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Food-related inflation

Food-related inflation

The devastating floods in Pakistan, which have killed around 1,500 and displaced nearly 20 million, have also adversely impacted the food supply chains. Nearly 17 million acres of cultivated cropland has been lost to floods while the loss of livestock could also be in millions.

The loss of crops from floods alone can cause huge spikes in the price of necessary food items because of uncertainty in the supply of grains, livestock, etc.  At the same time, almost 75 per cent of those affected by floods are the ones who relied on agriculture for sustenance. Even after the flood waters recede, it will take months, if not more, to resettle the internally displaced farm workers on the land they once tilled, thus causing further delays in domestic food production.

Compounding the devastating impact of floods are two additional factors; the start of Ramazan in Pakistan, which has always been accompanied with unexplained inflation, and the global wheat shortage that has caused the price of wheat to increase by 90 per cent since June 2010.

The triple convergence of floods, Ramazan, and global wheat crisis suggests that low- and mid-income households in Pakistan may face huge increases in the price of food staples. Already, markets in urban centres are reporting a 100 to 200 per cent increase in the price of food items over the pre-flood levels. Onions are selling for Rs 80 per kg and tomatoes are averaging around Rs 120 per kg even in Islamabad, which was spared by the flood waters. The pre- and post-flood prices of food items in Rawalpindi-Islamabad, as shown in the table below, reveal huge inflationary pressures.

Item Price after floods (Rupees) Price in week preceding floods (Rupees)
Tomatoes (kg) 120 40
Shimla Mirch (kg) 80 40
Lady finger (kg) 70 35
Green chilli (kg) 80 40
Lemon (kg) 80 40
Tori (kg) 80 40
Aubergine (kg) 60 30
Arvi (kg) 70 40
Bitter gourd (kg) 70 40

Even without the flood-related inflation in food prices, 50 per cent Pakistanis were assessed food insecure by the World Food Programme in 2008. The triple convergence of floods, Ramazan, and global wheat crisis may cause further price hikes and render a much larger proportion of Pakistanis unable to secure basic food items at affordable prices.

While the floods of such magnitude may be a new phenomenon in Pakistan, price hikes during Ramazan have been the norm not just in Pakistan, but in most Muslim majority countries such as Indonesia and Egypt. In the past few years, flour, sugar, and other staple foods initially disappeared from markets and later emerged at inflated prices during Ramazan. This happens even after the governments’ explicit promises to check illegal hoarding and price inflation.

Consider the graph below that highlights the increase in consumer prices in Pakistan since 2001. The graph is derived from the Consumer Price Index maintained by the Federal Bureau of Statistics.  The index is based on a basket of goods and services consumed by an average household in Pakistan. This includes food spending; shelter, fuel, and transportation costs; and recreation, education, and healthcare expenses.

Since July 2001, prices have more than doubled in Pakistan, as is evidenced by 128 per cent increase in prices in July 2010. Since the graph represents national average prices, certain urban centres would have experienced even a greater level of price hikes. When we tracked wheat and rice prices across various urban centres in Pakistan, the spatial disparities became obvious that show certain cities in Pakistan are more expensive than others.

Consider the graphs below that show that highest rice prices have been recorded in Islamabad, whereas the lowest rice prices were recorded in Sargodha. Wheat, on the other hand, was found to be most expensive in Karachi and Hyderabad and much cheaper in central Punjab. Also note that the graphs offer data for July 2010, September 2009, and July 2009 for both wheat and rice. Wheat prices are shown the highest across Pakistan in September 2009, which coincided with Ramazan, whereas rice, with the exception of prices in Balochistan, did not experience excessive inflation during Ramazan 2009.

While the above graphs track only wheat and rice prices and thus offer a partial picture, one needs to see the change in consumer prices for a larger basket of goods and services to determine how prices change during Ramazan.

I have plotted an interactive graph below that shows the change in consumer prices from July 2002 to July 2010 over a 12-month period, which is also known as the annual inflation in prices. The obvious peak during August to October 2008 in the graph shows that consumer prices increased by almost 25 per cent on a year-by-year basis, which the worst consumer price inflation observed in Pakistan since 2002. This period coincided with Ramazan in 2008. However, 2008 is not an exception. Since 2002 the highest price inflation has mostly been observed during the months of October and November, which coincided with Ramazan.

If the previous trends of price hikes during Ramazan continue and are further exacerbated by the loss of livestock and crops due to floods, one may see sustained price inflation of over 25 per cent for the months to come in Pakistan. As noted above, and at least in the short run, the price of staples after the floods has already doubled.

The third force behind high food prices, especially wheat, is the global wheat crisis, which has caused the wheat prices to increase by 90 per cent since June 2010.

The drought in Russia has contributed to severe wheat shortages leading Russia to ban all wheat exports. While Russia accounts for only 11 per cent of the global wheat supply, the export ban has sent shockwaves through  the commodity prices. Compounding this even further is the loss of wheat crop in China and India due to monsoon rains. The shocking figures released earlier this month suggest that 17.8 million metric tons of inadequately stored wheat, which accounts for 30 per cent of India’s wheat supply and can feed 210 million Indians for a year, is rotting because of exposure to rains. Experts argue that India needs to spend at least $1.7 billion to develop warehouses for adequate storage of grains.

While the price of wheat in the global market is much lower than $13 per bushel, observed at the height of global food price crisis in 2008, the short-run hike in wheat prices is certainly becoming a global source of concern even when bumper wheat crops in the United States, Canada, and Australia are being highlighted to calm the markets.

Pakistan has suddenly become even more food insecure while being armed with nuclear weapons. The excessive spending on defense over the past four decades to secure its borders has inadvertently left Pakistan food insecure. The food-starved, yet nuclear armed, North Korea should serve as an example for policymakers in Pakistan. If the spending priorities are not changed such that bread and not bombs take priority, there may not be much left within Pakistan to defend at its borders.

Murtaza Haider, Ph.D. is a professor of supply chain management at Ryerson University in Toronto, Canada. He can be reached at murtaza.haider@ryerson.ca.

The views expressed by this blogger and in the following reader comments do not necessarily
reflect the views and policies of the Dawn Media Group.

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41 Responses to “Food-related inflation”

  1. S.C. says:

    Purely academic question here:

    I’ve observed that rice prices are highest in Islamabad and Rawalpindi, whereas wheat prices are highest in Hyderabad and Karachi. From an Indian’s perspective, does this mean that rice is produced mainly in Sindh (far away from Islamabad/Rawalpindi) and wheat produced mainly in Punjab (far away from Karachi/Hyderabad), resulting in increased prices respectively due to travelling costs/ unavailability/ other reasons?

    Won’t it be easier for both Punjab and Sindh to import rice/wheat from India when necessary? Being closer this will be a cheaper option and will help check inflation, and would also be beneficial for both countries in improving trading ties.

  2. sunil s says:

    Price rise affects every one in turn. Right now , its the turn of poor peoples, later middle class and finally country. Its cascading effect , which in turn may affect South Asia. I am from India, we had situation in between when prices of Onion went up very high, GOI imported onion from Pakistan, in turn increases prices there also.

  3. Imtiaz Khan says:

    I am an Indian and wish to take this opportunity to condole the death of so many lives in Pakistan. Loss of human life anywhere in the world is regrettable.

  4. Jamil Ahmed says:

    i disagree that this hike in prices is only due to flood situation. We know that as Ramadhan comes goods get so expensive that the prices of many food items more than doubles. Therefore we have to take into account the Ramadhan factor as well

    • Claudia Pinto says:

      Jamil I don’t agree with your point of view.

      Knowing Ramadhan is the blessed month of charitable work food should be bought at charitable prices.

      It’s illogice that food becomes more expensive as it leaves people to leave less Zakat and being able to offer food offerings to the poor.

      Therefore the spirit of being chairtable goes lost.

      I do think that food prices have gone up simply of the short supply..

      Very simple in economical terms supply is little and the demand is high makes prices increase.

      Happy Ramadhan and god bless all the lovely people of Pakistan….

      As my friends would say PAKISTAN ZINDABAD

      Claudia Pinto

    • Imtiaz Khan says:

      You are correct. In India too we see prices going up during the festive season. But it is also a rule of economics, in the aftermath of a severe natural calamity when production is destroyed or washed away, there would be immense scarcity in your country and prices will rise exponentially. As a matter of fact, prices will rise even more acutely in the foreseeable future.

  5. Ahsan Ali says:

    We can only hope and pray that the usual practice of food hoarding will not take place in this time of unprecedented disaster.

  6. tajammul says:

    I some times feel so helpless living in my own “Independent Country”, seeing so much misery around us and looking at government officials living in their lavish palaces, calling them selves Presidents, Prime ministers, Chiefs of Staffs and Army of countless advisers of a Relatively Poor and Developing country, is an utter joke.

    I must commend your cartoonist Feica for portraying the reality with accurate perspectives in the section Pakistan drawn out; the cartoonist has literally held the mirror to our so called leaders. I appreciate the cartoonist work and hope to see more from him daily.

  7. bpshah says:

    I am happy to see a report in Daily Times (Pakistani News paper) by one Mr. Amar Guriro that 400 Indian Doctors will arrive in Sindh for treatment of flood victims. In this tragedy, we should forget the enmity & look at how to help the suffering people.

    • Imtiaz Khan says:

      B.P.Shah : The Pakistanis are unwilling to accept Indian help. What can be done.

      • Claudia Pinto says:

        The people will only see the need Imtiaz go and live life like the flood affected people and I guarantee you will accept anything good and you even thank Allah for it.

        Claudia Pinto

  8. bpshah says:

    Also I wonder on one aspect. This is a tremendous article by the professor Dr.haider with a lot of facts,charts & figures. This is a human tragedy, as Yawar has correctly put it, of “Biblical proprtion” but I do not see any responses/comments from the readers. Emotional issues like “Couldn’t she find a nice Indian boy” had 944 comments, while this one has drawn just 15 comments!! Is it saying that we only get agitated on certain issues and do not like to face difficult, existential problems….. why this seeming apathy??

    • Neel says:

      That’s the irony of the todays world and true for every country. For instance Lindsay Lohan (a hollywood actress) commits crime, flunk court order and goes to jail for a week or so.. she is on the front page of every international news paper. Some spirited young men and women spends their summer break working in Africa teaching kids, helping people in various ways; forget about any appreciation by media, people give cynical comments and crazy conspiracy theories on blog forums.
      It might be possible that no too many people understand economics, inflation, etc. but what is the excuse for media’s apathy (or Bloggers in Dawn Forums) not highlighting the sacrifices of any solider who are dying everyday fighting against the extremist. But Sania Mirza’s marriage is a national issue.
      Gossiping rules the world!!

  9. your right… you could do better’

  10. Asif says:

    This is the prime example of inept government. No wonder the whole world as well as Pakistani citizens are reluctant to give money to Pakistani Govt and elected officials. They know how corrupt Pakistani officials are, in all actuality Pakistani officials are delighted of having another chance to replenish their foreign accounts. They are the actual cause of Extremism in the region. They create the environment for extremism to thrive, such as this one. I would strongly suggest to all humans, please don’t give Pakistani Govt a single penny, find other NGO orginasitions or other means.

  11. Yawar Shah says:

    Gunjan your comments are appreciated. The people of Pakistan are not against “free people”, infact they
    have been strugglisng for their own freedom, against poverty, ignorance and fuedal lords. Our beloved
    Quaid, the founder of Pakistan, respected and cared for all people, regardless of their caste, colour and religion. We want friendship with all our neighbours, especially India, as we share our culture, music, food and history.

  12. sADIQ uSMANI says:

    Our most valuable friends like Saudi Arab is helpng a lot for flood effected people but our leaders should be smart enough to deliver these items to needy person not to highly designated politician. I suggest that if our army can handle the distribution responsibilities to flood effected areas.

    • bpshah says:

      I do not think that Saudi Arabia has donated much. This is a disaster of humongous proportion & the Gulf states & Saudis should do much more. I haven’t seen their figures in news papers while seen the figures of the western world. If Saudis have donated then their figure should be published.

      • bpshah says:

        This is what Mr. Irfan Hussain had said in his column in Dawn,”While much of the world has responded to the UN appeal for funds with a certain lack of enthusiasm, the American response has been quick and effective. With nearly a score of heavy-lift helicopters, American troops are rescuing thousands of displaced people. Their commitment of around $80 million for flood relief is the biggest from any country by far. By contrast, Muslim states have not exactly queued up to help. People have asked me why the Pakistan government has not immediately accepted the Indian offer of five million dollars. Instead, we are told the government is “thinking about it”. What’s there to think about? Surely in a crisis like this, money is money, whatever its source. It would be highly irresponsible to play politics or score points at this juncture. And how can the government ask the international community for help when it picks and chooses which country it will accept money from?”

    • linganath says:

      Read some where in this website the following, quote:

      “People at the relief camps seemed agitated by the authorities and complained of no proper evacuation plan when the flood was about to hit their vicinity. One such victim, Bano lost her husband, 5-year-old son and could not even save her ID card when water-level rose at 3 am that morning. According to locals, the Army, Air Force and other institutions had been evacuated three days ago, while the residents were left to survive in the monstrous floods.”

      Why only blame the politicians?

  13. Rabia Irfan says:

    thinking.. about this govt.

    • M. Shoaib says:

      We dont need to think about this government. We should think about the next government, because it is we who select our leaders, and everytime we choose the most corrupt and ambidextrous people no matter how ardent we are during election days! Think about it. Why is it that we select those who we are sure of their immoral and shameful deeds!

  14. Solomon2 says:

    Of course there is food inflation! What do you expect? With twenty million flood victims, Pakistan needs to generate a MINIMUM of 10,000 TONS of aid (mostly food) PER DAY. That’s 250 tractor-trailers of aid per day. And Pakistan has to do that for the next ten days at least, or hundreds of thousands of people will die. Aircraft can only deliver a fraction of the necessary amount – so far less than 2% of what is required, as near as I can figure.

    Price is an indication of need. The history of price controls in the Indian subcontinent is both sad and important; it seems that whenever price controls were in effect deadly famines resulted, as middlemen had no incentive to supply remote areas where people were starving, nor were farmers willing to part with their seed grain for the next year’s crop.

    • linganath says:

      Yes, especially if the air crafts are F-16s. And 250 tractor-trailers of aid can not be found in four-fifth of Pakistan not effected by floods?

  15. Yawar Shah says:

    The destruction in Pakistan is of biblical proportions. Natural calamity like the unprecedented floods and man-made calamity like the war on terror, have wreaked havoc by displacing millions of people and destroying millions of acres of farmland. This disaster is thousand fold greater than the Haiti earthquake.

    This unprecedented calamity, offers the United States a unique opportunity, to provide massive relief
    and emergency assistance, to help the people of Pakistan. Though the US has been generous, it must
    deal with this on war footing, as it has unmatched capability to airlift massive relief supplies, and avert a catastrophic situation of disease and hunger after the floods recede. Millions of people will need to rebuild their houses, farms and lives.

    The United States as the leader of the free world, should lead in this humanitarian mission, there could be no greater action to win the hearts and minds of the devastated people, by helping them at this time of their need.

    • vijay india says:

      Now it is pakistan’s turn to ask US to “DO MORE” for the flood relief.

    • linganath says:

      And Pakistan as the leader of true “Islamic” people of the world would hate USA in proportional un-humanistic fashion.

    • Sarah says:

      I completely agree, we invest billions on wars but to save ppl, only millions are pledged. Why there isnt the same level of urgency for humanitarian crises. I hate to say that , most governments always put their money where their interests lie, and saving millions of ppl in crises may not be something a foreign govt would put on their list.

    • gunjan says:

      I fail to understand Pakistan.

      Pakistanis consider Saudi Arabia their friend, philosopher and guide, and they do not regard people from free world as people. If it goes their way, they would destroy the free world, it appears, and would not leave people with religious choices. The free world is afraid of Pakistan and Pakistanis.

      Yawar, why do you expect free world to come to your rescue every time? It is a different story that US has already done enough to keep Pakistan’s GDP from falling. Do you know how much of Pakistan’s GDP is dependent on aids and how much of GDP per capita is contributed by US?

  16. Agha Ata (USA) says:

    I fully agree with RICH. I wonder why an emergencey hasn’t been declared yet.

  17. rich05 says:

    too much has been said about price rise due to various reason, now the pakistan govt should find a way to reduce prices so the poor can afford

    this is an emergency situation and needs string measures

    emergency should be declared i pakistan, and vendors forced to sell goods at a certain price, so their profits are reduced or just braek even

    pakistan needs a strong leader to put this mesures in place, he will have the blessing of million of poor displaced people, can the govt/army do it ?

    • linganath says:

      The moment the vendors are forced to sell goods at a certain price, the goods would disappear.

  18. Agha Ata (USA) says:

    Compounding the devastating impact of floods are two additional factors; the start of Ramazan in Pakistan, which has always been accompanied with unexplained inflation, and the global wheat shortage that has caused the price of wheat to increase by 90 per cent since June 2010……………………
    THERE IS A THIRD FACTOR TOO.

  19. M. Shoaib says:

    the accretion in prices of the food items may or may not have been caused by the havoc floods, but its actually the Ramadan that has bought surges in the prices of the food items. And also as there is complete anarchy in the country, no one is there who can render a check on food items. I think we deserve this.

  20. Maryam says:

    We can give the credit of this year’s inflation to the flood but what’s the explanation behind the all time love affair between ramazan and price hike?. The demand of goods can’t suddenly ascend that far nor can be that much decrease in the supply. It all has to do with our bad habits. Everyone here wants to cash the situation. When the people in west shares the joy of christmas with special sale we increase the prices to the extent that people start mourning Ramazan and Eid.

    • linganath says:

      Hit the nail right on the head. Good one. Though being an economist I have to disagree.

  21. Khalid Usman says:

    The rise in prices is nothing but government’s failure to control price.

    Govt’s selfish MPs are themselves involved in increasing prices and making profits. They don’t have heart to see flood affected people’s condition.

  22. Khalid Usman says:

    First of all, UN Secretary-General Ban Ki-moon has proved that he has heart. At the same time it’s huge slap on govt that Ban Ki moon travelled thousands of KMs to visit flood affected areas but govt could not do so when they were at a few meters distance.

    A big shame on president for absence during flood.

  23. Prof Ramesh C. Manghirmalani, Geneva says:

    The supply fears have pushed up prices for wheat: Some wheat options on the Chicago Mercantile Exchange have already increased by more than 50 per cent since May.

    Rising prices are an immediate problem in Pakistan, where weeks of flooding have destroyed millions of acres of farmland, much of it in the highly fertile Punjab province.

    A Pakistani farmers association estimated that flooding has wiped out 500,000 tonnes of wheat, roughly 2 per cent of Pakistan’s annual harvest. The food ministry places the figure slightly higher, at 600,000 tonnes. Sugar and cotton crops will also suffer.

    Food prices normally spike in Pakistan during Ramadan, and the flooding has only added to the misery. Wheat flour is being sold for 560 rupees per one-kilo bag, well above the official price of 400 rupees.

    Wheat is not the only crop affected: Sugar is selling for 70 rupees per kilo, according to Dawn, up from 47 rupees during last year’s Ramadan. A kilogram of tomatoes, normally 40 to 60 rupees per kilo, has doubled to 120 rupees, according to the Express Tribune.

    The increases are only expected to worsen as vendors begin to exhaust their stockpiles.

    Some goods are already unavailable: The Swat valley’s peach and apricot harvests cannot be shipped to market because flooding has washed away roads and bridges.

    Other countries fear longer-term implications from the global shortages.

    • bpshah says:

      Added to the situation in Russia where there is a drought, wheat prices will soar higher & higher in the entire world & this will have a debilitating effect.


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