How do we protect marginalised populations from the food price hike?
The adverse impact of food price hike on the marginalised population of the country is much more severe than the official estimate indicates. This has forced a section of the population to fall below the poverty line
The immediate response to contain the recent hike in food price is to increase the aggregate supply in the economy. The global supply chain was disrupted by the Covid-19 pandemic, and further exacerbated by the Russia-Ukraine war, resulting in an increase in global food prices.
Moreover, an increase in aggregate demand in the domestic market, following the initial weeks of recovery from the Covid-19 fallouts, also has contributed to the rising inflation. And, mitigating the global supply chain disruption is a tall order, one that cannot be achieved right away. It would take substantial time, and thus, inflationary pressure on food prices will persist for years.
This persistent food inflation adversely affects, broadly, two groups of the population, the fixed income group and the low-income group. The low-income families who have already been experiencing a squeeze on their purchasing capacity because of the high price of fuel, now cannot afford living costs due to further increase in food prices. This has forced a section of the population to fall below the poverty line.
Since the current price hike is supply-driven, monetary policy is likely to have a limited effect in containing it. The government may, nonetheless, increase fiscal support and take steps to ensure that the marginalised population's purchasing power remains stable allowing them to, at the least, afford necessities until the global situation improves.
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As the value of money erodes rapidly during inflation, more attention should be paid to giving food assistance to low-income families.
The government has taken the initiative under the open market sales (OMS) to sell subsidised food to the marginalised population through the Trading Corporation of Bangladesh (TCB), which is now providing the "family card" to 10 million families.
By the same token, special OMS have been functional to provide rice and wheat at a lower cost. However, the programmes need to be properly run to tackle mismanagement and corruption. Many poor families are yet to take advantage of these benefits.
High commodity prices in Bangladesh are generally associated with high global prices, yet this is not always true. The rise of prices of essentials in the domestic market often has no connection with the international market. Even the rise in domestic price is more than the price rise caused by the global price upheaval.
When traders foresee an external supply shock, they often limit the supply of the products, hoarding the supply, creating a shortage of goods, and raising the price to maximise their profits. This could be contributing to the price increase over time as well as in recent times.
The Directorate of National Consumer Rights Protection often raids the local kitchen markets and prosecutes hoarders. Such a sudden raid does not guarantee a long-term remedy to hoarding because the supply of essentials is mostly dominated by a few big trading houses.
There is always the accusation that these large traders dictate the supply and price of the items. There is no monitoring system in place to keep track of the traders' alliance.
The global food inflation scenario and Bangladesh
Each country has its unique measures to counter inflation, but there is no general approach to managing inflation. India has increased the implementation of the ration card and is now providing more food grain than is available under the regular quota.
Vietnam has improved its market surveillance system. This year Turkey and Chile hiked their minimum wages. To meet domestic demand, many other countries have reduced tariff rates and banned the export of agricultural products to international markets.
In Bangladesh, the current wave of unchecked price hikes has made the poor most vulnerable. Measures should be taken to provide subsidised food items and cash incentives so that despite high price hike, they can afford the necessary food. The coverage of OMS should extend, ensuring that marginalised groups are treated fairly when family cards are distributed for purchasing subsidised food from the TCB.
Moreover, the TCB truck-based sales have to be expanded across the country. Workers in ready-made garments (RMG) need special attention since they are unable to make ends meet even with higher pay from overtime work. A recent Sanem study on garment workers found that garment workers on average work more than 10 hours each day, yet even with overtime, the cost of food and rent eats up the majority of their earnings.
In addition to subsidised food, there is a need to have an expansion of direct cash transfers under social safety net programs (SSNPs) as well as an increase in per capita allowance in the 2022-23 budget. Since FY17, the government has only provided Tk500 per month for old age people and Tk750 per month for disabled people. In FY23 budget, government increased the allowance of disable person to Tk100 while leaving all other allowances unchanged, which is highly insufficient in the context of current food price hikes.
An empowered competition commission, consumer's rights commission and safe food authorities are needed to address the artificial shortage of food created by the traders. In addition, a well-planned, transparent and accountable supply chain management is required.
The government should create a monitoring authority comprising of big traders, consumers, and consumer rights organisations to counter any artificial price hikes. The information flow about demand and supply has to be ensured as symmetric in the market.
Food grain stock management should also be improved in order to tackle inflation. Due to inadequate storage capacity and technology, high stocks have led to high wastages. Government can depend on private food grain stock management with proper governance. Price surveillance authority should act strictly so that charging a higher price than the actual price never occurs.
The official food inflation rate is reported at 6.24 in April 2022, however, the recent Sanem study found that the actual food inflation rates are significantly higher, which is more than double compared to the official reported food inflation for the marginalised population.
The adverse impact on the marginalised population of the country is much more severe than the official estimate indicates.
Md Nadim Uddin is Research Associate at Sanem Bangladesh
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
