THE world food crisis of 2007-2008 rumbles on uncontrolled. This food crisis saw the doubling of maize prices, wheat prices rising by 50 per cent and rice prices increasing by as much as 70 per cent.
At the end of 2007, the Economist magazine noted that its consumer price index — a measure of inflation — had reached its highest point since 1845.
Globally, the food price hike is not over, with wheat prices shooting up again last year, impacting the prices of other commodities. Although the principles of demand and supply have an explanatory role in the creation of the food crisis, yet the main reason behind the crisis lies elsewhere.
For example, how do we explain the 165 per cent rise in rice prices between April 2007 and April 2008 when rice stocks were not unusually low? This applies to the rising prices of other commodities too where market fundamentals do not offer a satisfactory explanation.
Not surprisingly, increased attention is now being paid to the role of banks and hedge funds in creating artificial price hikes through commodity speculation. According to leading economist Jayati Ghosh, after the collapse of the housing market in the US, banks and hedge funds began pouring astronomical sums into financial speculation on agricultural commodities.
This trend of shifting focus from the housing market to agricultural commodities was reflected in the 500 per cent increase in the number of derivatives in commodities between 2002 and mid-2008. In 2006, Merrill Lynch estimated that speculation in commodity prices was causing the commodity prices to trade at 50 per cent higher than if they had been based on the fundamentals of demand and supply alone.
According to estimates of the anti-poverty organisation World Development Movement, Goldman Sachs alone made $1bn in profit in 2009 from speculating on food. That the financial speculator profited from the increasing penury of the already poor is disgusting. What has been the net effect of this artificially-created food-price volatility by financial speculation on commodities on the poorest countries?
The effects have been far-reaching and nothing short of a disaster. This shows up in the figure of 50-60 per cent of income being spent on food purchase in developing countries as compared to 10 per cent in the developed world. As a result, the food crisis has affected the world’s poor disproportionately. The number of people in poor countries falling into the poverty category has increased by about 200 million during the food crisis.
Pakistan, where the effects of food crisis are accentuated due to weak regulatory mechanisms, has seen the number of food-insecure districts increase in recent years.
There are harrowing tales of an increasing number of distressed people committing suicide. Food price hikes have led to poor households spending on average 60 per cent of their household income on food purchase, leaving little for health, education and housing; and with food inflation of 64 per cent since 2008, according to one economist.
Poor households are resigned to eating less and less with dire effects on nutritional status and poverty levels. Whereas in the past a family could afford meat once a week, now it can barely purchase it once a month.
A recent report unveiled by Unicef paints a grim picture showing rising rates of malnutrition in Sindh at 23.1 per cent. These rates are well above the 15 per cent emergency threshold set by the World Health Organisation.
More worryingly, these rates of malnutrition are comparable to those of Chad and Niger. To be compared to these countries on this indicator is alarming. Although the report comes out against the backdrop of the floods, it complements the finding of an earlier report issued by the Sustainable Development Policy Institute which highlighted growing food insecurity in an increasing number of districts as a result of price hikes and the absence of robust price-control mechanisms.
The escalating problems of poverty and hunger induced by the food crisis are an indictment of the failure of government policy to shield consumers from the spiral effects of internationally-engineered food price hikes which have been manipulated by local cartels to fleece consumers. In this regard, the sugar crisis is a classic example
In Pakistan, food price rises are inexorably on an upward trajectory. January 2011 saw a 20 per cent increase in the price of essential food items; while the cost of non-perishable food items rose by 17.27 per cent that of perishable items surged by 44.5 per cent with a corresponding 16 and 13 per cent increase in medical and transport costs.
Given the rising cost of living the poor consumers do not know what hits them on a daily basis. At the same time, the government’s failure to shield consumers from the rise in the prices of food items is glaring.
While it is true that the food crisis is partly rooted in financial speculation, the government too has failed to institute strong regulatory mechanisms to curb upward rises in prices. The old mechanism of price control through the magistracy system has been done away with, without any alternative system replacing it.
As well as not doing enough to move towards achieving food sovereignty to set up a stable food chain system immune from largely-engineered food price hikes in the international arena, there have been accusations that the government is engaged in handing out large parcels of our cultivable land to the Gulf countries to meet their food needs. Though Pakistan differs from Tunisia and Egypt in many respects, rising food prices constitute a common thread which can cause the pent-up anger of consumers to erupt. The writer is executive coordinator of the Network for Consumer Protection.