Food inflation that was already high before the 2022 monsoon floods in Pakistan further accelerated after the floods, particularly in rural areas.
In rural areas food inflation rate crossed 30 per cent in August amidst super floods and remained above that level for the next four months, peaking at 37.9pc in December 2022. In urban areas, people witnessed food inflation rising past 30pc in September, then touching an all-time high of 34.7pc in October before slipping to 29.7pc in November. But in December, urban food inflation again rose to 32.7pc.
Such persistently high rates were primarily the outcome of domestic food shortage that aggravated after the floods, higher food prices in the international market in most of 2022, rupee depreciation, disruptions in domestic supplies and delays in imports due to import restrictions, and the failure of authorities in enforcing administered prices.
The economic slowdown that crept in in the second half of 2022 and is expected to last until the first half of 2023 is making it harder for the government to provide subsidies to the food sector to mitigate the effects of rising food inflation. And people with lost jobs and fast declining real incomes find it too difficult to brave it anymore. But the bad news is that there is little scope for a substantial relief in food prices even in 2023 — not at least during the year’s first half.
The floods washed away a large part of minor crops, including vegetables, pulses and oilseed
The country is already facing a wheat crisis. Delays in the decision to import the commodity have already led to several increases in wheat flour, which has made all flour-based products, including naan, roti and bakery bread, costlier. However, officials claim that the wheat crop may not suffer as much as initially thought after the floods as sowing remains in line with the target.
But farmer lobbies say the country may not achieve the production target of 28.4 million tonnes due to various reasons, including a reduction in the area of sowings and growers’ inability to take care of the upcoming crop amidst rising costs of energy and fertiliser and other inputs. Prices of fertiliser scaled several new heights in 2022, reflecting the global trend, and it is highly unlikely that these prices will decline substantially in the first two quarters of 2023, even if international prices remain stable.
The reason is the passthrough of global prices of agricultural inputs in our domestic economy takes at least six months to materialise. And new drivers of overall inflationary pressures often make the passthrough impossible. Subsidising domestic output of fertiliser or other agricultural inputs is not an option right now as Pakistan is desperately looking towards the International Monetary Fund (IMF) for the release of funds, and the IMF conditions are such that they leave little or no room for subsidies.
The paddy crop was damaged badly in the 2022 floods, and even the most optimistic estimate of rice production puts it around 8.3m tonnes — down by 1m tonnes from 2021. That is one big reason why rice prices continue rising every month, and that is why total rice exports in 2022-23 are expected to remain lower than in FY2021-22.
The floods had washed a large part of all minor crops, including vegetables, pulses and oilseed crops. The resultant decline in the output of minor crops has already started translating into higher prices of pulses and vegetables.
A declining trend in international palm oil prices in the second half of 2022 should have ideally provided some relief. But import restrictions put in place in May 2022, and overall higher domestic inflation did not let it happen. Now, as Indonesia has once again started restricting its exports of palm oil to ensure adequate supplies in domestic markets, cooking oil prices can be expected to rise further in Pakistan, more so if forex shortages in the country hamper imports.
The current natural gas crisis is the most severe in Pakistan’s history — so severe that consumers are not getting gas supplies even around mealtimes. This crisis, which will not go away in the next few months, is pushing food inflation up and will continue to do so.
Cooked meals served at restaurants and eateries are becoming pricier day by day. One reason is that the restaurants and eateries incur greater costs on gas fuel, which they are now purchasing from the open market in the form of gas cylinders.
The electricity crisis — even during winter — has led to the early closure of markets, shopping centres and wedding halls. At the root of the gas and electricity crises sit a growing pile of circular debt of the energy sector that will take years to reduce in size.
The shortage of electricity, coupled with the higher cost of fuel oil (compared to what it was a year ago), is also adding to the cost of production, transportation, marketing, and marketing of food and non-food items and is fueling overall consumer inflation.
Amidst general inflationary pressure in the economy (consumer price inflation was 24.5pc in December 2022 against 12.3pc in December 2021), efforts to contain food inflation cannot succeed. Particularly not amidst the ever-growing political uncertainty, fast-deteriorating governance, and wanning policy coordination between the federal and provincial governments.
Published in Dawn, The Business and Finance Weekly, January 9th, 2023