to invest abroad in wake of depreciating US dollar. Multi-national company's appetite for larger profits is an open secret. One of the reasons for steep increase in oil prices is also speculative nature of oil business for which there is perhaps no remedy because oil companies have strong lobbies in corridors of power in most of the world capitals that matter.

Food crisis

In emerging economies of the world and even in some of the developing countries, a substantial surge in middle class has been observed. It is willing to spend its new earned money for better and more food. This middle class has taken its place on the world stage.

Agriculture is one of the most distorted and underinvested industries in the world and is desperately in need of overhaul. Trade in agricultural commodities is one of the most distorted in global trade engineered by the rich countries. They heavily subsidise farm products that impinge upon the income of farmers of poor countries.

Boom in bi-fuels supported by large subsidies by the governments of developed countries has brought a vast shift in arable land into energy crops. In Germany and France, the shift is 15 per cent and in the US it is around 20 per cent.

Global response

There has been practically no collective response to address energy crisis faced by the developed, emerging and developing economies alike. Each one of them has preferred its own solution that is based upon securing energy according to their national interests. Developed economies have used the option of bio-fuel with out giving serious thought, how it is to affect global food supply. China has increased its dependence on thermal energy and started making inroads in Africa to secure supply of energy fuel as an international economic role player. US have strengthened its position in the ME and close to Central Asian States through military intervention in Iraq and Afghanistan to police oil wealth of the two regions. Developing countries like Pakistan are facing fiscal melt down because of high import bill of oil that is likely to be close to $11 billion for the current fiscal year. OPEC and other oil producing countries have adopted a cautious approach about pumping too much oil to get the best price for their black gold. This split approach has made global oil market unpredictable and oil prices have been moving upward without a break in past a few months.

UN and its affiliated organisations like WFP, FAO and WB have come up with terrible statistics that highlight malnutrition of millions of people in developing and LDCs that are likely to suffer because of high food prices. WFP has appealed for $775 million to make for the losses in procuring the food stuff that has gone deficit due to price hike.

According to its director, the organisation needs to raise an operational budget of $3.5 billion. Will it manage to collect that much money? It depends upon the rich countries to address the issue. Will they take it seriously or consider yet another opportunity to play food politics to further their national interests? It is yet to be seen.

It is time to pay attention to agriculture that has remained somewhat neglected because of "distortions in trade, aid and investment policies in developing world during past two decades." Developing countries need to develop agriculture infrastructure like roads, communications, transport and storage facilities to enable farmers to get reasonable price of their products. The most crucial is water preservation and control for irrigation purposes.

Developing countries also need to modernise their agriculture to increase production to meet domestic needs of their population.

Domestic scenario

Pakistan faces serious crises of food inflation that have engulfed the country during past one year. The situation does not seem to be relenting and political crises rather than resolution of economic crises are dominating the national scene at present. No one is certain about the timeframe when would the government reorganise its priorities.

There is hardly any doubt that increase in food prices has been greatly aggravated because of hike in oil and food prices in global market. Pakistan happens to be net importer of both the items. Their import bill was around $7.0 billion and $3.0 billion respectively during last fiscal year. This fiscal year it will be much higher than that. The second important point in the same context is during past more than three years, current account deficit kept increasing. Consequently, dependence of economy on external sector has become a fait accompli.

According to latest figures available from the SBP, current account deficit for the first ten months of current fiscal year has increased by 75.0 per cent, to $11.586 billion, over the corresponding period of last fiscal year. Definitely, import of oil and food items have taken a large share of the import bill leaving aside import bill of luxury cars and other luxury items that is definitely not meagre.

Budget 2008-09

The government must be fixing its own priorities for understandable reasons. It is well advised that it must take clue from chronic inflation and particularly food inflation that is partially the result of government's flawed policies that have pushed a large number of people back in to poverty trap despite macroeconomic stability and higher economic growth that sounded so rosy between 2003-06. Emphasis on achieving macroeconomic stability and leaving poor segments of the society and agriculture sector at the back burner would be a misplaced priority that would hardly addressed the issues faced by the economy and the people.

Conclusion

A clue could also be taken from the recently published report of the WB, "Agriculture for Development." The theme of the report is well known; incidence of poverty in rural areas is higher than urban areas. It holds true for Pakistan also. GDP growth originating in agriculture is four times more effective than corresponding GDP growth in other sectors of economy. In case we have to battle against food crises and poverty, agriculture sector must be given the priority it deserves. It must be reflected in the forthcoming budgetary proposals.