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Rising food prices

A broad-based run up on grain prices is anticipated that would place the world's poorest at risk with an impact that could linger for several years, according to a latest World Bank report. The newly-appointed Bank Group President Jim Yong Kim stated that "the World Bank and our partners are monitoring this situation closely so we can help governments put policies in place and help people better cope."

The warning brings to mind the 2007/08 world grain crisis that led to riots in several countries, including Pakistan, Bangladesh, Sri Lanka, South Africa, Uzbekistan, Mexico, Bolivia, Burkina Faso, Cameroon, Senegal, Mauritania, Côte d'Ivoire, Egypt and Morocco. Different steps were taken at the time by various countries including bans on exports, removal of duties on imports, direct subsidies for staple foods, and enhanced fertiliser production and distribution. In Pakistan the army was asked for the seizure of food from fields and warehouses.

The main reason behind the rise in food prices in 2007/08 was droughts in grain producing nations around the world and rising oil prices that impacted negatively on fertiliser production (accounting for a reduction in yield per hectare), food transportation costs and industrial agriculture (use of tractors etc) An increase in the use of biofuels as well as an increased demand for a varied diet in the developing countries also affected the grain prices.

The question therefore on the minds of several economists around the world today is: would the 2007/08 crisis be repeated and for the same reasons? The United States Drought Monitor reported a nearly three-fold increase in areas of extreme drought over the past week in the nine Midwestern states where three quarters of the country's corn and soybean crops are produced. America is a major world producer of crops. Additionally, Russia is currently suffering the worst heatwave since record keeping began 130 years ago with a consequent impact on grain output. Russian President Vladimir Putin has banned the export of wheat after millions of acres were destroyed due to the heat to protect domestic prices that has led to a further ratcheting up of grain prices world-wide.

According to a report issued by the US Agriculture Department, Pakistan's wheat output has been showing a declining trend in the last two fiscal years and forecasts a 5 percent fall in wheat output in 2012-13 relative to last fiscal year. Or in other words, output would be 23 million tons against 2011-12's total wheat output of 24.2 million tons. Pakistan's domestic requirements are around 24 million tons. Pakistan has already sold up to 40,000 tons of wheat to buyers in Indonesia, Malaysia and East Africa bringing the total sales this season to 115,000 tons that compares unfavourably with 1.8 million tons sold in the comparable period last year.

The World Bank President, however, reckons that 2007/08 was different from today: "In 2008, while other grains increased in price, rice and wheat prices rose the most, although the price fell quite substantially in 2009 due to a notable supply response by farmers seeking to benefit from higher prices. In 2012, prices have risen across all the non-rice grains - wheat, corn and soybeans - wheat prices are up over 50 percent since mid-June; corn by more than 45 percent since mid-June and soybeans are up almost 30 percent since the beginning of June." The problem is more widespread this time around.

The World Bank has begun a number of assistance programmes that include: (i) in fiscal year 2012 ending June the Bank committed over 9 billion dollars to agriculture and related projects exceeding projected lending of $6.2-$8.3 billion annually in 2010-12 with concessional lending the highest in 20 years; (ii) support for the Global Agriculture and Food Security Program (GAFSP), set up at G20's request. Seven countries and the Gates Foundation have pledged about $1.2 billion over 3 years, with $752 million received; (iii) The Global Food Price Crisis Response Program (GFRP) has reached 40 million people in 47 countries - through $1.6 billion in emergency support; (iv) The WBG is co-ordinating with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with non-governmental organisations; (v) Supporting the Partnership for Agricultural Market Information System (AMIS) to improve food market transparency and help governments make informed responses to global food price spikes; and (vi) IFC to invest up to $1 billion in the Critical Commodities Finance Program, aimed to support trade in key agricultural and energy-related goods, to help reduce the risk of food and energy shortages, as well as improve food security for the world's poorest.

In Pakistan, the World Bank has been engaged in irrigation and enhanced power generation as well as agriculture productivity in Sindh, Balochistan and Punjab. The Bank has also extended assistance to social safety programmes; for example, the Benazir Income Support Programme as well as humanitarian and rehabilitation assistance in the aftermath of floods. The focus of the World Bank is not on food security as Pakistan remains sufficient in food with drought not a factor. However, the escalating oil prices and its impact on farm prices need to be tackled on an emergent basis or else food riots may be witnessed in the country yet again.

Copyright Business Recorder, 2012


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