The State Bank of Pakistan’s warning that domestic food prices could rise more than expected in the coming months deserves urgent attention. In its latest biannual Monetary Policy Report, the central bank has highlighted an important shift in the nature of food inflation: rising prices are no longer being driven solely by domestic factors but are increasingly being shaped by developments in global energy and commodity markets.
This distinction is important because Pakistan has limited control over the external shocks currently feeding into domestic food prices. The conflict in the region and disruptions to gas supplies from the Gulf are pushing up energy and fertiliser costs, while higher freight charges are adding further pressure. These increases ultimately reach consumers through the agricultural supply chain.
The transmission mechanism is relatively straightforward. Higher global energy prices raise the cost of fertiliser production and transportation. More expensive fertiliser increases farmers’ input costs, while higher fuel and freight charges raise the cost of moving crops from farms to markets. The cumulative effect is eventually reflected in retail food prices.
For households already struggling with limited purchasing power, even a relatively small increase in food prices can have serious consequences. The problem is particularly concerning because Pakistan faces both sides of the external shock simultaneously. Higher energy and fertiliser prices are increasing the cost of domestic agricultural production, while weakening agricultural exports are contributing to a deterioration in the food trade balance. This combination puts additional pressure on the country’s foreign exchange position at precisely the time when a more expensive food import bill may require greater foreign exchange outflows.
The immediate shock, however, is exposing weaknesses that have existed in Pakistan’s agriculture sector for decades. The country’s irrigation system remains inefficient and insufficiently modernised. Large quantities of water are lost, storage capacity remains inadequate, and agricultural production continues to be concentrated heavily around water-intensive crops. These structural shortcomings have become increasingly costly as climate change makes rainfall and water availability more unpredictable.
Agricultural productivity has also failed to keep pace with the country’s growing population and changing climate conditions. Greater productivity is essential not only for improving farmers’ incomes but also for ensuring a stable supply of affordable food for consumers.
Small farmers are particularly vulnerable to these pressures. Unlike larger agricultural enterprises, many smallholders have limited financial reserves and little ability to absorb sudden increases in fertiliser, fuel and transportation costs. A poor harvest combined with rising input prices can therefore quickly turn into a debt crisis for a farming household.
This vulnerability creates a broader economic problem. When farmers cannot absorb higher costs, they either reduce the use of essential inputs, cut production or pass higher costs on to consumers. None of these outcomes is desirable in a country already struggling with food insecurity.
Climate variability adds another layer of uncertainty. The possibility of an El Niño event next year, as flagged by the SBP, could further complicate the food inflation outlook. Weather-related disruptions can affect crop yields, water availability and agricultural prices, potentially creating another round of supply pressures before the effects of the current energy shock have fully disappeared. Pakistan therefore cannot afford to treat food inflation simply as another temporary component of the consumer price index.
Food prices have a much deeper social and economic significance. When food becomes more expensive, low-income households are forced to devote a larger share of their income to basic necessities. Families may reduce spending on healthcare, education and other essential needs. Children can suffer from inadequate nutrition, affecting their physical and cognitive development and ultimately reducing the quality of the country’s human capital. The reported figure that 46 per cent of the population faces hunger-like conditions makes the situation even more alarming. In such circumstances, persistent food inflation can quickly become a serious social and development challenge rather than merely a monetary-policy concern.
Pakistan cannot prevent wars in neighbouring regions or determine international energy prices. Nor can it control global fertiliser or freight markets. But it can reduce the extent to which external shocks are transmitted into domestic food prices.
That requires addressing the structural weaknesses of agriculture. Improving irrigation efficiency should be a priority. Water losses must be reduced, storage capacity expanded and modern irrigation technologies promoted. Crop patterns also need to be reassessed in light of water availability and changing climatic conditions. Continuing to encourage production patterns that place excessive pressure on scarce water resources is increasingly difficult to justify.
At the same time, agricultural productivity needs greater attention. Farmers require better access to quality seeds, technology, extension services, financing and reliable market information. Investment in agricultural research should focus on crops and farming practices capable of withstanding increasingly volatile weather conditions.
The government must also improve the resilience of agricultural supply chains. Better storage, transportation and market infrastructure can reduce post-harvest losses and limit the extent to which higher fuel and freight costs are passed on to consumers. Strengthening domestic food production would also reduce dependence on expensive imports when global prices rise.
None of these measures can eliminate food inflation. They can, however, reduce Pakistan’s vulnerability to external shocks. The present situation should therefore be viewed as a warning rather than merely another inflationary episode. Global energy markets may stabilise, regional conflicts may eventually ease and fertiliser prices may decline. But without structural reforms, the next external shock will once again expose the same weaknesses.
The SBP has identified the risk. The responsibility now rests with policymakers to act before higher energy and fertiliser costs, climate uncertainty and weak agricultural productivity combine into a broader food crisis. Food security cannot be achieved through short-term price controls or emergency imports alone. It requires a more productive, water-efficient and climate-resilient agricultural sector capable of protecting both farmers and consumers.
Pakistan may not be able to control the shocks coming from abroad. It can, however, determine how vulnerable its people remain when those shocks arrive. That is where policy action is most urgently needed.