Economic survey: Posing for the poverty picture

Rising food prices could undermine poverty reduction, human development.

ISLAMABAD:

Already with low incomes and high expenditures, households’ purchasing power is being eroded by the rising food prices in the country, which could undermine poverty reduction and human development efforts, said the latest economic survey of Pakistan.

According to the survey, food prices witnessed a phenomenal rise during the last three and half years, averaging at 18 per cent per year. It observed that people who were below the poverty line before may now be on the verge of hunger and malnutrition, and those barely above the poverty line may have slipped into poverty.

Moreover, because food makes up a large share of the average household consumption budget, a sustained rise in food prices will push wages upward, adding to general inflation. The survey also held structural factors, short-term disruptions and natural calamities responsible for the inordinate rise in food prices, controlling which has remained a major policy challenge for Pakistan.

According to the report, poverty estimates of last two years show strong clustering around the poverty line, suggesting that the poverty situation may change drastically from small injections of income or crop failure.

A recent study by the Asian Development Bank examining the impact of rising food prices on poverty revealed that an average household in the developing world spends roughly half of its total budget on food.

The study said that poor households allocate more than 60 per cent of total household consumption to food, suggesting that an increase in food prices will significantly lower consumer purchasing power, especially among the poor.

According to the World Bank’s 2011 estimates, 44 million people in developing countries have been pushed into “extreme poverty” due to higher prices of corn, wheat, and oil.

The international figures present a disappointing picture for Pakistan as for the last three years or so food inflation is the major driver of the Consumer Price Index (CPI) inflation. According to the report, in the aftermath of the 2010 floods the problem compounded manifold.

Published in The Express Tribune, June 9th, 2011.