Posts Tagged ‘consumer price index’
Belgaum and Mysore in Karnataka with 12 points. Warangal, Telengana with 12 points. Panaji, Goa with 12 points. Munger, Bihar with 11 points. Bangalore, Karnataka with 11 points. Salem, Coimbatore and Coonoor in Tamil Nadu with 10 points. Rourkela, Odisha with 10 points. Sholapur, Maharashtra with 10 points. Vijayawada, Andhra Pradesh with 10 points.
These are not Swachch Bharat rankings nor are they ‘ease of doing business’ scores. They are, for each urban centre, the number of points its consumer price index (CPI) increased in May 2016 over the average for the previous quarter. The data is collected and distributed by the Labour Bureau, Ministry of Labour and Employment. This is one of the ways in which the monthly CPI numbers for industrial workers (a somewhat dated term which suited an era when the public sector dominated the economy, but which still relates to urban households) can usefully indicate the acceleration in inflation of household staples.
The picture changes when the CPIs of urban centres for a month (the latest available being 2016 May) are compared with their own averages for the last six months, the last 12 months or the year which ended 12 months ago. When the frame of comparison is the average of the previous 12 months, I find that in 30 of the 78 centres for which a CPI-IW is calculated, the increase is 10 points or more. Warangal in Telengana, Kollam in Kerala and Mysore in Karnataka are 16 points above their previous 12 month average while Munger in Bihar, Rajkot in Gujarat and Jamshedpur in Jharkhand are 15 points above.
This is the relativist picture that perhaps makes the most illuminating use of a monthly index, whatever its faults and shortcomings. The well-appointed chart that I have drawn helps show why the speeds and acceleration, between a current measure and an earlier set of measures, are more important to consider than the absolute numbers themselves. This is an experimental way to help visualise a subject that is alas rather dry but of great import for every single household. I will update this as new CPI numbers are released by the Labour Bureau every month.
How urgently our national food price measuring methods need a complete overhaul is best shown with the example of a staple everyone is familiar with: arhar or tur dal.
Price indexes or indices are useful because they help us view the change in the price of a particular food staple over time, not the price itself, but change in price when taken from a base year or month. Price records are useful because they log the price (per kilo for retail consumption) of a food staple in a week or month.
The three ministries concerned with food prices update their indices or actual price reports every month or week. These are: the Department of Consumer Affairs of the Ministry of Food and Consumer Affairs, the Directorate of Economics and Statistics of the Department of Agriculture and Cooperation of the Ministry of Agriculture, and the Labour Bureau of the Ministry of Labour. In addition, there is the wholesale price index prepared by the Office of the Economic Adviser, Ministry of Commerce.
Usually, movements and trends in these indices and price logs are examined by themselves, and conclusions are drawn about whether the price of a food staple has been held steady or is rising steadily or is rising seasonally and also annually (we never see prices and trends going downwards).
But this is not enough. We need also to examine whether these indices and price logs are describing what they are designed to in the same manner and – very much more important – whether their descriptions are reasonable or not.
In the two chart panels, I have plotted the descriptions for arhar/tur dal from several sources together. The left chart has solid coloured price lines from the Department of Consumer Affairs and from the Directorate of Economics and Statistics. Each has two lines, the higher at the 90th percentile and the lower at the 10th percentile of all monthly prices logged from 2009 January until 2014 June. The two dashed lines are indices – the wholesale price index for arhar/tur and the Labour Bureau’s retail price index for arhar/tur over the same period. The price logs are plotted against the left index and the price indices are plotted against the right index.
Between the two indices the WPI for arhar appears lower than the Labour Bureau index, but that has only to do with a difference base period. The overall pattern they describe is the same. The two sets of price logs shows the two different levels for the 90th and 10th percentiles – in both cases the prices recorded by the Directorate of Economics and Statistics are higher than those recorded by the Department of Consumer Affairs. However they all follow a similar pattern over the 66 months illustrated here.
And so to the question: how true is what these indices and price logs are describing?
The answer is in the right chart. Here, two more lines are seen. These are both ascending relatively evenly over the 66 months, one at a slightly steeper rate. These I have called the ‘real retail’ price lines, one low and the other high. They describe the prices paid by urban consumers for a kilogram of arhar/tur dal based on what has been charged by ordinary retail outlets in towns and cities, with the price readings collected informally. They have also been ‘straightened’ by applying a 12%-14% true inflation that has been experienced by urban food consumers over these 66 months.
The effect, as you can see, is startling. The ‘real retail’ price lines explain why the consumption of pulses has been dropping and continues to drop especially amongst urban households whose livelihoods depend on multiple informal jobs. At Rs 90 to Rs 110 per kilogram, this dal (like other pulses) is almost beyond reach. At Rs 120 to Rs 130 per kilogram – these are levels that began to be recorded by consumers, but not consistently by the government price monitoring agencies, even two years ago – the dal can be consumed only by the upper strata of the urban middle class.
The question that immediately arises is: why is the real food price inflation being experienced by consumers not reflected in the official food price logs and indices? I will take up this question in the next posting.
The Labour Bureau of the Government of India has done us a most valuable service by disaggregating from the consumer price indices, separate indices for the individual items that a household typically buys, whether every day, periodically (weekly or monthly) and even annual purchases.
I have charted here the data for the cereal and cereal substitutes. This group consists of rice, wheat, maida (flour), suji (coarse wheat flour), bread, sewai (rice vermicelli), maize atta, wheat atta, tapioca, jowar, sago, ragi, bajra, maize, sattu (ground cereals) and the grouping of beaten or flattened rice (chira, muri, khoi, lawa (CMKL)).
The chart describes the movement – over 96 months from 2006 January to 2013 December – of the price indices (not the prices) for these foods. These are calculated as all-India prices using the consumer price index for industrial workers (CPI-IW) and the base is 2001 = 100.
There are several significant findings from examining the movement of this group of price indices. (1) Over 2008, 2009 and 2010 the rise was steadily upward with a pronounced spike in some items that lasted from 2009 August to 2010 May. This is noteworthy as no spike is visible (for the group as a whole) during 2007-08 when there was a worldwide steep rise in the prices of foods.
(2) From around 2010 May, maida, maize atta, CMKL, bread, wheat atta, rice, wheat increased at a muted rate and even remained flat over short periods whereas other cereals and cereal substitutes rose steeply and/or showed volatility in their indices. (3) From 2012 June the price indices of all items in this group rose steadily and steeply – more steeply than at any time since 2006 January and have continued this accelerated pace until the end of the recorded period, 2013 December.
This is another excellent release into the public domain of valuable indicators by the Labour Bureau which help describe the relentless rise in the prices of food staples in India. As the Labour Bureau has shown, whether it is the consumer price indices it maintains or whether it is the individual goods and services necessary to maintain an acceptable minimum standard of living for the households engaged in agriculture, manufacture or which are dependent on self-employment, the so-called ‘India growth story’ that the ruling government and its supporters speak triumphantly about in fact imposes burdens on the working classes that have grown heavier every month.
The Planning Commission is to agree by the end of 2014 March on the composition of an expanded set of items for the wholesale price index. The expanded index – with a few new categories and some reclassifications – is a proposal, formally, by the Office of the Economic Adviser, Ministry of Commerce and Industry.
But there are retail wheels within wholesale ones, and there are indications provided by the financial and business press that it is the Prime Minister’s Office that is backing the revision – which will also allow the Reserve Bank of India to make decisions about interest rates that could benefit industry.
My interest was drawn to the several additions that have been made to the category of ‘food articles’ (some of which has been covered by media reportage, which quite typically has ignored the changes proposed in the rest of the categories). More important than these few changes to the components of wholesale food price are the additions made under the ‘manufactured products – food products’ category.
This is a greater expansion of items (although the weightages for the new items have not yet been made public) and reflects the shift in what is being purchased by households – more packaged and processed food in place of raw cereals, pulses, fruit and vegetables. The expanded list also signals the dietary shift – a nutritional time-bomb whose effects can already be seen in the rising rates of youth becoming overweight – towards processed cereals, sugary drinks, edible oils, and snack foods.
The tall and narrow chart you see here shows the difference between the sets of items covered by the proposed new WPI and the current sets of items that are monitored for consumer retail prices. The three sets that do this are from: (1) the Ministry of Agriculture, Directorate of Economics and Statistics, (2) Ministry of Labour and Employment, Labour Bureau, and (3) Ministry of Consumer Affairs, Food and Public Distribution, Department of Consumer Affairs.
This is the second expansion in the number of items that make up the WPI in the last three years, whereas the relatively much smaller list of items that are used to monitor the prices of food for consumers has remained the same over the same period (the last revision was about five years ago in the Ministry of CAF&PD system).
As usual, there is little or no public discussion on the additions to the WPI and the continuing neglect of the items that are used to compute the consumer price index – some of those collection systems are 30 years old. The proposed expansion of the WPI food and food-related items will deepen the already very serious lack of correspondence between the WPI and CPI.
More troubling is the deepening meaninglessness of the CPI numbers – rural and urban for major states doesn’t help one bit if the list of items is not expanded to reflect more accurately what households actually buy, rather than ignore the growing list of items they do. Continuing to ignore this long overdue need for correction will short-change India’s salaried workers and wage earners, and very seriously under-report true inflation especially for food.
For most of 2013, the central government broadcast, through important cabinet ministers and official statements, its worry about economic growth, that every effort must be made to steer India back towards a high economic growth rate. In the food and agriculture sector, that effort has led, in the last four to five years, to a gulf in growth rates between agriculture and the combination of processed and packaged foods and beverages (which the food retail industry is being arrayed around). While the agriculture sector (including fisheries and livestock) has been growing at or just above 4% a year for the last several years, the processed foods and beverages industry has been growing at around 15% a year.
The effects of this growth (setting aside criticisms of how such growth is measured) in both these allied sectors – the one much larger but the other which is a feature of urbanising India – may be seen in the transformation of cultivation and of food. That is why, not only has the consumer price index for rural citizens climbed without let every year for the last nine years, there is evidence in this index data to show that the rate of increase has accelerated in the last few years.
The consumer price index for agricultural labourers (usually abbreviated to CPI-AL) from 2004 January to 2013 August shows a steady rise for all the 20 states in the set (see the chart alongside). Compiled by the Labour Bureau, Ministry of Labour and Employment, the data shows that the average CPI-AL of these states has been rising around 50 percentage points a year for the last four years. Using quarterly averages (taken for June, July and August) for 2013, 2012 and 2011 and comparing them with the same averages a year earlier, we see that the all-India increases in the index for 12 months (2013 over 2012) is 12.96%, for 24 months (2013 over 2011) is 22.68% and for 36 months (2013 over 2010) it is 34.08%.
States that experienced the steepest increase in the CPI-AL over 36 months are Gujarat with 32%, Punjab 32.4%, Odisha 32.5%, Rajasthan 35.1%, Maharashtra 35.3%, Manipur 37.6%, Andhra Pradesh 37.9%, Kerala 38.4%, Tamil Nadu 39.2% and Karnataka 48.2%. That is why we have witnessed the widespread trend of migration by rural populations towards smaller urban agglomerations, with the impacts recorded in various data releases from Census 2011.
The Labour Bureau data contains evidence that for all states which have CPI-AL measured, the rate at which the index is rising is accelerating. This acceleration is visible when the period 2004 January to 2013 August is divided into five phases. These are represented by the circles in the illustrated chart (the main image above), the phases 2004 Jan to 2005 Dec, 2006 Jan to 2007 Nov, 2007 Dec to 2009 Oct, 2009 Nov to 2011 Sep and 2011 Oct to 2013 Aug). These points (five for each state) are plotted against not the ordinary scale of the CPI-AL but against a range of point increases in the CPI-AL. Hence this shows the rise in the CPI-AL and the more recent speed of that rise.
Let’s get the definitions out of the way first. The Consumer Price Index for industrial workers in India is compiled by the Labour Bureau of the Ministry of Labour and Employment. These Consumer Price Indices measure the changes in the level of retail prices of a fixed set of goods and services consumed by an average working class family. The retail prices are collected from 78 cities distributed through practically all states and regions.
These indices are used for fixing the wages and the dearness allowance (a vintage term, used to calibrate a flexible allowance so as to allow salaries to adjust to goods having become more ‘dear’, or expensive) of millions of workers and employees in India. These indices also serve us as important indicators of retail price movement in India.
How are these prices collected and from where? As the Labour Bureau has explained, popularity, amongst customers, is the main criterion for selecting shops. The selection process includes “observation of the shops during peak business hours by a team of field officers of the Labour Bureau and interviews of the local workers”. (It sounds very systematic and thorough but, given the miserly budgets available, I doubt whether the Ministry of Labour is able to afford the people required to do this carefully and regularly; still, it’s the best we have.)
For each item or service, two selected shops and two reserve shops are listed. This is because, if the price of an item (such as wheat flour or jaggery) cannot be collected from the ‘selected shops’, then the prices are collected from the ‘reserve shops’. And if prices cannot be collected even from the ‘reserve shops’ then any other shop in the market will do!
What the detail of the chart above shows is the worm-like crawling, ever upward and steeply, of the 78 individual trendlines of the Consumer Price Indices (for industrial workers). What we see is that from 2009 July, the variation within the band increases, and increases at a rate greater than the period 2006 Jan to 2009 July.
Which are the cities in which the CPI-IW has increased more sharply in the latter period, that is, 2009 September to 2013 March, than in the earlier period, 2006 January to 2009 September? Mumbai and Nashik (Maharashtra), Ahmedabad, Bhilai (Chhattisgarh), Vishakhapatanam (Andhra Pradesh), Vadodara (Gujarat), Salem (Tamil Nadu), Pondicherry, Jabalpur (Madhya Pradesh), Jalandhar (Punjab), Chandigarh, Surat and Bhavnagar (Gujarat), and Hubli-Dharwad (Karnataka) have all seen steeper increases in the CPI-IW – between 5% and 10% more – in the last three years than in the first three years.
In Rajkot (Gujarat), Durgapur (West Bengal), Ernakulam (Kerala), Madurai (Tamil Nadu), Jamshedpur and Jharia (Jharkhand), Chennai and Tiruchirapally (Tamil Nadu), Ajmer (Rajasthan), Coonoor (Tamil Nadu) and Mysore (Karnataka) the rate of increase in the CPI-IW has been 10% to 20%. And in Quilon and Mundakayam (Kerala) and Haldia (West Bengal) the rate of increase has been more than 20%! Hence we see very clearly that the effects of the 2007-08 global food price spike was experienced by labour and consumers in India’s cities, but that in many of these cities, the food and general inflation over the last three years has been even more severe.
Can a cultivator tilling a five acre plot of land in Senegal use the FAO Food Price Index? Can a vegetable vendor on the streets of Jakarta, Indonesia, use the index? Can a corner shop in Quetta, Pakistan, follow the index? Can commodity traders in the world’s most active agricultural commodities and futures exchanges use the index? My answers to these questions are: no. no. no and yes.
Why should it be this way? It shouldn’t, especially since FAO also keeps track of consumer price indices in many countries. But let’s look at why it is this way.
Here is what the new update to the FAO Food Price Index has said, in two words, “remaining steady” (this is the 2013 February 07 update). I quote:
“The FAO Food Price Index averaged 210 in January 2013, unchanged from the slightly revised December value. Following three months of consecutive declines, the Index stabilised in January, as a rebound in oils/fats prices offset a decline for cereals and sugar. Dairy and meat values remained generally steady.”
Concerning cereals, the update said that the cereal sub-index averaged 247 in 2013 January, down nearly 3 points from 2012 December. Now here’s an odd sentence: “The values of the monthly index have been falling since October, mostly on improved crop conditions”. We’ve read news about drought conditions all over the place, in the USA, in Australia, in Central Asia and the former Soviet Union, about unseasonal conditions in South America, for well over three months, so this sentence makes little sense. The cereals explanation added: “Large exports of feed wheat have weighed negatively on maize quotations in spite of tight availabilities”.
Now, let’s see what the FAO Agricultural Market Information System (AMIS) has said in its 2013 February Market Monitor (pdf):
“Wheat production in 2012 fell to below the 2011 record. Early prospects for 2013 point to a larger crop in spite of a possible decline in the US production. Maize production fell well below 2011 in spite of upward adjustments to the estimates in China and North America – utilisation in 2012/13 exceeding 2011/12, contrary to earlier expectations, mostly on larger feed use in China, Russia and the US. Rice production prospects for 2012 little changed, with large declines in Brazil and India dampening world growth to less than 1% – utilisation in 2012/13 still anticipated to increase by 7 million tonnes.”
Here we have what sounds like two different FAO voices speaking – the Food Price Index voice, which sees broad stability, and the AMIS voice, which sees declining production and more utilisation (as the food economists like to call it). True, the Food Price Index reflects what has occurred in the last month, and is not a forecast, but, as we see below, it is based on quotations, and not what households and small vendors actually pay for food, and there lies the rub.
Because, the FAO Food Price Index consists of the average of five commodity group price indices weighted with the average export shares of each of the groups for 2002-2004. There are in total 55 commodity quotations “considered by FAO commodity specialists as representing the international prices of the food commodities”. For the cereals sub-index, it is compiled from the International Grains Council (IGC) wheat price index, itself an average of nine different wheat price quotations, and one maize export quotation; there are three rice components containing average prices of 16 rice quotations. Fascinating yes, but relevant to those in Senegal, Jakarta and Quetta who see 60% of their monthly income being used to buy food? I don’t think so.
“The FAO food price index is a trade weighted Laspeyres index of international quotations expressed in US dollar prices for 55 food commodities,” explained FAO’s 2009 ‘State of Agricultural Commodity Markets, High food prices and the food crisis – experiences and lessons learned’. You see why no local translation is possible for the many hundreds of millions under the food inflation hammer.
Why the international trade and export quotations numbers dominate is revealed, in a roundabout way, by a regular paragraph in the AMIS Market Monitor. The monthly pronouncement has this to say about investment flows (that is, money chasing foodgrain), for 2013 February: “Managed money was a significant seller of wheat, maize and soybeans as futures prices attained early January lows prior to USDA stocks report”. Pay attention to that term, ‘managed money’, which means funds run by banks and big investment agencies. “Managed money reversed its position in wheat from long (bullish) to short (bearish) but maintains long positions in maize and soybeans.” Now the confusion should clear somewhat. The index helps traders and exchanges deal better with volumes of grain (and dairy and meat and edible oil). AMIS helps them with a great deal more sophistication.
And what do the primary beneficiaries of the index have to say about the FAO Food Price Index being so benign at the start of 2013? “With corn and soybean prices down sharply from drought-driven record highs reached last summer and holding ‘significant’ risk for further declines, grain farmers should consider hedging their 2013 crops earlier than normal,” is an abstract from a report by the CME Group, a company that advises investors about all kinds of commodities, including agricultural. This tells us why the FAO Food Price Index cannot serve those struggling with soaring food bills in small town Asia and Africa.
From within India (Bharat, we call it) there are ever more worrying signs that the club of rich and inter-connected global corporations, financial entities and their political patrons are working in concert to fulfil their programme of rapid and sweeping change in the country. Inside India, the government of the day, a technical coalition led by the Congress Party (the Indian National Congress it its full name) has for the past two years ignored widespread public movements against corruption, against the rise in food prices, against the blatant manner in which the country’s political and industrial elite has thrived in conditions that have led to the continuing impoverishment of the rural and urban poor.
This group includes politicians and their families and cronies (regardless, mostly, of party and political affiliation (the parties of the Left excepted)), what is commonly referred to as ‘India Inc.’ by which is meant the country’s large and medium businesses, led by all those who have found inclusion in the list of the top 100 most wealthy Indians (see the latest odious ranking by Forbes magazine’s India edition), and it also includes the senior corporate and industrial associations in India and abroad (several based in the USA, which bring together the most exploitative elements of the American capitalist class who find common cause with their Indian counterparts, and who can count on the strengthening of Indo-American ties whether economic, financial, defence, agricultural or scientific to pursue their agenda) which are regularly and well represented in the World Economic Forum for example. Also ranged against the Indian (the Bharatiya) proletariat are the OECD, the IMF, the World Bank, the ADB, the several dozen thinktanks funded through government back channels and innocuous-sounding foundations apparently dedicated to ‘low carbon’ growth or ‘sustainable development’ or even water and sanitation – their cover stories all sound alike.
And it is this group that sets the agenda for India between now and say 2020. The signs of how the concert is directed become plainer to see with each passing month. Let us look at a few of the many signals that have come to public attention recently. The most recent is the ‘Second Quarter Review of Monetary Policy 2012-13’, by the Reserve Bank of India (the country’s central bank), which was released at the end of October 2012. This report bemoaned the “global slowdown and uncertainty” amidst which “the Indian economy remains sluggish, held down by stalled investment, weakening consumption and declining exports”. In this report however the governor of the RBI said that “recent policy initiatives undertaken by the Government have begun to dispel pervasive negative sentiments… As the measures already announced are implemented and further reforms are initiated, they should help improve the investment climate further”.
Now consider a report released by the OECD (the Organisation for Economic Co-operation and Development) entitled ‘India – Sustaining High And Inclusive Growth’ (pdf). This is part of the OCED’s ‘Better Policies’ Series, a sinister name for strong-arm pressure which the OECD describes as promoting “the OECD’s policy advice to the specific and timely priorities of member and partner countries, focusing on how governments can make reform happen“.
Reform according to the OECD and the agents of primitive accumulation means turning the rural and urban poor into households dependent upon hand-outs, destroying the public sector, turning over public goods to corporations, shutting down social sector services like healthcare and education and turning them into profit centres for corporations using methods like public-private partnership. ‘Reform’ also hastens the creation of that class so beloved of the global marketers and their comrades in our government whose effort it is to purloin resources, engender urbanisation, monetise an apology for tertiary education in the name of ‘faster and more inclusive growth’ – it has done so in China (under a quite different guise) and is doing so in India. Consult this product, ‘The $10 Trillion Prize: Captivating the Newly Affluent in China and India’ (Harvard Business Press Books) which breathlessly advises: “Meet your new global consumer. You’ve heard of the burgeoning consumer markets in China and India that are driving the world economy. But do you know enough about these new consumers to convert them into customers? Do you know that there will be nearly one billion middle-class consumers in China and India within the next ten years? More than 135 million Chinese and Indians will graduate from college in this timeframe, compared to just 30 million in the United States?”
This is what the OECD report has said about India: “The potential for sustained strong growth is high. The Indian population is young by international comparison and this together with declining fertility has led to a falling youth dependency rate. The national savings rate is also high and, given favourable demographics, could well rise further in the medium term, providing the capital needed to fund investment in infrastructure as well as strong expansion in private enterprise. Furthermore, despite employment rising in the industrial and service sectors, around half of all workers remain in low value-added agriculture. The scope is therefore enormous for economy-wide productivity gains from the further migration of workers into modern sectors.” Indeed, who will then produce the food India needs for her modest and still mostly vegetarian diet?
What stands out here is the sort of language used, so common now in these inter-governmental circles of avarice and resource-grab, so worryingly mirrored in the pronouncements by India’s ruling coalition politicians and its central planners and their hired guns in compromised ‘research’ thinktanks and ‘policy advice’ units. Thus they have talked about fully reaping the “benefits of the demographic dividend” and of supporting “a return to high and more inclusive growth” (India’s Eleventh and Twelfth Five Year Plan documents reek of this statement). Thus they have repeated as a chant that “India needs to renew its commitment to sound macroeconomic policy and implementation of reforms”. The imperative given is clear and will be enforced by all arms of the executive and those opposing are threatened by punitive action, for they insist that “public finances on a sound footing and improving the fiscal framework so that persistent large deficits do not undermine macroeconomic stability and investor confidence“.
You see the importance given to ‘investor confidence’ by the governor of the RBI, by the OECD overlords and recently, by the prime minister of India Manmohan Singh. First, on 15 September 2012 he told a meeting of India’s Planning Commission that “the most important area for immediate action is to speed up the pace of implementation of infrastructure projects. This is critical for removing supply bottlenecks which constrain growth in other sectors, and also for boosting investor sentiment to raise the overall rate of investment“. Singh added that where “macro-economic balance” is concerned, the [Twelfth Five-Year) Plan (2012-17) “envisages a substantial acceleration of growth. This is critically dependent on raising the rate of investment in the economy. The investment environment is therefore critical.” Second, on 20 September 2012 in a statement he made clarifying this government’s decision to permit foreign investment in the retail sector he said: “We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence domestically and globally. The decisions we have taken recently are necessary for this purpose.”
Where is the common Indian, the resident of Bharat, in all this? The government of India and the Reserve Bank of India say they are worried that what they call “headline WPI (wholesale price index) inflation” remained at above 7.5% (calculated only over a year) through the first half of 2012-13 (that means April to September 2012). The truth is far more severe. Retail prices per kilogram of cereals and pulses have in every single city and town in India have increased, from early 2006, by between 180% and 220%. This when the daily wages for those who spend 55% to 65% of their income on food have increased over the same period by no more than 50%. And instead, the prime minister and his advisers say foreign direct investment will provide more jobs and better wages. Did 25 years of structural adjustment as rammed down the throats of millions of citizens in the countries of the South, by the International Monetary Fund and the World Bank in collusion with an earlier generation of elite accumulators, sound any different?
The World Bank’s Food Price Watch for 2012 August has been released (it is a part of the Poverty Reduction and Equity Group’s Poverty Reduction and Economic Management Network). The Watch has in its overview mentioned prices of internationally traded maize and soybeans reaching all-time peaks in July. The rise in prices of wheat – comparable to the 2011 peaks – and the relative stability of the prices of rice have also been mentioned.
The Watch has said: “World Bank experts do not currently foresee a repeat of 2008; however negative factors — such as exporters pursuing panic policies, a severe el Niño, disappointing southern hemisphere crops, or strong increases in energy prices — could cause significant further grain price hikes such as those experienced four years ago.” This idea – of no repeat of 2008 – is plain wrong. The food price spike crisis of 2007-08 did in fact never go away, it subsided for some months, and has this year entered a new phase of pain for consumers particularly those in rural districts and the urban poor, wherever they may be.
As the chart (whose implications ought to be more seriously considered by the Watch, especially since the chart is a World Bank device itself) shows, countries in the Middle East and North and Sub-Saharan Africa are most vulnerable to this global shock. “They have large food import bills, their food consumption is a large share of average household spending, and they have limited fiscal space and comparatively weaker protective mechanisms,” the Watch has said.
Ideas such as ‘fiscal space’ and ‘protective mechanisms’ are not automatically translatable into household terms, and thus have no meaning for those who bear the food inflation burden first and the most. The Watch indeed has said that “domestic food prices in these regions have also experienced sharp increases even before the global shock due to seasonal trends, poor past harvests, and conflict”. Naturally, local circumstances determine how high domestic prices will be pushed from much higher international prices.
In addition to their effects on prices, previous droughts in developing countries have had severe economic, poverty and nutritional impacts, turning transitory shocks into lifetime and inter-generational perils, the 2012 August Food Price Watch has said, and this is certainly painfully true. The problem with the World Bank view (and practice) is when it becomes visible in the Watch with a statement like: “In such contexts, investments in drought-resistant crop varieties have provided large yield and production gains.” No, we do not want to see “investments in drought-resistant crop varieties” which only means thrusting GM seed into the fields of bullied smallholder farmers and GM food into the shops from which low-income households must buy their daily food basket.
FAO has released its Food Price Index for October 2011, saying the index has dropped dropped to an 11-month low, declining 4 percent, or nine points, to 216 points from September. Indeed the index has dropped, declined and has certainly not risen. But does this mean food prices for the poor in many countries, for labour, for informal workers, for cultivators too – has the cost of food dropped for any of them?
The answer is a flat and unequivocal ‘No’. FAO has said so too: “Nonetheless prices still remain generally higher than last year and very volatile.” At the same time, the Rome-based food agency has said that the “drop was triggered by sharp declines in international prices of cereals, oils, sugar and dairy products”.
The FAO has said that an “improved supply outlook for a number of commodities and uncertainty about global economic prospects is putting downward pressure on international prices, although to some extent this has been offset by strong underlying demand in emerging countries where economic growth remains robust”.
Once again, the FAO is speaking in two or more voices. It should stop doing so. A very small drop in its food price index does not – repeat, does not – indicate that prices for food staples in the world’s towns and cities has dropped and people can afford to buy and cook a square meal a day for themselves and their children. Not so at all.
I am going to contrast what FAO has said about its October food price index with very recent reportage about food and food price conditions in various parts of the world.
FAO: “In the case of cereals, where a record harvest is expected in 2011, the general picture points to prices staying relatively firm, although at reduced levels, well into 2012. International cereal prices have declined in recent months, with the FAO Cereal Price Index registering an eleven month-low of 232 points in October. But nonetheless cereal prices, on average, remain 5 percent higher than last year’s already high level.”
Business Week reported that rising food prices in Djibouti have left 88 percent of the nation’s rural population dependent on food aid, the Famine Early Warning Systems Network said. A ban on charcoal and firewood production, which provides about half of the income of poor people in the country’s southeast region, may further increase hunger, the Washington- based agency, known as Fewsnet, said in an e-mailed statement today. Average monthly food costs for a poor urban family are about 33,907 Djibouti francs ($191), about 12,550 francs more than the average household income, Fewsnet said. Urban residents in the Horn of Africa nation don’t receive food aid, it said.
FAO: “According to [FAO’s November 2011] Food Outlook prices generally remain ‘extremely volatile’, moving in tandem with unstable financial and equity markets. ‘Fluctuations in exchange rates and uncertainties in energy markets are also contributing to sharp price swings in agricultural markets,’ FAO Grains Analyst Abdolreza Abbassian noted.”
A Reuters AlertNet report quoted Brendan Cox, Save the Children’s policy and advocacy director, having said that rising food prices are making it impossible for some families to put a decent meal on the table, and that the G20 meeting [currently under way in Cannes, France] must use this summit to agree an action plan to address the food crisis. Malnutrition contributes to nearly a third of child deaths. One in three children in the developing world are stunted, leaving them weak and less likely to do well at school or find a job. Prices of staples like rice and wheat have increased by a quarter globally and maize by three quarters, Save the Children says. Some countries have been particularly hard hit. In Bangladesh the price of wheat increased by 45 percent in the second half of 2010. In new research, Save the Children analysed the relationship between rising food prices and child deaths. It concluded that a rise in cereal prices – up 40 percent between 2009 and 2011 – could put 400,000 children’s lives at risk.
FAO: “Most agricultural commodity prices could thus remain below their recent highs in the months ahead, according to FAO’s biannual Food Outlook report also published today. The publication reports on and analyzes developments in global food and feed markets. In the case of cereals, where a record harvest is expected in 2011, the general picture points to prices staying relatively firm, although at reduced levels, well into 2012.”
IRIN News reported that food production is expected to be lower than usual in parts of western Niger, Chad’s Sahelian zone, southern Mauritania, western Mali, eastern Burkina Faso, northern Senegal and Nigeria, according to a report by the World Food Programme (WFP) and the Food and Agriculture Organization (FAO), and a separate assessment by USAID’s food security monitor Fews Net. “We are worried because these irregular rainfalls have occurred in very vulnerable areas where people’s resilience is already very weakened,” said livelihoods specialist at WFP Jean-Martin Bauer. Many Sahelian households live in a state of chronic food insecurity, he said. “They are the ones with no access to land, lost livestock, without able-bodied men who can find work in cities – they are particularly affected by a decrease in production.” A government-NGO April 2011 study in 14 agro-pastoral departments of Niger noted that pastoralists with small herds lost on average 90 percent of their livestock in the 2009-2010 drought, while those with large herds lost one quarter. Those who had lost the bulk of their assets have already reduced the quality and quantity of food they are consuming.
FAO: “Food Outlook forecast 2011 cereal production at a record 2 325 million tonnes, 3.7 percent above the previous year. The overall increase comprises a 6.0 percent rise in wheat production, and increases of 2.6 percent for coarse grains and 3.4 percent for rice. Globally, annual cereal food consumption is expected to keep pace with population growth, remaining steady at about 153 kg per person.”
The Business Line reported that in India, food inflation inched up to 11.43 per cent in mid-October, sharply higher than the previous week’s annual rise of 10.6 per cent, mainly on account of the statistical base effect of the previous year. Inflation in the case of non-food items and the fuels group, however, eased during the latest reported week. According to data released by the Government on Thursday, an increase in the year-on-year price levels of vegetables and pulses contributed to the surge in the annual WPI-based food inflation for the week ended October 15, apart from the base effect. Sequentially food inflation was up 0.25 per cent.
FAO: “The continuing decline in the monthly value of the FAO Cereal Price Index reflects this year’s prospect for a strong production recovery and slow economic growth in many developed countries weighing on overall demand, particularly from the feed and biofuels sectors.”
Al Ahram reported that Egyptian household budgets had mixed news in September with prices for some basic foods tumbling month-on-month and others showing small climbs, according to state statistics agency CAPMAS. Figures released this week show the price of local unpacked rice fell 15.6 per cent to LE4.96 per kilo between August and September 2011. It was the commodity’s first decline in nearly a year, although the per kilo price remains 68 per cent higher than the LE2.95 that rice cost in October 2010. Chicken also fell 5.8 per cent to LE16.26 per kilo between August and September. Other staples, however, continued to rise; the price of potatoes climbed 14 per cent to LE4.89 per kilo, while a kilo of tomatoes gained a monthly 14.8 per cent to cost LE4.65.