Food costs

THE State Bank’s warning that domestic food prices could rise more than expected in the near term deserves urgent attention. In its biannual monetary policy report, the bank rightly points out that recent food inflation is no longer being generated only at home. It is increasingly being driven by forces beyond Pakistan’s control, particularly through energy, fertiliser and freight costs. The transmission mechanism is straightforward. The war in the region and disruptions to gas supplies from the Gulf are pushing up global energy and fertiliser prices. Both feed directly into the cost of cultivation and the transportation of food to markets. The shock travels from global energy markets to farm inputs and eventually to the price of food. By the time it reaches the market, it is already beyond the means of many households. More importantly, the country is exposed to both higher energy and fertiliser costs as well as a widening food trade deficit caused by weakening agricultural exports. This further reduces the foreign exchange earnings needed to finance an expensive food import bill.

The external shock is exposing vulnerabilities that have plagued the agriculture sector for several decades. The country’s irrigation system is inefficient and poorly modernised. Water losses are substantial, storage capacity is inadequate and crop choices remain concentrated in water-intensive staples. Farm productivity has not kept pace with population growth and climate volatility. Smallholder farmers are particularly exposed as they have limited capacity to absorb sudden increases in fertiliser, fuel or transport costs. A poor harvest or input-price shock can quickly become a debt problem for most. Climate variability compounds the difficulty. The possibility of an El Niño event next year, flagged by the SBP, complicates the food inflation outlook. With 46pc of the population reportedly facing hunger-like conditions, complacency is a luxury we cannot afford. Food inflation is not merely another component of the consumer price index. It has direct implications for poverty, nutrition and human capital. Pakistan cannot prevent regional wars or determine global energy prices. It can, however, reduce the extent to which an external energy shock becomes a domestic food crisis. The SBP has issued a warning. Policymakers must now act before the next external shock exposes the same weaknesses again.

Published in Dawn, August 13th, 2026

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