Friday, February 4, 2011

Status of the Doha Round negotiations so far

Adapted from WTO Director-General Pascal Lamy’s statement:


On Agriculture, on templates and on the associated work on base data, Step 2 on drafts of actual proposed formats are being tabled and discussed in each of the three pillars.  Moreover, Members are meeting bilaterally and in small groups to come to an agreed understanding of some parameters, including OTDS.  Additional drafts are also in preparation and work on base data is progressing with the verification process.

On modalities, the Chair has continued his consultations.  Members are also meeting on clarification of certain technical aspects of the modalities.

In NAMA, on NTBs, one concrete, positive change has been the movement into text-based negotiation through the creation of small drafting groups to undertake work in three areas:  transparency, remanufactured goods and horizontal mechanism.  The process of cleaning texts on the Horizontal Mechanism and Transparency is advancing.  On remanufacturing, however, the small group is still facing serious challenges.  Concerning other NTB areas such as textile labelling, conformity assessment and international standards, the discussions are still at a more and too general level.

Concerning tariffs, discussions are taking place.  The sectoral proponents continue to organize meetings on their sectoral initiatives.  However, it is clear that the kind of engagement we are seeing on the NTB side is still missing on tariffs.  This needs to change if we are to get to the same place by Easter.

Regarding Services, in market access, the Special Session confirmed that the request/offer negotiations had to be focused and intensified and that the  first cluster of 14 February will focus on Modes 3 and 4, and the ICT group of sectors.  Of course, this would not be to the exclusion of any other sector or issue that Members wished to raise.

In domestic regulation, there was consensus for the Chair to prepare a revised text for March.  There is a real opportunity to make progress here, provided that the result is not a bracket-laden text that serves only to solidify existing positions.  In GATS rules focused on dedicated discussions on government procurement and subsidies.  The Working Party is also preparing for a discussion on services statistics for the purpose of the discussion on Emergency Safeguard Measures.

In response to requests from several delegations, the Chair of the Special Session has proceeded to establish a small consultative group to advance work on the text of the proposed LDC waiver.

In the Rules area, in December, the Chair appointed three Friends of the Chair, who have been asked to consult on specific bracketed anti-dumping issues with an eye to developing convergence, bottom-up texts for consideration by the Group.  These issues include product under consideration, material retardation and causation of injury.  The Chair intends to appoint further Friends in the anti-dumping area, and to extend the process to horizontal subsidies.  He is also considering naming contact groups on some of the most intractable anti-dumping and subsidy issues.  In the area of fisheries subsidies, the Chair has appointed co-facilitators to work on technical aspects of fisheries management.  The Group has also received five new proposals in this area, including substantial new proposals on both the scope of the disciplines and the nature of special and differential treatment.

On regional trade agreements, Members agreed to begin the review of the Transparency Mechanism for RTAs as required by the General Council Decision, with a view to making it permanent.  Two proposals have been received from the United States and Ecuador and are to be discussed by the Group starting on 4 February.  Other elements of the review include statements from the Chairs of the two implementing bodies:  the CRTA and the CTD, and the Secretariat, indicating their experiences with the Mechanism thus far.  Discussions on systemic issues which remain dependent on the submission of text-based proposals by Members are also to be taken up; in this regard, one new proposal from Bolivia has been received.

In the area of Trade facilitation, the newly established Facilitator-led process appears to be working well and has already produced results.  Negotiations in 14 different groups led to streamlined language and a lower number of square brackets.  There was a noticeable change in gear, delegations were focused and committed to cleaning-up the text.  Delegations appreciate the bottom-up mode of operation and the balance in treatment of the two main pillars (TF measures and S&D) and equally value the fact that there was no overlap in meetings and full interpretation of all events which is an issue on which notably, the African Group has been insisting on.

As regards Trade and Environment, on Paragraph 31(i), some Members are working together to build on specific texts or revisit existing one.  While a submission by the African Group on a roster of experts to assist developing countries with respect to specific trade obligations under multilateral environmental agreements gathered some support, further consultations will be held to refine the proposal.  On Paragraph 31(ii), Members have started with text-based negotiations.  Finally, on Paragraph 31(iii), a lot of work remains to be done to further define the “universe of environmental goods” and the related structure of the outcome, including modalities of treatment.  Members have also recently expressed renewed interest for the topic of environmental services.

As regards the negotiations on the establishment of a multilateral system of notification and registration of geographical indications for wines and spirits, intensive drafting sessions have been taking place by a small group of experts drawn from co-sponsors of the different proposals, the “W/52 Group”, the “Joint Proposal Group”, and Hong Kong, China, with the results reported to an open-ended informal consultations. 

On 27 January, the Chair circulated a paper on Notification and Registration, resulting from Member's own texts and the outcome of the drafting group.  This represents the current state of play, with full attributions of different wording, following a concerted effort to reduce square brackets.  This text is now “work in progress”.  Wok will now continue on the elements of Legal Effects/Consequences of Registration and Participation.

On the Work Programme on Special and Differential Treatment, discussions have been taking place on the basis of the most recent revision of the Chair's non-paper on the Monitoring Mechanism.  This work is being undertaken in small group informal consultations.  A number of constructive textual proposals have emerged during the consultations.

On Dispute Settlement, an updated draft legal text was presented and discussed on sequencing, and points of convergence were identified with respect to possible solutions to post-retaliation.  There has been more substantive engagement on effective compliance and time-savings.

Finally, let me take also the opportunity to report on my consultations, as DG and not as TNC Chair, on the two TRIPS implementation issues of TRIPS/CBD and GI extension.


Thursday, February 3, 2011

Exports prospect of Nepal

My latest piece is about exports prospects of Nepal in the fiscal year 2010/2011. I did a simple annual estimation from five months data of this fiscal year. The main point is that exports this fiscal year might not increase while imports will increase relative to previous two years. Nothing has fundamentally changed with regards to productive capacity and efficiency in the economy. So, the underlying problems that have been plaguing our export and industrial sectors still persist. Unless we solve these exogenous and endogenous problems, export prospects will remain gloomy.


Nepal's exports prospect

The latest macroeconomic update released by the central bank shows a favorable growth in exports, and decline in both trade deficit (the difference between monetary value of exports and imports) and balance of payments (BoP), which basically is an accounting record of all the monetary transactions between Nepal and the rest of the world, deficit. While many marveled at the decline in trade and BoP deficits, a bitter truth about the state of our export and industrial sectors was pretty much ignored: We are still stuck in the same mess we have been for a couple of years now and growth prospect of exports and industrial sectors look as gloomy as it was last year.

During the first five months of this fiscal year, merchandise exports increased by 8.5 percent to Rs 27.3 billion, which is an improvement by Rs 2.1 billion over the same period last fiscal year. Meanwhile, imports increased by 0.6 percent to Rs 154.3 billion, which is an increase by Rs 0.9 billion over the same period. Hence, trade deficit amounted to Rs 127 billion, a decrease of Rs 1.4 billion. The decline in imports and an increase in remittances helped overall BoP deficit to shrink to Rs 3.4 billion from Rs 14.6 billion over the same period. In short, this is the story about the status of our external sector in the past five months of fiscal year 2010/11.

Now, an intriguing exercise would be to project the likely performance of exports and imports for the full year, which the central bank should have done but is not doing so far. Based on the trend in the last two fiscal years, the annualized figures for exports and imports for this fiscal year are expected to be Rs 63.3 billion and Rs 379.6 billion, respectively. Based on this calculation, the trade deficit will be between Rs 316.3 billion and Rs 318.4 billion. Simply, it means that Nepal will be importing six times as much as it exports by the end of fiscal year.

Rather than comparing five months figures as the central bank did, let us compare the annualized numbers with previous years’ data, which gives a better picture of the performance of exports sector. In a nutshell, the core message is that exports performance during this fiscal year will not be different from what it was in the last two years. The deepening of the global economic crisis severely affected exports last fiscal year, when it stood at Rs 61.1 billion as compared to Rs 67.7 billion in FY 2008/09. On an average, exports during the last two years was around Rs 64.4 billion, which is still higher than what is expected by the end of this fiscal year. Following the same methodology, imports this fiscal year will be higher than the average of last two fiscal years. It means that trade deficit will also be higher. Overall, the exports sector’s performance this fiscal year does not seem encouraging and there is little reason to bask on improved yet incomplete data for the first five months of this fiscal year.

Before going into the potential reasons for dismal performance of exports sector, let me first discuss a little bit more about how our exports are expected to perform until 2012. According to Global Economic Prospects (GEP) 2011, exports, as a share of GDP, are expected to continuously decline, reaching 9.9 percent in 2012 from 11 percent, 12.9 percent and 15.7 percent in 2011, 2010, and 2009, respectively. Meanwhile, imports are expected to continue increasing in pretty much the pattern it is doing so far. This means trade deficit is expected to further widen in 2012. Worse, due to weak foreign currencies, thanks to lose monetary policy in the West, our exchange rate is expected to appreciate, making our exports costlier abroad, which will put further strain in the performance of this sector. Add to this the impact of rising inflation rate in Nepal, our exports will be even more uncompetitive in 2012, if the underlying constraints that plague this sector are left unaddressed.

Now, you might be wondering what’s up with all these numbers and performance of exports sector? Well, the reality is that its performance largely determines the strength of our industrial sector, our external/macroeconomic balance, and to some extent our economic growth rate. With the existing state of exports and other economic fundamentals, Nepal’s real GDP growth is expected to be 3.7 percent and 4 percent in 2011 and 2012, respectively. It means that Nepal’s real GDP growth rate will be second lowest in South Asia in the next two years.

The main point is that despite a marginal increase in exports, slow growth rate of imports, and declining balance of payments deficit in the first five months of this fiscal year, we still are in a deep trench. Our economic fundamentals have not changed. The same problems that have been plaguing our exports sector are obstinately persistent. Supply-side constraints such as intermittent blockades, labor disputes, and lack of adequate infrastructures (primarily road transport and electricity) are further eroding our competitiveness. These constraints are mostly exogenous in nature. They are making our exports uncompetitive and are also preventing diversification of exports basket.

That said, some endogenous factors such as the lack of entrepreneurship and innovation in exports sector, the ignorance about the rapidly changing and globalizing market, and the inability to embrace a change in restructuring production, marketing and distribution structures of firms are some of the other factors ailing the growth of industrial and export sectors. This is corroborated by the World Bank’s projections in GEP 2010 and GEP 2011. The GEP 2010 projections showed higher growth rate in exports and in exports as a share of GDP, but they were revised down due to persistent negative impact of the above-mentioned constraints.

Most of these are non-economic constraints. So, the set of solutions are political consensus on national agenda regarding export and industrial promotion, amicable settlement of labor disputes, and simplification of rules and procedures regarding construction of infrastructures directly related to these sectors. It should be aided by promotion of entrepreneurship in and restructuring of exports sector. Else, our exports and industrial competitiveness will continue to decline, resulting in a widening trade deficit, prolonging of BoP crisis, further slowing down of growth rate, and stagnating employment opportunities.


[Published in Republica, February 3, 2011, p7]

Persistence of Keynesian economics: 75th anniversary of The General Theory

February 2011 marks the 75th anniversary of one of the groundbreaking economics books written by JM Keynes in 1936: The General Theory of Employment, Interest, and Money. Luzzetti and Ohanian (full paper here) shed light on the influence of Keynes’s ideas in shifting economic paradigm and policy. They assert that the long-lasting clout of Keynes’s General Theory was due to the fact that Keynes was “in the right place at the right time”.


As the Depression persisted for years in the UK and the US, it became increasingly difficult to reconcile chronically high unemployment with equilibrium theory that posited wage adjustments would reduce unemployment to normal levels. The General Theory was, in large measure, written in response to the inability of equilibrium theory to confront the Great Depression.

Furthermore, US macroeconomic time series following the publication of the General Theory appeared consistent with Keynes’s predictions. As government spending soared in the 1940s, rising from about 16% of GDP in 1939 to 48% of GDP in 1944, the unemployment rate plummeted from 17.2% to 1.2% (Margo 1993). This increased economists’ confidence in the Keynesian model, and the stable and prosperous economy of the 1950s and 1960s further solidified this confidence.

But perhaps the central factor behind the longevity of the General Theory was a series of breakthroughs in econometric methods that began in the 1940s. These methodological developments transformed the qualitative ideas of the General Theory into quantitative propositions. These breakthroughs included Haavelmo’s 1944 paper that integrated more formally probability theory with econometric methods, and other Cowles Commission classics on identification, estimation, and causal ordering.

These econometric developments formed the basis of the toolkit used to analyse business cycles following the General Theory both among university economists and policymakers. Throughout the 1960s, the economy continued to grow with remarkable stability, and for many observers, this stable prosperity was due in considerable part to the General Theory’s tenets.


And, Keynesian economics started to lose steam by the early 1970s due to poor forecasting performance of Keynesian econometric models; increasing recognition of supply-side factors as drivers of fluctuations (Kydland and Prescott 1982); and the breakdown of the Phillips curve, the authors argue. Here is a partial rebuttal to this view as well.

But, Keynesian economics is back again after the recent global financial and economic crisis. It will persist.


The notion of an inflation-unemployment trade-off and aggregate demand management remain at central banks, and the Keynesian vision provides a well-established framework for carrying this vision on within the context of policies that tie central bank behaviour to the joint mandate of promoting both low unemployment and price stability. This makes it politically unimaginable for a central bank, faced with a crisis, to argue it is unlikely they can increase output and trying to do so might make matters worse.

The General Theory will continue to have a large audience among policymakers as long as governments are pressed to boost nominal spending during periods of crisis, whether or not those efforts are effective.


Wednesday, February 2, 2011

The Doha Round and drought


The Doha Round — when completed — will oil the wheels of international trade in commodities, giving the developing world its fair share of the market.  It will improve the workings of what is no more, in the end, than a transmission belt, between countries where there is demand and countries where there is supply.  For food trade, the climate crisis makes a properly functioning transmission belt even more imperative.  Droughts, and other natural catastrophes, should not deprive parts of the globe from food.


That’s Pascal Lamy pitching for the passage of the Doha Round and managing food price spikes.

Sunday, January 30, 2011

The Doha Round is doable in 2011

A “High Level Trade Experts Group” argues that passage of the Doha Round is doable in 2011, but this would require increased attention of world leaders. The Group has called for December 31, 2011 as the deadline for the passage of the Doha package.

  • Doha is doable this year; rapid progress is being made in closing the negotiating gaps; this started in November 2010.
  • Getting the deal done requires head-of-state attention; they must authorize, or personally negotiate the last trade-offs framed by the draft agreement that their WTO ambassadors hope to have ready for April.
  • The window for this deal is the first half of 2011; after that all bets are off until 2013 at the earliest (due to elections in the US).

Richard Baldwin argues that the convergence of some of the developments in trade has created a new window of opportunity:


Oversimplifying for clarity’s sake, the Doha deal involves reduced ceilings on agricultural protection and subsidisation in exchange for reduced tariff ceilings on industrial goods. Food prices are high so the agricultural liberalisation won’t hurt farmers much and manufacturing production in emerging market is booming, so the tariff cuts won’t be very politically painful.

The new trade giants – India, Brazil, and China – are eager to guard the WTO’s central place in the world trade system; inter alia, they fear that US, EU, and Japanese use of deep regional trade agreements could create a parallel system of trade governance that excludes them.

The EU, having already locked in the agricultural liberalisation unilaterally, is eager to collect the benefits of lower limits on emerging market tariffs on industrial goods.
The US political parties – both Republicans and Democrats – would rather take the issue off the table before the 2012 presidential election campaigns.

[…] If Doha were put on hold until 2013, there is a good chance that it would never get done. The world has changed so radically since Doha was launched in 2001 that the temptation to scrap it and start again (implying that a round won’t be finished in this decade) could prove irresistible. Doha’s negotiating mandate is based largely on leftovers from the 1994 Uruguay Round. China, India, and Brazil would have much greater influence over any new agenda than they did when Doha was launched in 2001.


Here (the main paper by Antoine Bouet and David Laborde 2009) is an updated estimation of the potential costs of a failed Doha Round. The total cost of failure of the Doha Round is estimated to be US$ 1.171 trillion in forgone world exports if protectionist measures persist. Meanwhile, welfare loss are estimated to be US$ 193 billion.


Under a scenario where applied tariffs of major economies increase up to the currently bound tariff rates, we find that world trade decreases by 7.7 percent and world welfare drops by US$353 bn. We then compare a resort to protectionism when the Doha Development Agenda (DDA) is implemented versus a resort to protectionism when the DDA is not implemented. We find that this trade agreement could prevent the potential loss of US$ 809 bn of trade, and could therefore act as an efficient multilateral insurance scheme against the adverse consequences of “beggar-thy-neighbor” trade policies.


Here is earlier estimates of the Doha Round. Here is a piece about the industrial and export interests of Nepal in the Doha Round of trade negotiations. Here is a link to the recent WTO workshop on the Doha Round.

Friday, January 28, 2011

South Asian growth prospects

According to the latest Global Economic Prospects 2011, the South Asia region is projected to post GDP growth of 7.9% on average over the 2011-2012 fiscal years, buoyed by vibrant growth in India. This compares with estimated growth of 8.7% in fiscal year 2010. For a comparison between Nepal, South Asia and developing countries see this.

In 2012, South Asia is expected to have nominal GDP of US$ 2.88 trillion and population of 1.64 billion. GDP per capita is expected to be US$ 1754.4, with real GDP per capita growth of 6.7%

South Asia’s real GDP growth accelerated to an estimated 8.7 percent in FY2010-11 from 7.0 percent in FY2009-10, buoyed by very strong growth in India, which represents 80 percent of regional GDP. Excluding India, regional GDP growth (on a fiscal year basis) firmed, but to a more modest 5.1 percent from 4.3 percent the year before. On a calendar year basis, GDP for the region as a whole is estimated to have expanded 8.4 percent in 2010 after 5.3 percent in 2009, and to 4.8 percent in 2010 from 3.8 percent in 2009 if India is excluded.

The main reasons for this strong performance are robust domestic demand, aided by macroeconomic policy stimulus measures, a revival in investor and consumer sentiment, improved external demand, and stronger private capital inflows. Specifically,

  • Afghanistan: a good harvest and strong donor funding
  • India: a favorable monsoon
  • The Maldives:  recovery of tourism
  • Bhutan: rising capital expenditures for ongoing development of hydropower capacity
  • Sri Lanka: the peace dividend
  • Pakistan: ailed by a standstill on policy implementation, severe disruption tied to massive flooding and continued security problems
  • Nepal: ailed by political stalemate
  • Bangladesh: ailed by power-supply bottlenecks

South Asia has the largest fiscal deficit (8.2% in 2010) among developing countries. Fiscal deficits of Bangladesh, the Maldives, India, Sri Lanka, Pakistan, and Bhutan are 2.5%, 22.4%, 9.6%, 8%, 6.3%, and 6.1% respectively. Meanwhile, South Asia’s general government tax revenues averaged 14.3% of GDP in 2009, which is lower than in other developing regions.

Interest payments averaged 18.2%, which is by far the highest share among developing countries. While, Afghanistan’s and Nepal’s interest payments are manageable at less than 4% of total budget, other countries have very high rates with Sri Lanka paying as high as 25.8%.

Inflationary pressure in the region, except in Afghanistan and the Maldives, was pretty high. Apart from domestic demand, increased capacity utilization rates, accommodative macroeconomic policy and increased inflationary expectations, rising international fuel and food prices also contributed to push up prices. The rise in headline prices in Bangladesh, Bhutan and India are spillovers from India. Temporary price shocks due to devastating floods in Pakistan is another reason for high prices. This has led to an appreciation of South Asian currencies.

Exports recovered initially starting first month of 2009 but dipped in mid-2009 and again recovered in early 2010, but is declining again. Power outages impacted ready-made garment production (which represents over 75% of merchandise exports of Bangladesh); and floods reduced cotton harvests by 20% in Pakistan and decline in exports of textiles (which represents two-thirds of total merchandise exports).

Remittances has been a major player in South Asia economies with Nepal, Bangladesh, Sri Lanka, Pakistan and India receiving respectively 23%, 12%, 9%, 5.1%, and 4% of GDP in 2010,. Overall, remittances in South Asia increased by an estimated 10.3% in 2010. Partly because of strong remittances inflows, imports increased and current account deficit worsened.

The region benefited from aggressive demand stimulus measures, a revival in investor and consumer sentiment, and a resumption of capital inflows. A recent move toward tighter policy will likely need to be pursued further, given the region’s high fiscal deficits (the largest among developing regions), high inflation and deteriorating current accounts.

Outlook:

  • Continue robust growth in the next two years, although slightly lower than in 2010. It could be a result of tightening of fiscal and monetary policies. India, the Maldives, and Sri Lanka are pursuing fiscal deficit-reduction programs.
  • Tight policies could lead to an easing of regional inflationary pressures.
  • With less accommodative macro-policy and projected deceleration in the rate of growth of remittances, private consumption is expected to decelerate.
  • Regional investment in expected to increase, particularly due to strong growth fundamentals in India, ongoing post-war reconstruction in Sri Lanka, and post-flooding reconstruction in Pakistan.
  • Rate of growth of imports is expected to outpace that of exports. It will hit current account deficit.
  • Moreover, higher oil and grain prices would also affect current account deficit.
South Asia Macroeconomic Forecasts, 2008-2012
Indicator 2008 2009 2010 2011 2012
Real Expenditure Growth
GDP at market prices 4.8 7 8.7 7.7 8.1
Private consumption 5.6 5.1 7.5 5.2 5.7
Government consumption 18.1 6.1 9.1 8.4 7
Fixed investment 4.1 5.7 10.3 13.2 13.3
Exports, GNFS 16 -6.1 7.4 8.8 10.3
Imports, GNFS 19 -7.4 6.2 9.4 10.3
Contribution to GDP Growth
Private consumption 3.4 3.1 4.5 3.1 3.3
Government consumption 1.8 0.7 1 0.9 0.8
Fixed investment 1.3 1.8 3.2 4.1 4.4
Net exports 3.2 -1.4 1.4 1.7 2
Price Deflators
GDP at market prices -3.1 -0.1 13.6 20.3 3.2
Private consumption -2.6 0.8 13.3 18.9 3
Exports, GNFS -3.4 1.5 4.3 2.5 -0.5
Imports, GNFS -4.9 4.6 3.9 -1.8 -1
Share of GDP
Private consumption 60.6 60.1 59.2 57.2 55.9
Government consumption 11.6 11.6 11.7 11.7 11.5
Fixed investment 30.9 30.1 30.7 32.2 33.6
Change in stocks 1.4 1.3 1.2 1.1 1
Total investment 32.2 31.5 31.9 33.3 34.6
Exports, GNFS 22.1 19.7 17.9 15.4 15.2
Imports, GNFS 27.6 25 22.3 18.5 18.1
Overall
Nominal GDP (USD billions) 1511 1616.1 1995.8 2586.5 2883.5
Population (millions) 1560.5 1581.6 1602.4 1622.8 1643.5
GDP per capita, current USD 968.3 1021.8 1245.5 1593.8 1754.4
Real per capita GDP growth 3.4 5.6 7.3 6.3 6.7

Source: Global Economic Prospects 2011; 2011 and 2012 are forecasts

Thursday, January 27, 2011

CPI & Food Prices in Nepal

Food prices are fast outstripping overall general prices (CPI). It will continue to drag down real GDP growth and real per capita GDP. Globally, food prices have already shot up the roof compared to the mid-2008 level, when food importing countries faced serious problems. As of now, Nepal is a net food importing country and further rise in food prices would put more pressure on CPI, exports, and growth. (Data sourced from here (.xls)).

Agricultural trade balance (US$ million)
Country 1994-1996 1999-2001 2005 2006 2007
Afghanistan -103.919 -201.554 -708.639 -824.99 -722.815
Bangladesh -847.266 -1619.12 -2078.89 -2706.83 -3611.82
Bhutan -4.89333 -8.325 -13.183 -6.339 -5.859
India 2649.018 1351.741 3659.151 4190.592 8974.276
Nepal -120.834 -151.065 -257.962 -135.267 -200.323
Pakistan -992.736 -800.784 -1195.89 -1449.75 -1697.7
Sri Lanka 29.099 215.2273 389.077 -354.751 -398.91

South Asian trade balance in major agricultural goods:

Agri-goods trade balance, 2007 (US$ '000)
Country Cereal Potato Meat Fruits
Afghanistan 752 -14,696 2381
Bangladesh -613509 -2,953 -586 -29592
Bhutan -2676 349 -1 2227
India 2938739 10,991 897,461 159962
Nepal -83549 -6,784 -284 -23212
Pakistan 1267348 20,863 27,631 83726
Sri Lanka -292116 -13,677 -6,954 -14875

Source: FAO Statistical Year Book 2009/10

The chart below shows rise in global food prices.

The FAO Food Price Index has surpassed the upper bound reached in 2008. Commodity-wise, price of sugar has been spiking since May 2009. Similarly, prices of cereals and oil & fats are also going up. Price of meat is stabilizing but still is higher than in December 2008. The price of dairy is reaching the level reached in December 2008.

Among the causes of global rise in food prices are high petroleum prices (increases transportation costs and induces diversion of food production to biofuels), inelastic demand for food; depletion in food stocks; changes in exchange rates; lack of reliable information on food production; speculation; and production shortfalls.

After reaching peak in 2008, food prices were coming down due to good harvests for most basic food items. But, severe weather in some of the world’s biggest food exporting countries damaged harvests and led to another spike in December 2010. Flooding in Pakistan, Australia, and Canada, and drought and fires in Russia have affected crops in 2010 and even in 2011. Wheat production is going to come down this year. It will push prices even higher. Speculators are also helping to jack up prices.