Food grain exports in a rising market

Post Source: Dawn economic and business review

By Ahmad Fraz Khan

THE rising world food prices since July last year are triggering fears of unrest in developing countries. According to the Food and Agriculture Organisation, the Food Index has touched an all-time high figure of 236 points – 2.2 points higher than its January level, which, in itself, is a record. The February figure was 36 points higher than the average increase throughout 2008, when high cereal prices tested social and poverty limits of the poor, and stoked off food riots and export bans by some states. Cereal prices rose 3.7 per cent over January average, meat by two per cent and dairy by four per cent.

The FAO Food Index – a compilation of sugar, cereals, oils, meat and dairy products – averaged 90 when the organisation first started tracking food prices in 1990.

 

The upwards swing in the world food price began in July when floods in Pakistan, drought in Russia, Australia (and later torrential rains) and Canada and wildfires in Russia shrank the food supply chain. Couple it with rising oil prices, which for the first time in last three years, have gone past $100 per barrel – even its Futures are being traded for over $100 per barrel – and disastrous 2008 scenario gets completed.

 

Most of the world food experts believe that the American bio-fuel policies are to be blamed for the current crisis. Once oil prices start rising, the Americans start diverting maize to ethanol production, disturbing the entire cereal basket, where wheat starts going into poultry feed and prices assume upwards swing. Once maize and wheat prices go up, they attract more money into their futures and increase speculative pressure on their trade. Meanwhile, high oil prices throw additional money into food trade and double the pressure on prices. After a while, the process becomes self-perpetuating.

 

With the United Nations and other food bodies firing the warning shots, the states around the world have started awakening to the situation. Pakistan, fortunately, can benefit from the situation. It has wheat and rice stocks that it can sell in the world market and make some money. The major challenge for it would come from domestic governance rather than world cereal market going in tail spin. That is what the government should now be preparing for; calculate cost-benefit ratio and try to save its poor from falling into hunger trap. Pressure on Pakistan’s economy would come from high oil prices, especially for its inability to muster enough political will to pass international prices on to domestic consumers. It is one step forward and two steps backwards policy on oil pricing in the last two months. There is no doubt that oil pricing formulae is skewed and is anti-poor.

Pakistan’s saving grace during this volatile period would be its high wheat and respectable rice stocks. Here, the fear is that they may end up being smuggled, rather than exported. The Afghan and Iran routes are notorious for these kinds of activities. Being porous, as they are, and government’s inability to monitor them could be a source of big trouble. That is precisely where it needs to work for the country’s advantage rather than letting a few making money at the cost of the state and the people.

 

As most of the independent experts believe, the country can earn anything close to $2 billion each on its wheat and rice export heads. Its textile export luckily also grew by 23 per cent in first half of current fiscal. Earning additional $2 billion would be crucial because they would directly compensate it for economic cost that it would have to pay for the high cereal prices. On the second plank, it needs to run a regime of agriculture incentives that enable to take advantage of high cereal prices, which are expected to sustain the trend for next five years. The government must benefit from the country’s natural endowments and it must be exploited to full advantage. It should re-assess every major and minor crop in new international and domestic perspective and develop a long-term vision for it.

 

The world is also moving towards niche markets, where the country’s real potential lies. Its four seasons allow it to grow all kinds of herbs, horticulture, floriculture, livestock and foods. Most of the countries in the world have excelled in one of these fields (floriculture of Holland, horticulture of Chile and Thailand and dairy products of New Zealand are case in point) and built their economy around it. Pakistan’s failure, despite all that natural potential, is unexplainable. The current international cereal crisis could, and must, be turned into an opportunity.

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