The past two years have been challenging for the global economy not only due to the financial crisis but also because of the unprecedented volatility of the world food prices. The first half of 2008 saw global food prices rising 41 percent over the previous year mainly due to drought and crop failures in several major food-producing countries. The sharp rise in the prices of petroleum products also triggered the diversion of food grains for production of bio-diesel as evidenced by the growth of bio-fuel output by 32.3 percent in 2008 over the previous year.
While food prices in Nepal rose in line with the global trend, they did not follow the same path and trend downwards. The lacuna in supply chain, market distortion and poor regulatory capacity has attributed to constant rise of food prices. The price of coarse rice was higher by 41 percent in February 2010 as compared to the same month of the previous year. Similarly, the prices of lentil were higher by 25 percent, flour by 25 percent and black gram by 44 percent compared on year-on-year basis. The domestic production of sugar has gone down by 50 percent thus pushing up the prices by 60 percent this year when compared to the previous year’s price. A large part of edible oil is imported (almost 70 percent) and the constant rise of these oil prices in the international market has impacted the domestic prices. The increasing gap between demand and supply of food items has put pressure on prices to go up. The fallout is seen in the consumption pattern between the urban and rural household and between rich and poor families. The former or the better-off have been successfully in coping with the rising prices to meet their demands, forcing the prices to rise and driving the poor to make do with lower consumption causing malnourishment and depletion of limited income, often resulting to sale of land and fixed assets for purchase of food grains.
Efforts should be made to establish a Supply Board in order to coordinate with various entities and facilitate the process of establishing a proper supply system in the country.
The chances of market distortions through hoarding, cartels and adulteration are high in case of short supply of essential commodities. The rogue traders and the middlemen are mostly liable to this kind of situation. Hoarding combined with speculation is one of the main causes of surge in food price. The abnormal differences between retail and wholesale prices indicate the extent of hoarding. It has been noticed that there were high mark up in vegetable retail prices, particularly in Kathmandu’s Kalimati wholesale vegetable market where the so-called management board of the market fixes the prices of vegetables on its own, creating a big gap between the price paid to the farmers and the price to be paid by the consumers.
Various distortions and ill-motivated actions are taking place in the name of political transition which is sapping the resources of the government and hard-earned income of the common people. It is quite understandable that actions like strikes, lockouts, and transport blockades are quite detrimental to keep the sound supply system in place, but we should not loose sight of the tendency of fishing in muddy waters. This requires a strong mechanism to monitor the market and supply chain and take actions against the wrongdoers. The electricity supply interruptions are forcing factories to produce below capacity, thus also creating problems in maintaining proper prices. This needs to be attended with priority. The political parties also need to observe their promises not to go for general strikes and transport blockades as they have committed recently during the launching ceremony of Nepal Tourism Year 2011. The supply system and economic development process should not be made means to achieve political ends.
Nepal needs to develop a comprehensive plan that incorporates all the ways and means to establish a sound supply system for the rural and urban areas. The plan should be able to articulate the total demand and supply of essential items including food grains, measures of mitigating the deficit in supply and market regulation. Managing supply is a multi- dimensional and multi-sectoral task and needs coordination among various government, para-statal and private agencies. Efforts should be made to establish a Supply Board in order to coordinate with various entities and facilitate the process of establishing a proper supply system in the country.
There area few measures that can be taken up in the short-run to address the burgeoning food prices. First, sufficient numbers of fair price shops need to be opened at various places in the urban areas and at least one such shop could be placed in one Village Development Committee in the rural areas. The cooperatives that were opened last year from government subsidy can be encouraged and motivated to operate fair price shops. Secondly, the buffer stock of the food grains and essential items with the Nepal Food Corporation should be increased so as to supply it in the market when needed. Thirdly, the market monitoring mechanism should be made effective and market inspectors should be empowered to take action against culprits without taking recourse to a long and tedious legal process. Fourthly, investment in the agriculture sector should be increased from both public and private sector in view of sustaining the production level. Cooperative farming can also be promoted to enhance the production of essential crops at the local level. Introducing a public distribution system along with ration cards can also go a long way in providing relief to the poor people from soaring prices. For this, we can count on the experience of our neighboring countries as they have introduced such a system a long time back.
Modernizing the supply chains would be another important step for ensuring the supply of essential goods. This would require linking the development of transport sector with supply, particularly paying attention to enabling farms to have easy market access, construction of new warehouses, maintaining existing warehouses and creating cold supply chains. The private sector should be encouraged to participate as service providers in logistics and supply chain through necessary legal reforms and incentives.
More immediately, food prices can be controlled and inflationary expectations weakened by increasing supply. This would require importing food grains up to the deficit quantity on one side and implementing a crash program for increasing production of some selected food crops on the other. Increasing awareness of the common people about the nutritional requirement of a person and measures of supplementing the nutrition from various food items is also equally important in the Nepali context as many people assume that rice is the only source of healthy food.
(Writer is Commerce Secretary.)
puruojha@gmail.com
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