APPARENTLY, the ‘spike in hike’ of food prices sounds a good news for the world’s poor, which, according to Oxfam, now number 967 million – 119 million more than before high energy cost, speculative trading and bio-fuel started pushing food prices up.

After peaking in June, the prices of most food items started sliding steeply: the latest Food Price Index (FFPI) of the FAO shows six per cent slide in the month of September alone – falling to a nine month low of 188 points.

The FFPI had been rising steadily since early 2006, touching the highest 219 points in June 2008. It is, however, still 11 per cent up from September 2007 and 51 per cent more than September 2006.

Similarly, after reaching the peak of 278 points in June 2008, the FAO Cereal Price Index fell to 228 points in September, down from five per cent from August, but still 10 per cent up from September 2007.

A long list of factors have caused the slide in food price, which include world-over increase in acreage under food items, slump in oil price – rendering manufacturing of bio-fuel almost commercially non-feasible – and governments taking measures like export bans and import duty relaxation.

With the rise in acreage, the FAO expects 2.8 per cent increase in world cereal production in 2008, hitting a record level of 2.18 billion tons. The bulk of it is expected to come from wheat, forecast at 658 million tons – representing an increase of 8.3 per cent from 2007. Two per cent increase in rice production is also expected, taking the tally to 444 million tons.

With most of the food commodities now being sold only as feed items, the world appetite for bio-fuel is declining, releasing pressure on certain cereals.

The forecast of healthy crops this year has made the speculators exit the food markets. The speculators are now guessing how much prices would drop during the next year, and where and how lower prices should be quoted for the future. With hopes for better crops and changes in rules of food trade came the liquidity crunch in major financial markets, making speculative trading, the main culprit for rising prices along with bio-fuel, even harder. The liquidity crunch also left food traders with tight monetary positions, deterring them from dealing in futures or buying big quantities from domestic markets.

These multiple factors have brought food commodities prices down in international market, with the world’s poor, especially the urban ones, praying that the trend should hold and result in decrease of food price. Food prices have not so far come down as much as they should have, if trend in commodities’ market is something to go by. It is largely the result of the so-called ‘free market’ where big companies and cartels determine prices of daily items. It has created a situation where farmer is not getting a fair price and consumer is not getting the due relief, and traders are making money at the cost farmers and consumers.

In Pakistan too the traders are minting money at the cost of farmers and consumers – a majority of whom is part of the world’s poor. The government has tried to provide relief to the urban poor. The federal government has come up with Rs36 billion Benazir Income Support Fund and the Punjab government launched Food Stamp Scheme and sasti roti (cheaper bread) scheme to provide relief to city dwellers.

Unfortunately, the trend of sharp decrease in cereal prices exposes the farmers, especially subsistence ones, to the same kind of financial pressure as the urban poor caught in inflationary danger. The government should come to their help with equal zeal. The prices of both food and cash crops have dipped: two (cotton and rice) of them have seen their price sliding by almost 30 to 35 per cent as compared to their prices last year. The farmers are suffering losses.

The government tried to stabilise prices by declaring indicative prices and then directly intervening in the market through the Trading Corporation Pakistan (TCP) in case of cotton, and the Pakistan Agriculture Storage and Service Corporation (Passco) in case of rice. They were supposed to purchase tradable surplus and stabilise prices around officially indicated prices. But, their failure has been stupendous; they could neither procure the crops nor stabilise prices, and the farmers continue suffering.

The farmers fear that price of wheat, when harvested in March-May next year, may not be any exception. Though, the government had recently increased its support price by 52 per cent – from Rs625 to Rs950 per 40kg – it is still below the international market price that hovers around Rs1,100 to Rs1,200 per 40kg.

If the international price goes down further by that time, there would be real danger of price crash. If the world price holds at the current level, chances of smuggling cannot be ruled out, creating shortage in domestic market. Both possibilities need to be avoided. One hopes that the government, with vast experience of wheat procurement, performs better than its shopping bid at cotton and rice.

The failure of government institutions to stem the slide in cotton and rice prices is the result of its failure to take holistic view of the agriculture marketing, with all its details. It lacks an integrated approach. That is precisely why it has failed to predict and pre-empt the rice and cotton prices crises. It failed to assess yield of both crops and take pre-emptive measures for avoiding price crash. When prices actually crashed, it jumped into the fray without the required administrative set-up, needed for the exercise.With inefficient markets, being abused by powerful cartels, such occasional attempts, without required wherewithal, are bound to fail.

Instead of firefighting, the democratic government needs to create credible mechanisms that could deal with price crashes in case of gluts and increasing prices in case of shortages – both situations being essential part of agriculture trade. It can only create that kind of shock absorbing capacity if it develops, or helps develop, value addition industry, ensuring credit to farmers, work for farm mechanisation and casts itself in pre-emptive and pro-active role. Till then, farmers and the urban dwellers could only keep their finger crossed and tumble from crisis to crisis with food security remaining elusive.