Review agriculture policies

The acceleration in food prices has become a public concern and is presenting challenges for public policy, the Central Bank said in its Monetary Policy report, April 2005. This, said the bank, is so for several reasons. “Firstly, it is not clear whether an adequate supply response, for instance, to temper the rise in prices of fruits and vegetables would be forthcoming very soon.” “Secondly, there is anecdotal evidence that given the oligopolistic nature of the distribution sector, speculative price increases over a broad range of commodities are already taking place.”

“This type of behaviour could exacerbate inflation expectations, intensify wage pressures and lead to further price increases.” “Thirdly, while central government expenditures remain in check, the projected rise in public sector spending on infrastructure by quasi-government agencies, if not properly phased, could boost domestic demand placing additional pressure on prices.” Against this background, the bank warned that headline inflation, could end up outside the target range of four-five percent, for the year as a whole. In light of this, the bank has suggested that public policy response should range over several areas :

• To help deal with the longer term issue of fluctuating food prices, there is need for an urgent review of policies geared to increase agricultural output. In the short run, increased domestic supply may require higher imports, inclusive of agricultural commodities.
*While official price controls should be avoided at all cost, consumer vigilance could help address the exploitation of oligopolistic market forces.
*Continued wage restraint will contribute to dampening inflation expectations.
*Restraint in the growth of and the proper phasing of public sector expenditures is important to help contain demand pressures. Further analysis of the various sub-components of the Retail Prices Index indicates that the main contributory factor to the rise in headline inflation has been the sharp increase in the Food Prices Sub-Index, it was observed.

“Earlier in 2004, the increase in this Sub-Index resulted largely from the rise in the prices of commodities such as rice, flour, powdered milk and chicken.” “In the case of rice and flour, which are imported under oligopolistic conditions by the National Flour Mill, increases in prices reflect higher prices for grain. For items such as powdered milk, which originate or are transhipped through Europe, the depreciation of the TT dollar relative to the Euro may have contributed to the increased prices.” During the last quarter of 2004, however, adverse weather conditions had a devastating impact on the domestic supply of some critical agriculture produce, leading to supply shortages and consequently to an increase in the prices of several commodities.