Dealing with food inflation —Syed Mohammad Ali

It is time for powerful institutions like the World Bank to begin addressing the root causes of the current agricultural malaise, instead of focusing on alleviating its symptoms alone, or else they will not be able to eradicate world hunger

The ongoing global food crisis has hiked prices to the extent of inciting public riots. These rising prices are hurting the poorest the most, as they are already spending a major proportion of their incomes just to purchase the food needed for their family’s survival.

So are these high food prices here to stay? If they are, then what can countries like our own do to help alleviate this increased price burden on the poor, given our already stretched national budget? This is indeed a major challenge that deserves urgent attention.

These food price hikes have a particularly serious impact on South Asia, which is a net importer of food, and where food prices have shot up by almost 70 percent during the last seven years. The World Bank’s Vice President for South Asia recently admitted that the soaring food price was the main topic on his recent round of talks with the government, the private sector, and NGOs in Afghanistan, Bangladesh, India, and Pakistan. This is hardly surprising given that the agricultural sector is under-performing in almost every South Asian country.

Longer termed actions recommended by the World Bank to combat food price rises — once the emergency situation is dealt with — include an end to export bans; provision of more effective safety nets and redistribution mechanisms to protect people vulnerable from sudden shifts in prices; and a revitalisation of infrastructure investment for agriculture.

Despite its broader obsession with promoting trade and earning foreign exchange, the World Bank has conceded that policies that favour bio-fuels over food need to be reviewed and, if necessary, reversed and that food reserves should be accumulated to help relieve the evident shortages. It is now also trying to work with individual countries to devise smarter subsidies for the poor and supporting measures such as food-for-work, or conditional cash transfers whereby parents can receive food in return for sending their children to school or in exchange for health check-ups.

Mitigating the food crisis requires varied strategies that differ from country to country. In Pakistan, for example, actions taken have to be different from those in Bangladesh. Bangladesh lost 10 percent of its rice crop due to two major floods and a cyclone in 2007, and the World Bank thus began providing budget support to Bangladesh to accommodate the immediate needs arising from these crop losses. For this purpose, the need to utilise targeted subsidies which are able to automatically exclude the better-off who can afford to pay market price for rice became evident. Subsidising low-cost coarse grain, which is what mostly poor people consume, was thus a good idea.

In the case of the wheat shortage in Pakistan, however, such targeting cannot work since wheat is a staple food that both rich and poor people consume alike. So a targeted subsidy cannot work the same way in Pakistan as in Bangladesh.

Clearly, untargeted subsidies are counter-productive since they add to the existing stress on national budgets. If resource-constrained governments borrow money from the central bank to pay for such ineffective subsidisation, this in turn causes inflation, which then hurts everyone including the poor. Instead, other safety net approaches to reach out to the poorest of the poor are required.

Expanding existing social assistance programmes that directly target poor households is necessary, but doing so without elite capture of these subsidies remains a challenge, given that vast amounts of development aid typically fail to reach the most deserving people. This problem of relief or aid not reaching its intended beneficiaries is fairly widespread. Even well entrenched distribution systems like Zakat and Bait-ul Maal in the case of a country like Pakistan remain prone to corruption and have quite ineffective targeting.

To overcome this problem, the Pakistan People’s Party recently announced plans to put in place district-based databases of people who are most deserving of subsidies and other aid, but how such a database will be complied needs to be thought through quite carefully to avoid biases.

South Asian governments have also tried to impose price controls, as in India, where the government still buys wheat from farmers at a minimum support price. However, the World Bank is very critical of this measure and deems it as being highly distortionary and costly. The World Bank has conversely been suggesting that the Indian government should to do away with this policy measure, especially now that the world food prices are about the same as the support price being provided by it.

Admittedly, subsidies cannot go on forever, they need to be time bound and accompanied by adjustment measures that accommodate the price increases. Sustainable solutions are required to increase agricultural productivity, which can automatically reduce food prices. But doing this in practice will imply tackling many thorny issues, including revision of agricultural programmes endorsed by the World Bank itself.

Many local farmers and agriculture activists in South Asia blame World Bank interventions in the agricultural sector for encouraging the eradication of small-scale cultivation and exacerbation of high food prices, from which only net producers can benefit. Tenant farmers and landless labourers are in fact often net consumers, rather then net producers of food, since they do not produce sufficient food to even meet their own families’ requirements. Such poor cultivators and labourers will perhaps never be able to rise out of poverty as long they lack ownership of the land on which they work.

Yet the World Bank has not yet endorsed the need for land reforms and instead keeps advocating the need for creating land markets, and removing agricultural barriers without compelling richer countries to re-examine their own agricultural policies.

It is time for powerful institutions like the World Bank to begin addressing the root causes of the current agricultural malaise, instead of focusing on alleviating its symptoms alone, or else they will not be able to eradicate world hunger.

The writer is a researcher. He can be contacted at ali@policy.hu

Source: Daily times, 22/7/2008

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