Pakistan: Soaring food prices

Soaring food prices in the international markets have been a major cause of concern for policymakers all over the world in recent months. Obviously, multilateral financial institutions cannot remain indifferent to such a negative development and have to lead the way for redefining policy priorities. Expressing alarm over the situation, the World Bank said on 30th August that drought in the US and European crop centres had sent global food prices soaring by 10 percent last month, raising a food security threat to the world's poorest people. The surge in prices due mainly to the devastating heatwave across the central US, which produces the largest crops of corn (maize) and soybeans, places in danger millions around the world, especially in countries greatly dependent on imported grains. From June to July 2012 (in just one month), the prices of both corn and wheat jumped by 25 percent while those of soybeans soared by 17 percent, topping their previous record highs in June, 2008. The price of other key global staple, rice, was four percent lower, however. The World Bank's food price index was six percent higher than a year earlier and one percent higher than the February 2011 peak. Region-wise, Africa and the Middle East, according to World Bank President Jim Yong Kim, were particularly vulnerable together with people in certain other countries where prices had gone up abruptly. These countries generally have large food import bills; food consumption constitutes a large share of their average household spending, and they have limited fiscal space and comparatively weaker protective mechanisms. Domestic prices in these regions had already experienced sharp increases even before the global shock due to seasonal trends, poor harvests and conflicts in certain areas. It was also observed that the diversion of corn to produce ethanol bio-fuel - which takes upto 40 percent of US corn production - was also a key factor behind a sharp rise in corn prices which had also indirectly tightened the market of its substitute, wheat, and raised its price. As highlighted by the World Bank, there is no denying the fact that dangerously soaring food prices are threatening the well-being of millions of people around the globe, particularly in those countries which are already poor and have weak protective mechanisms to face such kinds of sudden shocks. In certain cases, the crisis could even become a matter of life and death and lead to social and political chaos. The average or poor households in the developed countries could also face problems but they can be shielded by certain adjustments in fiscal policies by the respective governments, and volunteer groups which usually become quite active in such situations. A very sad aspect of the crisis is that there are no initiatives at international levels to help reduce the severity of its impact and alleviate the sufferings of those who have been badly hit by soaring grain prices. The G20 has decided to wait for September's US crop report before deciding whether to take action on food prices or think about some other measures. The lack of any initiative from the Group of 20 leading economies to address the soaring food prices on an urgent basis is really depressing, to say the least. They should have given proper attention to the matter before food prices threatened to spiral out of control and push more people into hunger. The multilateral financial institutions would obviously not take any concrete measures and extend credit facilities in suitable cases unless the G20 calls upon them to do so. The UN Food and Agricultural Organisation's Chief has, however, asked Washington to rescind its mandate for fuel producers to use ethanol in gasoline and other fuel products to ease pressure on corn prices but it seems to have no effect on US policymakers. In the meantime, millions of people continue to slip into starvation bed, perhaps hoping that the world leaders would realise the gravity of the situation and come to their rescue. We could only hope and pray that their expectations are fulfilled and their agony alleviated, sooner rather than later. Experience suggests that humankind is normally not devoid of compassion, especially at such critical junctures. Fortunately, Pakistan is not very much affected by this crisis due mainly to self-sufficiency in food crops. Occasional exports of wheat could fetch higher level of foreign exchange in a soaring global market.