Food Insecurity and Inflation: Shortage of Food Supply and Policy Gaps in Pakistan

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Food Insecurity and Inflation: Shortage of Food Supply and Policy Gaps in Pakistan

Increase in Food items Prices as per Pakistan Bureau of Statistics:

Pulse moong (19.74%), Pulse gram(18.2%), Chicken (17.53%), Eggs (14.28%), Wheat(12.63%), Besan(12.09%), Fresh vegetables(11.7%), Pulse mash(10.29%), Gur(9.49%), Beans(8.09%), Wheat flour (7.42%), Pulse masoor(7.33%), Condiments and Spices(7.15%), Gram whole (6.68%), Sugar(5.07%), Fresh fruits(3.93%), Mustard oil(2.87%), Wheat products(2.64%), Vegetable ghee(2.18%), Rice(1.2%), Fish(1.19%) and Dry fruits(1.09%). Decreased: Onions (18.37%), Tomatoes (8.36%) and Potatoes (3.69%).

Tomatoes(157.72%), Onions(125.32%), Fresh vegetables(93.6%), Potatoes(87.3%), Pulse moong (79.12%), Pulse mash(48.61%), Gur(43.31%), Wheat(36.13%), Pulse gram(27.31%), Sugar(26.29%), Condiments and Spices(24.43%), Wheat flour (24.06%), Besan(22.94%), Chicken (22.56%), Beans(20.56%), Pulse masoor(19.88%), Wheat products(18.62%), Eggs (18.05%), Vegetable ghee(17.56%), Cooking oil(15.44%), Meat(13.43%), Dry fruits(12.95%), Fish(11.9%), Milk powder (11.43%) and Mustard oil(10.99%).

The other area of concern is the increase of 12% in the price of the staple food, wheat flour (atta). The production of wheat in 2018-19 was lower by almost one million tons as compared to the initially estimated level. Some attempts were taken to export wheat. The export price has averaged Rs 1524 per 40 kgs. Therefore, the risk of a shortage in the availability of wheat in the domestic market is prevalent.

Reasons for Price Hikes in Food Sector:

Population

One of the basic reasons of food crises in Pakistan is soaring prices due to gap in demand and supply of edibles and the pressure resulting from population increase has also worsened the environmental and resource problems.

Devaluation of rupee

Devaluation of rupee against all major international currencies is the one of the basic reasons of weak economy. Increasing dollar against rupee reflects the country’s reliance on imported goods. The rupee is also in a free fall owing to increasing current account deficit, excessive government borrowing, drying up foreign flows, increasing oil imports, and repayments to the IMF.

The persistent depreciation of rupee is also fueling price hikes. The high inflation will not only affect poor but it will also affect all segments of the economy. The poor and the lower middle class find it increasingly difficult to make both ends meet with increasing prices of essential commodities including foodstuff. Soaring inflation has not only raised the credit price but also weakened the purchasing power of the people. However, the solution lies to bring down food inflation with augmenting the supply of food, improving governance and distribution networks.

High utility costs and rise in the international commodity prices

Since 2009, the world economy is facing high inflation. The country’s headline inflation raised to 25 percent in October 2008 due to greater increase in oil prices, political instability and security situation. However, inflation growth reduced to 8.9 percent in October 2009, but rebounded towards higher side on the back of government decisions to increase power and gas tariffs. These high utility costs and rise in the international commodity prices including oil further inflates prices affecting the local consumer prices. Some analysts identify the higher oil prices by government along with higher electricity tariffs due to greater reliance on furnace oil-based power plant as basic reason behind higher inflation in last three years.

Structural issues

Certain structural issues in the economy such as hoarding and artificial price increase of essential commodities by cartels and smuggling have also been responsible for high inflation in the country especially in case of food items. The county’s strife-battered economy, combined with higher than usual prices for staples such as sugar due to alleged hoarding by producers, has drastically reduced the purchasing power of the country’s largely impoverished population of 170 million.

Import duty

To reduce food import and boost local industry, the government has imposed sizable duty on imported goods and has also amended the import policies according to which the ingredients must be clearly mentioned on imported items and should be accompanied with a Halal certificate. Resulting in difficulty for many restaurants that rely heavily on imported food items to operate under the new tax regime. From importer to consumer, the whole food chain has been affected. Prices have gone up considerably which is hurting the food culture.

Conclusion

First, there has been reduction in imports but exports have yet to contribute significantly, as healthy quantum gains are not supported by price trends. Second, the announced documentation-related steps must be implemented in order to bring the needed diversification in the revenue base. This is important to rebalance the country’s fiscal revenue structure, which is currently over-reliant on very few sectors. Third, the government must resolve the supply chain issues e.g. hoarding practices Finally, inflation is a multi-source issue. It has been high, but manageable, in Pakistan. But because it affects the poor greatly, the government must continue to take structural measures to keep it low, and to compensate the poor via lifeline tariffs and cash transfers for any temporary surges. The surging debt is a burden for Pakistan because its Gross Domestic Product (GDP) growth rate is not faster than the rate at which debt is serviced. The cost of external debt is incurred in foreign currency, hence a surge in the debt burden reduces foreign reserves, triggers devaluation and increases the cost of debt.