Inflation on Prices of Farm Food Products

CHAPTER 1

The aim of this study is to see those factors which affect the prices of farm foods product. For this purpose several different variables have been taken as under consideration which may affect the farm food products. From those factors livestock has been taken as the dependent variable. In order to find out the result technique has been run on the collected data to see that which factor has the significant impact on the farm food products.

Problem Statement:

The problem area or issue regarding the impact of inflation on farm food products are mainly the underdeveloped countries. Some of the critical factors which comes under noticed is that in underdeveloped country inflation is itself a very big problem and for those countries its very difficult to get rid of the inflation and it itself is a big stress for the government to control over it which causes the failure of development of the country.

On the basis of empirical evidence research problem is being developed “ the impact of inflation on the rising farm food prices”. Economic growth depends on the conditions of the inflation of the country.

1.3 Research Hypotheses:

This study focused to identify the factor affecting the rise of farm food products. It is recognized in literature review that inflation has the potential affects on the rising of farm food products.

Therefore after a comprehensive study on the factors affecting the farm food products. Finally study comprises of the following hypotheses:

H1: Inflation has the significant impact on the farm food prices.

H2: Population growth has the significant impact on the farm food prices.

H3: Per capita income has the significant impact on the farm food prices.

1.4 Outline of the Study:

The aim of this study is to understand the basic concept of those factors which affect in rising of the prices of the farm food products. This study focused to investigate that whether the inflation has severe role in affecting the prices of farm food product. Theoretical framework represents the impact of these factors on the farm food products. Study found that the critical factors affect on the farm food products includes: inflation, population and per capita income respectively by evaluating research hypotheses.

1.5 Definitions:

(i) Livestock:

Farm animals, with the exception of poultry. In Western countries the category encompasses primarily cattle, sheep, pigs, goats, horses, donkeys, and mules; other animals (e.g., buffalo, oxen, or camels) may predominate in other areas. See also ass, cow, dairy farming.

Livestock (also cattle) refers to one or more domesticated animals raised in an agricultural setting to produce commodities such as food or fiber, or labor. The term “livestock” as used in this article does not include poultry or farmed fish; however the inclusion of these, especially poultry, within the meaning of “livestock” is common.

(ii) History of Live Stock:

Animal-rearing has its origins in the transition of cultures to settled farming communities rather than hunter-gatherer lifestyles. Animals are ‘domesticated’ when their breeding and living conditions are controlled by humans. Over time, the collective behaviour, life cycle, and physiology of livestock have changed radically. Many modern farm animals are unsuited to life in the wild. Dogs were domesticated in East Asia about 15,000 years ago, Goats and sheep were domesticated around 8000 BCE in Asia. Swine or pigs were domesticated by 7000 BCE in the Middle East and China. The earliest evidence of horse domestication dates to around 4000 BCE.

Older English sources, such as the King James Version of the Bible, refer to livestock in general as “cattle”, as opposed to the word “deer”, which then was used for wild animals which were not owned. The word cattle is derived from Middle English chatel, which meant all kinds of movable personal property, including of course livestock, which was differentiated from non-movable real-estate.

(iii) Inflation:

Inflation is a key indicator of a country and provides important insight on the state of the economy and the sound macroeconomic policies that govern it. A stable inflation not only gives a nurturing environment for economic growth, but also uplifts the poor and fixed income citizens who are the most vulnerable in society. Over the last decade, with a few exceptions, inflation around the world had been at a retreat. However, with buoyant global growth, along with higher population growth, rapid industrialization and urbanization in emerging markets, and strong per capita income growth, inflation has started veering its ugly head in many parts of the world, including Pakistan. In the midst of soaring demand for essential commodities, food inflation has emerged as the main contributor to recent global inflationary pressures.

(iv) Per Capita Income:

Per capita income is how much each individual receives, in monetary terms, of the yearly income generated in the country. This is what each citizen is to receive if the yearly national income is divided equally among everyone. Per capita income is usually reported in units of currency per year. When comparing nations per capita income reflects gross national product per person, but it is also used to compare municipalities within nations. When determining the per capita income of a community, the total personal income is divided by the population.

(v) Population:

Population growth increased significantly as the Industrial Revolution gathered pace from 1700 onwards. The last 50 years have seen a yet more rapid increase in the rate of population growth due to medical advances and substantial increases in agricultural productivity, particularly beginning in the 1960s, made by the Green Revolution. Pakistan is always facing the problem of population. The increased population increases the problems of Pakistan as the birth rate of Pakistan rises it also give rise to the basic problems of employment, inflation and basic necessities which becomes difficult to solve. The rising population always gives rising problem because of the limited resources available in the country.

CHAPTER 2

LITERATURE REVIEW

Food is now not a cheaper item as it was in previous time .overall worldwide prices for wheat, rice and other food items have grows up .Starvation as food shortage loom and crop prices spiral are facing by million of world’s vulnerable people .Million of people worldwide are pushed below the poverty line due to the rising in food prices. UN Food and Agriculture Organization (FAO) has warned that growing up prices have trigged a food crises in 36 countries and it never happen before ,the effect is spreading from poor and prospering , developing countries to the developed countries. Large retailers in the USA start rationing sales or rice in result of bulk purchases by customers ware by rocketing prices of staple foods. Further, in 35 years globally food reserves are at their lowest, so prices are stay up for the foreseeable future .food crises are facing by overall the world currently, which make to threatens worldwide instability.

2.1 Magnitude of Problem:

To point out the hunger children marched in Yemen, many farmers protested outside Dewing Street in London. Thailand army has been alerts and for the looting of food from the ware house and even fields, Pakistan army is also alert for prevent. USA one of the highly developed countries eggs grows up by 24 per cant; in Chile, ground beef grows up by 8 per cent; rice grows up by 40 per cent in Sierra Leone; pasta grows up by 14 per cent in Italy; bread grows up by 10 per cent in Australia. Pakistan, Thailand , India and else where in past years rice prices has doubled, a hike that hurts all the more because half of the weekly budget is mostly spend on food of Asian families.

2.2 Causes of Global Food Crises:

Food crises are not the first time witnessed by worldwide economy, but past phases were not accompanied by such frequent growing in food prices. To suggest any policy measures it is important to study all those factors first. In contributing the prices (Ghost, 2008) the prices of soaring oil has been the major factor, which in many ways affects agricultural costs directly and indirectly. This is because, in the cultivation process itself as well as in transporting food, raised significance of energy as in input. Both the cost of production and cost of transport are pushing up in result. The diversion of food crops (maize in particular) for making biofuels is another cause for the price rise.

Expert argued about the global food crises stems from the raising demand of foods and unprecedented worldwide population growth. In 2007, according to FAO, with record grains harvest, every person in the world can feed at least 1.5 times more then present demand, there is more enough food in the world. “Climate change” is one of the major responsible factors. Food production is have reduced by floods, erratic harvests and droughts.

It’s difficult to evaluate the speculation to the increasing in food prices. In the worldwide food crises the other responsible factor for recent jump is market speculation. From USA, World wide traded wheat, corn and small quantity of rice come, food grain which is most traded prices in dollars. The cost of imported food rises because the dollar slides against the other currencies.

2.3 International Initiatives to Control Food Crises:

In global crises growing up food prices have developed. Food crises the solutions to solve its problem, international community is working for it. Low income countries hit by high food prices which are helped by International Monetary Fund (IMF) while providing financial assistance to few of the worst affected countries ,appropriate policy action were taken by them (IMF, 2008).

2.4 Action Needed to Solve the Problem of Food Crises:

For the global crises it’s not easy to sort out solution, since there are numerous causes by dramatic food prices escalation. World leader have to act urgently because of this global disaster. For the immediate crises one solution is to establish a global fund for the UN’s FAQ, in hard time, accessed by net food importing countries contribution inhale to be by all nation. Further, there should be increment in food production. Within poorer countries, without any alternatives increment should be in the production of food grains. For global food crises another variable for solution is management of natural resources. For agricultural production very important input is oil, for managing the problem of food crises it’s also a critical issue to manage the oil prices. For this auto maker should encourage by Government to bring in hybrid cars, build more gas station and encourage the use of gas powered vehicle. It’s important that use of oil should be reduce and try to develop alternate sources of energy.

When all people have physical and economic access to sufficient at all time, food security exists, for an active and healthy life safe and nutritious food. Unlike nutrition, where based on human nutritional requirements with standard protocols treatment is guided. For achieving food security there are many challenges: food security increased and natural resources are not further degrading, population growth will cope up, growing inflation and income, change in food habits, into biofuels conversion of food crops, in urbanization and commodity market speculation is increased. Stepping up research should be including by agenda, productivity of rice should be growing up, seed cotton and wheat, and water purification in low cost is developing.

As a short term response to the vulnerable people food availability has to increase by taking immediate steps by international community. Farmer is allowed to make increment in their income, output and productivity. Without penalizing consumes increasing exports and high degree is attaining – support through price – market is distorted. Since the civil war in the United States a chain of events that culminated in the largest inflation of food price, started in motion by the 1970 corn blight. This inflation was the changes in the prices of food grains, and feed and lives stock products

2.5 Back Ground and Policy to 1973:

Beginning about 1971 it is useful to highlight deeply the unfolding events. How government policy in the food price portion become growing a rearguard action is illustrated and with the feedback dynamics of the lives stock sector is consistent. 7.6% rose up in the food component of the consumer price index, during the first half of 1971. Increased soya bean exports, and corn blight result in, feed cost growing up, on production of livestock depressing effect have – entered the liquidation phase of the hog cycle producers is falling as pork producer. To expand grain exports is the government initiated major efforts, which is based on the assessment.

2.6 Food Price Inflation:

Since the civil war by December 1972, for the largest six-month meat price inflation the stage was the set. By the 1971 recession, the economy cope up with it, pull the combination of strong demand and in 1973 very frequently growth in feed costs make to an round of meat price increases. The dollar value is highly affected by pressure increasing pressure, second significant devaluation is started. To the executive office from the USDA, Control of food policy is moved. Undertaken the all parts of supply augmenting polices, few month earlier, set1973 grain program was reversal, within the administration by much internal conflict was accompanied, to supply expansion from demand expansion, emphasis by the shift in. Inflation and food prices, in both directions their relationship works.

2.7 How the Agricultural Economy Works:

With major policy responsibility and great professional emanate from persons relating to food prices numerous wrong decisions and in correct statements. Ministers of finance and economic advisers perceived less economics of agriculture and the economics of agriculture. There is little contribution in public’s education by agricultural economists and except in unusual for agricultural economist’s subject times agricultural economists have found no eager audience. In poor and rich both countries in aggregate for food the extremely low price elasticity of demand side is the final element.

2.8 Asset Fixity:

Resources are likely to remain where once agricultural supply committed to Agricultural production. Even thought may be quite less for increased periods and returns to them vary widely.

2.9 Competitive Structure:

Industry agriculture meets with conditions which are sets out by economic theory. There are many producers, completely elastic demand faced by each producer, even though highly inelastic for its total output even though by the aggregate demand

2.10 Calorie Conversion:

Calories in the form of grain is essentially a process by most other rich countries and in United States animal agriculture, supplement of protein, in few forage cases, consumed in the form of poultry and red meat are changed into calories.

2.11 What Caused the 1972-1973 Explosion in Food Prices?

Due to the rise in food prices in the world, every nation is experienced inflationary pressures, in 1972-1973. it’s likely to disaster, forced to import food grain, poor countries. For this alarming state of affairs there some categories (1) the weather, (2) and the return of Malthus.

2.11.1 The Weather:

Weather is still a main factor for crop production through World Wide, production. Heavy rain falls at any time. Since without irrigation, most of world crops are grown.

2.11.2 The Return of Malthus:

In food prices in last shift as an explanatory factor population tends to outrun food supply was by the Malthusian theory which was invoked by another thesis. By this argument, with increasing demand and population supply of food can not keep up, despite Green Revolution’s promise. Poor countries are becoming developed countries to avoid widespread famine; most one is United States, for food grain, in relation to supply increasing world demand. There is no alarming in world production of food by the long-term trend, on the average.

In 1972-1973 bad weather was a final factor; in agriculture that reflects a recurring problem was a short run episode.

2.12 Looking Ahead: Short-Run Problems and Strategies:

Economic analysis should be better looking backward than ahead. Food shortage which affected a serious domestic and worldwide inflationary spiral .despite the error policies and analysis .not much of the effort was put in to save the nation and world from this shortage of food. In 1974 the world experienced the availability of the total quality of fertilizer greater than in 1973.According to USDA there could be projected rise output of more than 20 million tons. This would lead normal consumption increase and rise in world stocks considerably for the space of next year.

2.13 Looking Ahead: Longer-Run Issues:

It is realized on the events in late 1974 and early 1975 that Short run price Forecasting is risky as compared to long run furcating for farm products.

The long run supply price of food grains and livestock products determine the price of US farm products and food .the variable costs of producing crops have increased considerably in the united states as well as the cost of farm machinery, herbicides, fuel and fertilizer.

2.13.1 The Longer- Run supply for Food

One of the major factors in determining prices of U.S. farm products and food is the long-run supply price of food grains and livestock products. The variable costs of producing crops have gone up sharply in the United States along with the costs of fuel, fertilizers, herbicides, and farm machinery.

2.13.2 The Longer- Run Demand for Food

Fluctuation in the petroleum prices affected the developed countries but if some adjustment in the currency, their growth can be continued .which could lead to great demand for protein concentrates, feed grained and animal products. Developed countries are still facing the problem of constantly increased population growth against food supplies. And they also lack valuable natural resources to export in order to manage the situation. Greater internal effort and technical assistance is required to develop more productive farming by using available land, labor and water supplies. even if this problem is tackled some policy issues are to be pondered over by the united states and other developed countries whether there should be some kind of public national or international food reserve in case of hostile price fluctuation because of the deep declines in supply.

On March 21, 1974 many proposals were suggested for reserve in the international forums and in the United States but opposed by the secretary of Agriculture Earl Buts.

(1) The return to stock holding

(2) An internationally held and managed stock program and

(3) Authority for export control and latter on he supported free market economy which is favorable during the problems of food production and price instability.

CHAPTER 3

RESEARCH METHOD

This study empirically examines those factors affecting the prices of the farm products. This sections aims to justify research objective to evaluate and proper method that are followed.

3.1 Method of Data Collection:

Basically this research comprises of secondary data; collected from authentic source which includes:

Federal bureau of statistics.

AERC department of Karachi University.

State Bank of Pakistan

Index mundi

An explanation based on collected data and the information used to justify this study. Reliability of this data based on filtered data comprise from authentic sources. To collect filtered data based on specification of this research.

3.2 Sampling Technique:

The statistical tool used to evaluate and interpret data into meaningful information by S.P.S.S. version 17. filtered data from excel sheet was entered in S.P.S.S. basically regression analysis used to test the degree in which independent variable per capita income has the significant impact on the farm food products. Quadratic technique has also been run to confirm that whether inflation impact the prices of the farm food product or not. It is found that inflation has the significant impact on the farm food products.

3.3 Sample Size:

Sample size based on target population which comprises 30 years data of the variables. Therefore this thesis comprised thirty observations. Imply time series model to certain characteristic of economy of Pakistan. There are true representatives of entire population of Pakistan economy for validity purpose filter data comprise based on the theories to find the answer of this research hypothesis.

Factors affecting farm food prices

H1: inflation has the significant impact on the farm food prices.

H2: population growth has the significant impact on the farm food prices.

H3: per capita income has the significant impact on the farm food prices.

3.4 Research Model Developed:

Hypotheses testing concern factors affecting the farm food products based on the Pakistan economy by using “regression analysis” and quadratic analysis. To assess the impact of independent variables per capita income, population, inflation, and a dummy variable indirect access.

Live stock = X1 + X2 + … + Error Term

Result concern the main effect presented in table.

3.5 Statistical Technique:

Objective of this study is to empirically identified factors affecting the farm food products and assess the impact of those factors which has a significant on the farm food products. For this purpose regression model has been used to see that which factor has the most significant impact on the prices of farm food products. In order to reconfirm the result Quadratic fit has also been used to verify the result of regression model. Regression model has been used because we want to see the relationship between dependent variable and independent variable.

CHAPTER 4

RESULTS

4.1 REGRESSION INTERPRETATION OF HYPOTHESES

H1: Inflation has the Significant Impact on the Farm Food Prices.

The level of association between inflation and livestock indicates that inflation does not have the significant impact on the prices of the live stock. The coefficient of regression β is 0.071 at p<0.264 it explains only 7.1% which shows that results are insignificant. Hence, H1 rejected.

H2: Population Growth has the Significant Impact on the Farm Food Prices.

The level of association between population and livestock indicates that population does not have the significant impact on the prices of the live stock. The coefficient of regression β is -0.39 at p<0.923 it explains negative 39% which shows that results are insignificant and no substantial correlation exist between dependent variable and independent variable. Hence, H2 rejected.

H3: Per Capita Income has the Significant Impact on the Farm Food Prices.

The level of association between per capita income and livestock indicates that per capita income has the significant impact on the prices of the live stock. It indicates that R is 0.945 and R square is 0.894 at 0.000 which represent substantial correlation between independent and dependent variable.

The R square is 0.894 shows significant description. The coefficient of regression β is -0.945 at p<0.000. It explains 94.5% positive variation which shows that results are significant and substantial correlation exist between dependent variable and independent variable. Hence, H3 accepted.

In the regression analysis a dummy variable is also created from indirect taxes it also does not have a significant impact on the prices of the farm food product. From previous study and literature review it comes in under consideration that inflation has impacted farm food severely but regression shows that it does not have a significant impact. So for the sake of recheck another technique quadratic analysis also implies to inflation in order to confirm it.

4.2 QUADRATIC INTERPRETATION OF HYPOTHESES

H1: Inflation has the Significant Impact on the Farm Food Prices.

The level of association between inflation and livestock indicates that inflation has the significant impact on the prices of the live stock. It indicates that R is 0.529 and R square is 0.280 at 0.000 which represent substantial correlation between independent and dependent variable.

The R square is 0.280 shows significant description. The coefficient of regression β is 1.594 at p<0.032 which shows that a positive variation that results are significant and substantial correlation exist between dependent variable and independent variable. Hence, H1 accepted.

TABLE 4.1 ANALYSIS OF REGRESSION TECHNIQUE

4.2 Hypotheses Assessment Summary

Regression

Sig. Coefficient Sig. Empirical

Hypotheses R square p≤0.05 β p≤0.05 conclusion

Impact of inflation on the farm

food prices.

H1: inflation has the significant – 0.264 0.071 0.264 NOT ACCEPT

impact on the farm food prices.

H2: population growth has the – 0.923 -0.39 0.923 NOT ACCEPTED

Significant impact on the farm

food prices.

H3: per capita income has the .894 0.000 0.945 0.000 ACCEPT

significant impact on the farm

food prices.

TABLE 4.2 ANALYSIS OF QUADRATIC TECHNIQUE

4.2 Hypotheses Assessment Summary

Regression

Sig. Coefficient Sig. Empirical

Hypotheses R square p≤0.05 β p≤0.05 conclusion

Impact of inflation on the farm

food prices.

H1: inflation has the significant .280 0.012 1.594 0.012 ACCEPT

impact on the farm food prices.

CHAPTER 5

CONCLUSION AND RECOMMENDATION

The final chapter discuses empirical evidence and research findings presented in preceding chapters. Based on develop hypotheses to identify factor impacting the farm products.

In this study key dimensions of farm products include population, per capita income, inflation and indirect taxes as a dummy variable. Study found that per capita income and inflation is a powerful explanatory variable of live stock.

5.1 Conclusion:

Aim of this study was to investigate the factor affecting the farm food product on Pakistan economy. A theoretical frame work was developed to represent the link between the live stock and the independent variable. Dimensions of live stock were first theoretically delineated then empirically validated. The dimension include: Per Capita income and inflation.

Filtered data were collected from authentic sources. The key information was used to collect data from State Bank of Pakistan, Index Mundi, and Statistical bureau of Pakistan. The main statistical technique used in descriptive research based on regression analysis and quadratic analysis.

In the area of farm food, this study attempts to explain determinants of farm food in the context of under developing economies. It also represents empirical and theoretical stats towards an explanation of live stock products. Such effort not only directed toward assimilating farm foods of under developing economies but also generalizing the relevant studies mainly conducted by the economy makers. Therefore, such type of research necessary due to lack of study with this regards in the context of Pakistan study. Due to such type of effort acknowledge academically and practically in the future.

5.2 Result Discussion:

On the basis of table where result of hypothesis shown accordingly. Result on the table represent factors affecting the prices of farm food products based on the Pakistan economy. The aim was to identify determinants of live stock and their affects in the context of Pakistani Economy. Result of the analysis identify the significant association among the independent variables per capita income and population. Based on comprehensive literature and theoretical framework of this research, result indicates that per capita income and population are statistically significant factors which critically affects on the prices of farm food products of Pakistan economy.

5.3 Implications and Recommendations:

The major implication of this research two fold. Practically it focuses the attention of economy of Pakistan to continuously control the factor of inflation in their country in order to lead in the developed countries. If government wants to overcome the high prices of food they should first make proper ways to control the inflation rate of the country.

5.4 Future Research:

On the basis of limitation there are numerous opportunities for future research. Since generalized propositions cannot explain the phenomena alone; due to integrated approach need to implement to get control over inflation. These are the few potential opportunities for future research.

First and integrated method need to adopt; to understand the essence of farm food product caused by per capita income and inflation. Using this approach provide better understanding of how to control the increased price of farm food products of the underdeveloped economy like Pakistan.

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