The problem of escalating food prices is the central concern today. The lower income groups are particularly vulnerable as the prices of most basic food items have soared to astonishingly high levels. Unlike in most situations of rising food prices that threaten mainly urban poor households, the current crisis is a serious threat to food security of rural farm households owing to the destruction of crops and the consequent loss of farm household incomes. Therefore government intervention to protect the rural poor is imperative.
The damage to a significant amount of the Maha paddy crop and other seasonal crops in an unfavourable international food and fuel situation threatens the food security of a significant proportion of households in the country. Rural households and the urban poor are likely to face serious conditions of hunger, malnutrition and undernourishment. While the availability of adequate food could be resolved through imports at high cost, much more serious is the developing crisis of a large proportion of households being unable to access their basic food needs at high prices with their diminished incomes. It is this type of condition that sparked off food riots in many countries around the world in 2008-2009 when there were food shortages in many countries. Such a situation may develop in many countries this year as well. It is imperative to prevent such a situation in Sri Lanka.
The crisis in food security is in addition to the macroeconomic consequences of the current escalation of international food prices on the national economy. The situation of a significant shortfall in domestic food production, coupled with unprecedented high international prices of food, fuel and fertilizer, pose serious problems for the country’s trade balance. These macroeconomic problems are however ones that the country could cope with, unlike the serious issue of food security of poor households, particularly in rural areas that is a more intractable one.
Rural food security
The poverty levels in rural areas is about twice that of urban areas and the current crisis would seriously aggravate this condition, as the incomes of farm households have been washed away with the loss of their crops. It would also affect the incomes of non-agricultural rural households dependent on farm activity and farm household expenditure.
Although the country may be able to import all its food requirements, the poorer sections of the population will not be able to access their food needs as they would lack purchasing power. The rural farming community has been robbed of their crop as well as their incomes. They may be able to survive a few months on their meagre savings, but their survival till the Yala harvest will be in jeopardy. This is a critical problem.
The extent of crop loss in the country is yet uncertain, but it is likely to be substantial. This is especially so with respect to the paddy crop that has been damaged in the Eastern and North Central Provinces. The loss of the Maha paddy crop also creates problems to farmers to find seed paddy for the Yala cultivation. The scarcity and cost of seed is a serious agrarian issue. Normally farmers use seed from the previous crop. Now it is an additional cost at a time when they have lost their source of income.
Two interventions are vital. Farmers would require to be either given compensation for the loss of their crop in the same manner as if they had crop insurance; or alternately a scheme of loans to tide over their income difficulties for their livelihoods and credit for the cultivation of their future crop. Both income supports as well as credit for cultivation are needed. The problem of adequate seed paddy would have to be resolved by purchasing seed from areas not affected by the floods and the supplies of seed paddy from the Department of Agriculture seed farms. The latter may however be adequate for the present needs.
The current situation of floods damaging crops is a serious threat to food security in the country. National food security is threatened as the cost of food imports would increase sharply. The outlay on food imports would more than double. This would increase the trade deficit. It is however not only increases in the price of food that would strain the balance of payments, but the increases in the price of oil, fertilizer, chemicals and other intermediate imports. The food bill that is normally less than 10 per cent of total import costs increased to about 13 per cent this year. It would probably be about 20 per cent this year. Similarly the costs of intermediate imports mentioned earlier will also rise substantially. These import costs would widen the trade deficit.
Last year when the initial price increases were felt, the trade deficit increased to over US$ 5000 million from US$ 3122 million in 2009. In 2011 this deficit is likely to rise above US$6000 million, unless export earnings increase significantly. However, the country would be able to cope with even such a large trade deficit owing to other favourable factors.
Worker remittances to the country have been increasing significantly in the last two years. In 2010 these increased by about 24 per cent over that of the previous year. In the first 11 months of the year remittances amounted to US$ 3763 million. Owing to the large amount of worker remittances that are likely this year too and the expected enhanced tourist earnings the increased import expenditure would be manageable. This does not solve the problem of household food security as poor households would not be able to access their needs of food at the high prices.
The current situation in Sri Lanka is particularly serious as the food shortages in the country are coinciding with global food shortages. The factors discussed last week explain the reasons for the higher import prices of wheat, rice, sugar, milk and other basic food items the country imports. The damage to food crops explains the reasons for the escalation of domestically produced foods. Both these factors are posing a serious threat to food security.
The shortfall in domestic production has to be made good through imports at high international prices. The problem does not end there. The floods have also resulted in farm households being deprived not only of their own home grown food but also with no income to purchase food.
With food prices increasing sharply, it is the flood affected rural households that would be without the means to access their basic food needs. This is the crisis situation that the country faces.