March 03, 2008	Monday	Safar 24, 1429

SOME people are demanding an end to the State Bank’s financing facilities to rice exporters and ban on rice exports because of current increase in rice prices. They are also demanding minimum export price, ban on export of brown rice etc. If these demands are accepted, India would be a major beneficiary.

According to FAO, rice prices have increased in all rice-producing countries, and this phenomenon is not limited to Pakistan alone. The State Bank’s export refinance facility (ERF) is not the reason for the current increase in rice prices.

The sharp increase in prices of rice globally is linked with the rising prices of other grains/commodities across the global food sector. In Pakistan, we have witnessed the following price increases in one year:

The question now arises, what are the real causes for food price inflation? Answer to this question is “an array of factors, from rising food demand and high oil prices to global warming”. The Bangladesh’s cyclone of 2007 had destroyed rice crop worth $600 million.

Jenny Wiggins writes in the article “Developing Tastes” – Financial Times, January 26, 2008: “The speed at which food prices rose in 2007 has shocked not just farmers and consumers, but also governments. ‘’Rarely has the world witnessed such a widespread and commonly shared concern on food price inflation,’’ the United Nations’ Food and Agriculture Organisation says.

Why are food prices going up so fast all over the world?

For a start, the world’s stocks of grain have been falling, partly thanks to droughts in Australia and Ukraine (the world’s-biggest wheat exporters). This has helped push up prices. Higher grain prices make food derived from animals - such as poultry, pork, eggs and milk - more expensive, because farmers who buy grain to feed their animals pass on the extra costs.

Meanwhile, bio-fuels are also having an effect. As global demand for non-oil-based sources of energy rises, some farmers are choosing to turn their crops into bio-fuels rather than food.

But the biggest cause of higher food prices is not bio-fuels or the fall in grain stocks: it is the remarkable changes occurring in the kinds of foods people eat, particularly in the fast-developing nations of India, China, Russia and Brazil. These changes are so big - and so swift - that their impact is being felt all over the world.

Apart from these reasons, two more reasons can be added in case of Pakistan viz prices for fertiliser, especially DAP have increased (a 50kg bag now costs Rs.2,230, where as last year the price was Rs.1,400 – an increase of 60 per cent) causing input costs increase. Second land/real estate prices have gone up drastically. Farmers who previously were getting mere thousands of rupees per acre for agricultural land can now expect to get anything between Rs0.7 million to Rs5 million per acre from town house and property developers especially in Punjab. So the opportunity for farmers is clear – either increase prices for their agricultural produce or sell their land for better pursuits.

Rice exporters are mere price takers; they like everyone else in the rice value chain are affected by increase in rice prices. The only respite offered is to cover their export stock with the SBP financing.

With the textile industry in crisis, Pakistan cannot afford to further decrease its exports proceeds by clamping down on rice export.

The author is one of the directors of the Matco Rice Processing (Pvt) Ltd.