Food price paradox: How far will the effects reach?

Due to the double shocks of a protracted pandemic and the ongoing Russia-Ukraine conflict, food prices witnessed a record hike worldwide in 2022. However, as 2023 came to an end, prices also began to decrease. 

The most recent data from the Food and Agriculture Organization (FAO) reveals a point-to-point decrease of 10.1% in global food prices in December 2023 compared to December 2022.

In 2023, global food prices experienced an average decline of 13.7% compared to the previous year, according to data by FAO. However, Bangladesh deviated from this trend, registering a perplexing 10.06% increase during the same period. 

Throughout 2023, food inflation and hunger were acute, and as the new year has begun, the situation is likely to remain unchanged. In August 2023, Bangladesh witnessed a 12.54% increase in food inflation — the highest in 13 years. In the next few months, food inflation remained high, ending the year at 10.76%. Meanwhile, as Bangladesh was breaking records in August 2023, global prices for essential food items were at a two-year low. 

This situation is notably affecting the cost of living, especially for low-income groups. According to a survey by the World Food Programme (WFP) in August 2023, 24% of Bangladesh's population (40 million people) faced food insecurity, with a rising trend since May 2023. 

The report highlighted that 47% of the food-insecure belonged to low-income households, contrasting with 9% in medium-income households and less than 3% in high-income households. Additionally, 30% of households reported inadequate food consumption, and 74% opted for smaller quantities and less expensive food from the market.

According to the Integrated Food Security Phase Classification (IPC), nearly 9 million people in parts of Bangladesh experienced high levels of acute food insecurity, between March and April 2023 (harvest season). An estimated 7.9 million people are in IPC Phase 3 (Crisis) and nearly 1 million people are in IPC Phase 4 (Emergency). 

The 2022 IPC Bangladesh Chronic Food Insecurity report stated that nearly 35 million people, representing 21% of the total population of Bangladesh, face Moderate and Severe Chronic Food Insecurity (IPC Levels 3 and 4), of which 11.7 million people, or 7% of the total population, face Severe Chronic Food Insecurity (IPC Level 4) and 23.2 million people, or 14% of the total population, face Moderate Chronic Food Insecurity (IPC CFI Level 3).

Why is Bangladesh's food inflation going up? 

Dr Selim Raihan, professor of Economics at the University of Dhaka and director of the South Asian Network for Economic Modeling (SANEM), thinks that such high food inflation is alarming in more than one way. 

"It is not just that we are not able to bring down the price when it is coming down in the global market alone; when the food price was going up worldwide, our prices were increasing at a higher rate than the rest of the world," he noted.  

Dr Raihan thinks that there are some domestic issues at play here. He points out the policy-level factors that are not only ineffective but also contribute to flood inflation. 

"When it comes to managing the inflation rate, there are some major policy-level problems, both monetary and fiscal. Another reason is the prevalence of anti-competitive and unfair practices in the market. Domestic market management, which involves overseeing the market and enforcing laws and rules to stop unfair practices, is too weak in Bangladesh and frequently causes food prices to rise without any valid reasons," he explained.

Dr Raihan is of the opinion that both policy ineffectiveness and supply-side weaknesses compound the food inflation crisis. 

"There have been some mistimed policies and some outright ineffective policies; thus, we could not solve the supply side issues as well. The inefficiency of policymakers and government institutions has been visible in this crisis," he added. 

Dr Jahangir Alam, the director of Dhaka School of Economics at DU and former president of the Bangladesh Agricultural Economists' Association, thinks that there are two major reasons behind such a high food price/ongoing inflation. 

Photo: TBS

The first reason is the disparity between supply and quantity-demanded. 

"Our producers cannot supply the growing demand for crops and food," said the recipient of the 2020 Ekushey Padak. 

The fact that unethical businessmen control and dominate the market and raise prices irrationally for profit-driven reasons is, in Alam's opinion, another significant factor. 

"The businessmen who control the market hike the food price, and there is little to no government control over it. The government's attempts to regulate the market are not working. This is also why our food inflation is much higher. When the price of one commodity goes up in the world market, its price increases in local markets overnight; but when price falls in the global market, it does not come down in local markets. It happens because of government management problems," he said.

For instance, aman rice prices rose despite production surpassing all previous records last year and supply hitting the market from early December. Even though this supply is in full swing, the price of rice is increasing at every level — mill, wholesale and retail.

Complaints are being raised that the price is being increased at the mill level. Government intervention has yet to be effective against the existing malpractices in the local supply chain and distribution network.

Dr Alam is skeptical about the situation improving much in 2024. 

"The crop outlook for the new year does not inspire optimism, as global food production is likely to decrease due to climate change and global warming. So, unless the next boro crop yield is exceptionally good, food price inflation is likely to persist," he said. 

However, it still does not explain the paradox. And for that, Dr Alam points out the growing overall inflation in the country, "As for the reason why Bangladesh is failing to replicate the decreasing global food price, it is our high inflation rate. We need to wait for the next crop." 

Dr Raihan is of the opinion that unless food prices can be brought down to a tolerable level, there will be long-term consequences. 

"Long-term food insecurity has intergenerational effects," he said. "If the children do not get the necessary nutrition, then it would adversely affect their studies and health; in the future, this will hinder the productivity of our future workforce. So I think that the persisting food price inflation that has continued since 2022 will have far-reaching negative consequences." 

Bangladesh is the third-largest food importer in the world, and the consistent devaluation of the taka against the US dollar does not help the cause either. In 2010, Bangladesh satisfied 9.3% of its overall food requirements through imports, and by 2022, this figure had increased to 11.2%. 

During this period, the country observed a continuous rise in imports of rice, wheat, and edible oil. However, owing to the current dollar crisis, there has been a significant reduction in rice imports this year. Wheat imports have also experienced a 30% decline from the usual volume. And such reduced imports drove the price up even more. 

What should be done? 

"Our market monitoring mechanisms require significant improvement. The government bodies in charge of stopping unfair practices by big companies in the market must realise their roles here," suggests Dr Raihan.

"Additionally, the implementation of pro-poor policies and programmes is necessary, as these can enhance people's income opportunities, access to assets and services, social protection systems, and resilience to shocks," he adds. 

"Sustainable agricultural practices also need to be promoted in order to increase productivity, diversify crops, conserve natural resources, adapt to climate change, and reduce post-harvest losses."

Finally, he suggests spreading nutrition awareness among people, especially women and children, and improving stress on the importance of a balanced diet that includes essential micronutrients. 

Dr Jahangir Alam suggests increasing government crop stocks to mitigate the rising food price inflation. 

"The government must keep a sizable amount of stock to effectively impact the market price. Suppose that the government has a significant stock of potatoes. So, if the price of potatoes suddenly increases, they can sell that stock using TCB to influence the market." 

In his opinion, the current method of market monitoring is not very effective, and a better system should be formulated.