Sunday, April 20, 2008

The Increase in Food Prices

In the context of the above article we are publishing this op-ed.

To some extent the surge in food prices is driven by corporate greed. That greed is fueled by the basic capitalist market principle of supply and demand. When suppliers recognize that demand outstrips supply they raise their prices – it is as simple as that. The food producers are at the bottom of the food chain and will apply this economic law as readily as the wholesaler and retailer. In the end, it is the consumer who ends up paying the bill. That applies to food the same way as it does to oil. Why is it that Exxon records the largest profits in its history? Additionally, higher oil prices also add their share to higher food prices.

Sadly, it is true that the poor suffer the most. With $50 a month who can survive when the average inflation is 11% across the board, and food prices have risen 24%? The recent increase in the minimum wage to $55 a month was supposed to compensate for inflation. Of course, we all know that everybody was caught more or less unawares when the price surge hit the consumers, and that the 10% increase in their wages was a mere drop in the bucket for most Cambodians.

But even in the U. S. and in Europe consumers are hit hard by price increases. The U. S. economy is in a recession, consumer prices are up, and statistics show that the average American makes less money in 2008 than in 1998, when adjusted for inflation. As an example, imported Jasmine rice from Thailand saw a price increase of up to 20% in recent weeks, affecting most Asian consumers there.

Of course, we can’t compare the U. S. or Europe to Cambodia. But this just goes to show that this is not an exclusive Cambodian problem. Now, did the Cambodian government do enough to fight the increase? Probably not. The implemented export ban was undermined by its exclusion of cross-border sales to Vietnam in the Eastern provinces. The government cited that the livelihoods of a large part of the population there who depend on that trade would be put at risk if the ban was to apply to them for a longer period of time. Well, it sounds logical but is it true? Naturally, pundits will quickly point to the government’s Vietnam-friendly attitude, but this seems to be as partisan as everything else that is coming from those quarters.

Everybody, many self-appointed experts among them, quickly hopped on the bandwagon blaming each and everybody in perceived power positions on that crisis. But does it really affect Cambodia this hard? What is widely forgotten is the fact that 65% of the rural population lives on subsistence farming. These people do not buy their rice. If they don’t grow it themselves they barter it. This translates into roughly 50% of the population, or roughly 7 million people, existing on subsistence farming; in other words, they are not as affected as wage earners. A look at the relevant statistics also reveals that there are about 1 million people employed in the service and industry sector. These are the sectors where those wages of $55 a month are paid. Again, this translates into 4 million of the population who are dependent on those incomes. The public sector employs about 1 million as well, which means another 4 million people of the population depend on that sector. Does this affect these people? Yes, by all means, but they have a way of making ends meet. We all know how that works, don’t we? It’ll just mean that, for instance, elementary students will have to give their teachers 750 riel instead of the 500 per day. It is sad, yes, it is.

Even given the increase of corruption in the public sector as a result, the numbers indicate that about 20 % of the population or roughly some 3 million people will suffer from the recent price increases. But can the government do anything about it in the short term? The answer is a definitive no. No government in the world can grapple problems of that magnitude in a couple of weeks or months. The ban on the export of rice was the correct step to take but it needs to be enforced strictly, and it must be extended for at least a year. The economic police are hardly in a position to safeguard against gouging. The vendors just put the fix in and the problem has gone away. A second, but much more drastic step would be to implement a temporary price freeze on rice in the markets. Although this is anathema to the principles of a free market economy, into which Cambodia has successfully transformed itself, this might be worth a second look.

Cambodia is self-sufficient in rice; it has even become a rice-exporting nation. The interest of its own people must be the foremost priority, so the export ban is the one tool that will bring relief. Regulated prices in the basic food industry ought to be mandated. Regulation of industries, if in the public interest, is an established tool in the government’s arsenal, as has been shown in many developed countries. Subsidies, widely used in the industrialized world, are out of the question for lack of funds.

So to alleviate the plight and to avoid widespread hunger among a large part of its population the government should have the courage to take these drastic measures. It will take a strong political will to follow through with such a policy. It remains to be seen whether this can be a defining moment for the government. It would certainly add to their appeal in the coming elections.

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