Food price inflation: Global and national problem
THE Asian Development Bank has come up with an analysis that from June 2010 to February 2011, global food prices increased by 40.4%. In January 2011, the benchmark index for food prices of the Food and Agriculture Organization (FAO) of the United Nations exceeded the steepest price level on record in 2008. The index went up by 28.4% during the month compared to the level a year ago. Food prices continued to climb in February, recording a year-on-year increase of 34.2%.
According to FAO, both the demand side and the supply side factors are responsible for the rising trend of global food prices. Demand-side factors include a growing world population, strong income growth in emerging economies, and changing diets away from staple foods towards increased consumption of meats and processed foods that require much larger proportions of food as feedstock and inputs.
On the other side, the supply-side factors include competing use of food grains, especially corn and rapeseed oil, to produce bio-fuel, urbanisation and diversion of agricultural land for commercial purposes, increasing scarcity of fresh water for irrigation, low crop yields, rising input costs, and neglect of investment in agricultural technology, infrastructure, processing facilities, and agriculture research and development (ADB, 2011).
Apart from these, the ADB also argues that protectionist policies such as quotas on exports, export bans, export taxes, and national self-sufficiency programmes added pressure to already rising food prices. Export restrictions by the top wheat producers -- the Russian Federation and Ukraine -- as well as major producers Uzbekistan and Kazakhstan, prompted importers in the Middle East and North Africa to hoard stocks. These actions, together with market responses to the fear that the key importing countries would impose more pressure from the demand side, further squeezed global supplies.
Governments take some steps for controlling the hike in food price, often sacrificing the fiscal balance. The government of Bangladesh has adopted almost all the policies a government can adopt to control the food prices. But between June 2010 and February 2011, global rice prices increased by 16.8%, while in Bangladesh the retail food prices increased by 21.4% -- third highest in Asia, with Viet Nam and Indonesia being first and second respectively in the food price inflation ranking. It is noteworthy that retail rice price increased by only 5.1% in India and 13.1% in Pakistan.
More importantly, Bangladesh experienced the second highest inflation rate for wheat price, which was 50% in the last fiscal year, when the inflation of wheat price was 14.8% in India and 10% in Pakistan.
Increasing food production worldwide has become the first priority now for meeting the challenge of growing demand of food this year. FAO estimates that global cereal production would have to rise by 2%, particularly for corn and wheat, to match the utilisation requirements for 2011/2012 and avert further stock draw-downs on existing inventories.
A study from The Oxford Economics Global Model shows that increases in global food prices would lead to higher inflation and slower economic expansion in developing Asia. But it is interesting that for some countries like Thailand, China and Republic of Korea, this rise in food price will accelerate the GDP growth as they are food exporting countries. But for all other countries, it will have a very negative impact on GDP growth.
Again, there is a direct impact of this food price inflation on poverty. One of the popular poverty measurement indices -- the household which spends more than 60% of its income for purchasing food -- is poor. The ADB shows that in developing countries in Asia and the Pacific, households with daily per capita consumption of less than $1.25 at 2005 purchasing power parity spend 60%70% of their total budget on food. Therefore, an increase in food prices will significantly lower consumer purchasing power, especially among the poor.
According to a report of the largest Asian institution, a 10% rise in domestic food prices in developing Asia risks creating an additional 64.4 million poor people. Our country, with its huge population, land fragmentation, extreme and unusual weather events and poor technology, is on the verge of facing a very troublesome situation regarding food price.
Keeping this in mind, the government has adopted seven out of nine possible policies for tackling the food price inflation. The two left out were cash transfer and feeding programmes. It is the highest number of policies that any Asian country adopted in the last fiscal year. But after all these, prices remain beyond the control of the government.
In the last fiscal year, the government's original estimate was that inflation would remain within 6.5% on an average but, according to Bangladesh Bureau of Statistics, the overall inflation rose to 8.80% in fiscal 2010-11 from 7.31% in the previous year, while food inflation soared to 11.34% from 8.53%. This year also, the government has announced that inflation may remain within 7.5% on an average through the next fiscal year. The finance minister claimed that the initiatives taken by the government to ensure food security would help contain the prices, but reality says something different.
Observing the global scenario, it can be said that, in connection with global market, controlling food price inflation is not possible, other than looking into some internal capacities of the country. In this situation of global economy, it is very difficult for a country like Bangladesh to adopt a protectionist policy for agriculture. It can adopt some other strategies for food sufficiency but, of course, contributing to the supply side is more important in this situation.
For this, proper utilisation of resources in a sustainable way is a must. Secondly, all the seven policies adopted by the government should be monitored properly, so that there is no flaw in the entire mechanism. The government needs to scrutinise the procedures of the implementation of these policies and look into the possible scope for corruption there.
And most importantly, other than investment in research and development, it is vital to come up with an effective regional block for agriculture in the South Asian countries, which will promote agriculture by creating a fence on the boundary. And if the South Asian leaders come up with a consensus, it will not be difficult to manage the externals, of course.
The writer is a Development Researcher and Program Officer at Islamic Relief Worldwide. E-mail: email@example.com