South Asia Investor Review

Wheat is down from a record high of $900 per ton earlier this year to $300 per ton today. For December 2007 delivery, Pakistan paid an estimated import price of $380-400 per ton, exclusive of transportation. Earlier in April-May 2007, Pakistan had exported wheat at the then-prevailing $225 per ton. The rising oil import bill has been the biggest budget buster for Pakistan and other developing nation which must import oil. Pakistan's dollar reserves have dramatically dropped from $15.5b to $10.5b this year. The fact that oil is down from the peak of $145 a barrel to $114 a barrel is good news for Pakistanis and South Asians. Since June 30, oil on the New York Mercantile Exchange has fallen 18%, and natural gas has sunk 37%, to $8.349 a million British thermal units. The pullback has spread to other commodities as well. Since the end of June quarter, gold is down more than 11%, and several industrial metals also have tanked. Agriculture has pulled way back, with a 31% drop for corn, ...

One of the Middle East's largest private equity firms has been quietly buying up farmland in Pakistan as part of plans by the United Arab Emirates to increase food security and to control inflation, according to a gulf website arabbuild.net. Please read prior blog posts on this subject . Dubai-based Abraaj Capital says it is working with the UAE government on the strategic agribusiness investments in Pakistan. The government in Abu Dhabi has been holding talks with Islamabad about a framework for investment in its agricultural sector as it seeks to secure cheaper long-term supplies of staples such as wheat and rice. The UAE investments appear to be part of a pattern of international investments in agriculture. Record prices of wheat and various grains have been attracting hundreds of billions of dollars from hedge funds and other speculators to the commodity futures markets (particularly wheat and rice futures) in recent months. A NY Times report now says that the investors are sta...

A relatively new, aggressive strain of black stem rust, called Ug99 for its 1999 discovery in Uganda, has spread to Kenya, Ethiopia, Yemen and Iran. Most commercial wheat grown world-wide has no resistance to the disease. The threat comes at a time when wheat stockpiles have shrunk because of bad weather and strong demand for wheat-based foods, reports the Wall Street Journal this morning. Ug99 poses a more serious threat to commercial crops than even the U.S. black-stem-rust epidemic of 1954 that destroyed 40% of the U.S. wheat crop, experts told the Wall Street Journal. Fears that the disease may have spread to Pakistan haven't been confirmed, experts say, but Pakistan is a concern because of its proximity to India, the world's third-largest wheat producer with over a billion mouths to feed. The potential for crop loss in Africa, the Middle East and South Asia is higher. Based on wind patterns and the rate of spread, the United Nations Food and Agriculture Organization says c...

With global commodity prices and inflation hitting new highs, Pakistan and other emerging economies are faced with serious challenges. The rising inflation of staples such as wheat has already claimed Pakistan's former ruling coalition as a victim. Many other developing countries' governments are likely to fall as well unless these challenges are addressed effectively. Knowing the importance of wheat for Pakistanis, the government of Prime Minister Syed Yousaf Raza Gillani has begun to take steps to alleviate the wheat crisis. The first steps, announced yesterday by Ministry of Food and Agriculture, deal with providing incentives to farmers to grow more wheat. The price of 40Kg of wheat has been raised by more than 20 percent to Rs. 625.00 (US$9.90) from Rs 510.00 (US$7.90). The government plans to build a 5-million-tonne strategic reserve from the 2007/08 crop, but farmers had rejected the procurement price of 510 rupees per 40 kg as below domestic and international market lev...

As South Asians suffer greatly from the twin crises of hyper inflation and prolonged, daily power cuts, the life for them is getting more and more difficult every day. The traditional approaches to solve these problems such as increasing governmental subsidies for food and fuel and building more conventional fossil-fuel based generating capacity are not likely to work cost-effectively and sustain ably in the long run. It is time for South Asians to explore creative options to find workable, long-lasting solutions. Economists often talk about the impact of supply and demand and consumer behavior on inflation. In fact, the consumer price index calculations in the US rely partly on consumers substituting cheaper alternatives for commodities experiencing higher inflation. For example, it is assumed that when the price of steak goes up, consumers start eating chicken instead. The often-criticized substitution process rationalizes this method to eliminate inflation from the US Bureau of Labo...

Wheat Price Touches $900 Per Ton Triggered by wheat export curbs by Kazakhstan and the lowest world inventory in 26 years, wheat price hit a new record at $25 per bushel or about $900 per ton. This translates into Pakistan Rs. 55 per kilo for raw wheat in bulk excluding transportation, milling and bagging. It represents a 400% increase in less than a year. According to the U.S. Department of Agriculture's Foreign Agricultural Service, Kazakhstan is the sixth-largest exporter of wheat, behind the U.S., Canada, Russia, Argentina and the European Union. Kazakhstan is in the belt of wheat production that stretches from Ukraine through southern Russia. It already has exported nearly seven million tons of grain, of the available 10 million tons from the 2007-08 crop, Agriculture Minister Akhmetzhan Esimov said. Price Doubled Since Dec, 2007 In my January 15, 2008 blog post Wheat Flour Shortage in Pakistan , I wrote as follows: " Former Prime Minister Shaukat Aziz announced in Sept,...

The ongoing rapid economic growth in the BRIC (Brazil, Russia, India and China) countries and emerging economies such as Pakistan has dramatically increased demand for food, oil and metals driving up prices. Here are some of the recent headlines that I find particularly notable: 1. It costs the US Mint two pennies worth of metal to make one penny. 2. One Indian rupee coin is worth Rs. 35 when melted and turned into razor blades. 3. Gold and oil prices hit new highs in the world market in 2007. 4. The price of wheat has nearly doubled from about $200 per ton to $400 per ton in just a few months. The current worldwide commodity boom began with the genuine increase in demand from the fast growth in emerging economies of the world. However, at least part of some of the recent increases appear to be driven by speculation in the commodities markets with many hedge funds and big investors trying to make a fast buck. One of the downsides of such speculation is that it may fuel worldwide infla...

Rising Atta Prices The rising prices and acute shortages of atta (wheat flour), a staple in Pakistan, are clearly distressing to the people. However, putting it in perspective, this wheat crisis is not isolated to Pakistan. There are widespread fears of food shortages and lack of affordability in many countries around the world. According to a recent report in Wall Street Journal, the prices of Illinois corn and soybeans rose 40% and 75%, respectively, from a year ago. Kansas wheat is up 70% or more. And a growing number of economists and agribusiness executives think the run-ups could last as long as a decade, raising the cost of all kinds of food. World Wheat Stock At 26-Year Low Global Demand is leaving end-of-year grain inventories at levels that are less than 20% of the total amount used each year; a graph of stocks as a percentage of use is as follows: Source: US Dept of Agriculture No More Cheap Grain "The days of cheap grain are gone," says Dan Basse, president of AgR...