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NATIONAL INSTITUTE OF MANAGEMENTISLAMABAD,

16th Mid Career Management Course

IMPACT OF PRICE HIKE IN FOOD STUFF

By: Muhammad Saghir Khan, S&GAD,AJ&K

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Sunday, 15 Sept. 2013

4Thursday, October 3, 2013

57th Nov. 2013

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SCHEME OF PRESENTATION

• Statement of the Problem• Introduction• Impact of Food Price Hike• Issues and Challenges •Analysis • Conclusion• Recommendations

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STATEMENT OF THE PROBLEM

Price hike in food items have far reaching effects on common man in economic, social, cultural and political spheres as well as at national level, what measures can be taken to control price hike & its effects?

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INTRODUCTION

• What is Food?

Food is any substance consumed to provide nutritional support for the body. It is usually of Plant or Animal origin, and contains

essential nutrients, such as carbohydrates, fats, proteins, vitamins,

or minerals. ( Encyclopedia Britannica )

• Food Sources: 1-Plants 2- Animals

a)-Plants: i-Staple Food ( Cereals/grains i.e maize, wheat, barley and rice etc. ii-Seeds, iii-Fruits, iv- vegetable)

b)-Animal Food: i- Meat/Fish, ii-Dairy product, iii-Eggs,

iv- Honey

• How much Food is required for an individual?

The amount of grains, protein, vegetable and fruits you need to eat

depends on your age, sex, and level of physical activity.

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INTRODUCTION• What is price hike

Sharp/abrupt increase in price. A percent of increase in the cost of goods or services. A 10% price hike means the cost of that particular item has increased by 10%.

• The Detriments of price hike

Its mainly, Inflation, Fuel price, Hoarding/smuggling, Population pressure

Food production and climate change

• Situation in Pakistan

Cont’d

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Price Comparison five years and Previous Month

Cumulative

Increase Food Items Price in 2008 Price in Sept 2013 Price in Oct. 2013 5 Year Increase %Flour 10kg Bag 110 407.73 412.21 374.74Basmati rice Per KG 90 130 140 55.56Sugar, Per KG 39 53.83 55.83 43.15Beef per KG 165 280.13 281.66 70.70Milk (Fresh), Per Ltr 38 68.36 68.56 80.42Cooking oil,2.5kg Tin 290 537 537.35 85.29Mash PULSE WASHED, Per KG 55 128.9 129.75 135.91Tea yellow lable,200gm 95 171.82 170.59 79.57Egg (Hen),Farm Per Dozen 48 97.14 98.45 105.10Mutton 350 551.64 553.32 58.09

Source: Pakistan Bureau of Statistic

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Food Ite

ms

Flour 1

0kg Bag

Basmat R

ice bro

cken, P

er KG

Sugar,

Per KG

Beef per K

G

Milk

(Fre

sh), P

er Ltr

Cooking oil,2

.5kg Tin

Mash

PULSE W

ASHED, P

er KG

Tea yeloow la

ble,200gm

Egg (Hen),F

arm Per D

ozen

Mutton

0

100

200

300

400

500

600

Chart Title

Series 1 Series 2 Series 3 Series 4

Price Comparison five years and Previous Month

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The World Health Organization estimates that one-third of the world is well-fed, one-third is under-fed one-third is starving- Since the start of this presentation at least 200 people have died of starvation. Over 4 million will die this year.

Source : World Health Organization

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IMPACT OF PRICE HIKE IN FOOD STUFF : (Economic Impact)

Household buying powerPakistanis spend a little under half of their income on food, about $7 per person per week: (43% of their income) :World Bank

Food quality compromisedAverage monthly consumption on food and beverages dropped to 45.1%, as against 48.9% in the preceding year

Education

Parents are forced to make hard decisions regarding daily expenditures, including educational expenses. Households spend less than 4 percent of their total expenditures on education, which translates into 6-7 percent of their non food expenses.

Health CareReduced expenditures on health lead to less adequate treatment of disease and higher morbidity and mortality rates

GDP Growth lesser demand in commodities slow the production and ultimately the GDP growth went down to 3.59% from 4.36 in from preceding year.

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Many of the world’s poorest people spend more than half their income on food(IFAD)

Source: International Fund for Agriculture Development

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IMPACT OF PRICE HIKE IN FOOD STUFF: (Economic Impact) Cont’d

Higher unemployment Less production would lead to less employment. It has snow ball effect,

Large poverty group

According to some reports, as many as 40 percent of the population lives below the poverty line. The economic realities are driving even the middle classes into cutting corners.

Increasing Import BillGovernment would try to buy cheap food elsewhere resultantly imports will increase and balance of trade will be changed

Positive impact on producers of food

Price hike benefits the food producer and middle man

Housing CostThe expenses on housing also went down slightly to 13.2%.

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Social Impact

Recreational activities

compromised

Weddings

Soaring crime

People interaction

compromised

Cont’d IMPACT OF PRICE HIKE IN FOOD STUFF

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Cultural Impact

Ramzan

Cinema

Theater

EID/Christmas/

Diwali

Cont’d IMPACT OF PRICE HIKE IN FOOD STUFF

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Political Impact

Political instablity

Create Un-rest

Strikes

Government under

pressure

Cont’d IMPACT OF PRICE HIKE IN FOOD STUFF

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ISSUES AND CHALLENGES

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ISSUES AND CHALLENGES

Population pressure

Fuel Prices

Food production

Hoarding and smuggling

International market influence

The population growth rate officially estimated at 2.1 percent per year, we will be 260 Million by 2035 (The Express Tribune)

Since June Electricity is up 30%, Petrol 20% only in a period of 3 Months, gas is going up which is affecting the price of fertilizer and transport costs (The News)

Agriculture sector is still using traditional methods, the production is not being increased whereas the demand is ever growing

In Pakistan most of the price hike in food is because of Hoarder and smugglers

Global food prices have risen by 83% from February 2010 to February 2012 (World Bank)

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ISSUES AND CHALLENGES

Inflation

Role of middle man

Price fixation/monitoring mechanism

Climate change

Food Insecurity

Inflation directly effect the prices of commodities, Higher Inflation higher prices.

Farmers sell their produce to middlemen at cheaper rates mainly because they do not have direct access to markets. It is the middlemen who control market prices.

There is no effective price fixation/monitoring mechanism in place

Disruptive weather effects the agriculture produce

One-half of Pakistan’s population is considered to be “food insecure,” (World Food Programme)

Cont’d

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Analysis

• Pakistan’s population has reached up to 184.0 Million, if we internationally weigh against the extensive growth rate in our population; we are ahead of Russia and very slightly behind Brazil. As we import 70% Fuel and its prices have been ever increasing, resultantly it triggers the food price increase. Increase in Fuel price have direct impact on fertilizer, transport and pesticide prices.

• Only 25% of the area of Pakistan is used for agriculture and we have serious problem with seeds, non existent of modern machinery, fertilizer and pesticides are expensive, the food produce is not what it should be. We should be exporting food rather struggling to feed our own people.

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Analysis

• Despite the fact that farmers are producing more and more, especially wheat, and the country is enjoying surplus crops, the masses are still suffering shortage and unabated price hike. The food security issue is getting a serious by courtesy of the nefarious elements like middlemen, smuggling mafia and official network of some relevant department. Government is already holding stock of wheat and other essential food. Utility stores, wheat and sugar support price mechanism is in place. Inflation and international food prices seriously effects the food price in Pakistan as we import lot of edible oil.

• Role of middle man and price mechanism is difficult area for government. However there is National Price Mechanism Committee headed by Finance Minister and have tabled the price mechanism bill in parliament quite recently. The NPMC is responsible to monitor the price of 28 essential food items

Cont’d

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Analysis

• Many of the Pakistan’s poorest people spend more than half their income on food. Price hikes for cereals and other staples can force them to cut back on the quantity or quality of their food. This may result in food insecurity and malnutrition, with tragic implications in both the short and long term.

• As the agriculture is open to nature and disruptive weathers play havoc to Agriculture food produce, in 2010 the agriculture sector has received a major blow of 300 Billion out of 855 Billion total damage.• Increasing fuel prices increases the input cost of various items i.e. fertilizers,

seeds, pesticides, farm machinery, diesel etc. at sowing time as the demand increases

Cont’d

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CONCLUSION • Despite the hardships and issues Pakistan is producing enough food for everyone but

the situation is very volatile and can change dramatically. The Federal government is fully aware of this fact and already have set up Ministry of food security which is taking steps in right direction. Benazir income support Programme is on, Utility stores and wheat and sugar support price to farmers is in place and most importantly Government is paying more price to wheat farmers to protect their interests.

• Hoarder and smugglers are continuously creating food shortage, rupee is losing its value fast, fuel prices are always rising. There is no effective price control in place. The middle man role is vital and Free market for food is almost non existent

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CONCLUSION

• No direct subsidy is being provided on Agriculture Inputs particularly on wheat, however there is indirect subsidies like flat rates on power for irrigation, subsidy on gas for fertilizer and imported fertilizer

Cont’d

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RECOMMENDATIONS

• Population pressure, we can’t afford to allow the present ratio, Bangladesh and models can be followed

• Hoarding and smuggling must be curbed (by sever punishment and tracking, good governance The present system of quota should be gradually abolished and corporate sector be brought.

• Effective price mechanism to be established. At the movement it is at legislation stage should be expedited and enforced forthwith

• Farmers access to market: Infrastructure required to be built, new roads, rail track etc.

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RECOMMENDATIONS

• Food Security:The government must ensure household food security in the face of dramatic food price shocks through targeted safety nets. Controlling domestic food price

• Modernizing Agriculture Improved Seeds quality, Farm Mechanization, Storage/processing facilities, /More Production

• Subsidies:

The Government should provide red diesel (without government taxes) to farmer for agriculture use as many western countries do to bring their cost of production down

Cont’d

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