India Follows Pakistan To Food Inflation

The food inflation has hit India a few months after it rose its head in Pakistan. This sequence makes sense based on the fact that Pakistani economy is considered freer than India's economy and the food inflation is driven by rising global demand and tight supplies. In today's global world, it is hard to isolate any national economy from the impact of international economic problems.

In terms of economic freedom, Pakistan is ranked ahead of many regional economies, according to a worldwide index of economic freedom. The 2007 Index of Economic Freedom, jointly conducted by The Heritage Foundation and Wall Street Journal, has put Pakistan at the 89th place while India is ranked 104. A free economy means an economy that is based on liberal rules that preclude extreme measures against free trade and price increases. Such measures do not prevent problems, they simply delay the impact of such problems, as just demonstrated by inflationary pressures seen in South Asia.

As Indian economist Paranjoy Guha Thakurta recently wrote for the BBC that milk costs 11% more than last year. Edible oil prices have climbed by a whopping 40% over the same period. More crucially, rice prices have risen by 20% and prices of certain lentils by 18%. Rice and lentils comprise the staple diet for many Indians.

Thakurta says, "Food inflation is bad news for ruling politicians because the poor in India vote in much larger numbers than the affluent. Roughly one out of four Indians lives on less than $1 a day and three out of four earn $2 or less."

"Food riots in India, Yemen and Mexico, warnings of hunger in Jamaica, Nepal, the Philippines and sub-Saharan Africa, empty shelves in Caracas have been witnessed in the recent past which was not seen in decades of low global food commodity prices,"
a report by the UN FAO said.

A rise of more than 10 per cent is recorded in India and Russia while food price has inflated by 18 per cent in China, 13 per cent in Pakistan and Indonesia, according to the UN agency.

Meanwhile, there is shortage of beef, chicken and milk in the countries as governments try to keep a lid on food price inflation, it added.
Reports say that there are 854 million hungry people in the world and 4 million more join their ranks every year. Wheat has doubled in price, maize is nearly 50 per cent higher than a year ago and rice is 20 per cent more expensive, the UN said. FAO claimed that global food reserves were at their lowest in 25 years and prices would remain high for years. Moreover, any natural disaster such as a drought or flood might lead to an international crisis.

The price rise is a fallout of record oil prices, US farmers switching out of cereals to grow biofuel crops, extreme weather and growing demand from countries like India and China, the FAO said.

According to the US Dept of Agriculture, the average person in the developed world of Western Europe and North America spends less than 10% of his or her income on food. By contrast, South Asians' food expenditures account for 40% of the average income. Thus the impact of food price inflation is much greater in South Asia than in the industrialized world.

Like Pakistan, the current crisis in Indian agriculture is a consequence of many factors - low rise in farm productivity, low prices for cultivators, poor food storage facilities resulting in high levels of wastage. Also, big differences between domestic and world prices encourage smuggling to neighboring countries resulting in local food shortages.

South Asian governments need to encourage higher food production by various incentive programs such as higher prices for farmers and subsidies for farming inputs such as seeds, fertilizer and machinery. At the same time, better farmer education, reliable food storage, transportation, water management and modern irrigation techniques and infrastructure require greater attention by the agriculture officials. A serious longer term effort is also needed to encourage substitution and diversification of the sources of calories for the average South Asian.

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