Wednesday, July 2, 2008

Iraqis fret about food prices as violence falls

Iraqi housewife Najat al-Azzawi once lived in constant fear of car bomb attacks when she went shopping. Now, when she goes to the market in Baghdad her biggest concern is soaring food prices.

With violence at a four-year low, many Iraqis are fixated on the same thing worrying people around the world -- inflation.

It shows how much has changed in Iraq in the past year.

Many still fear widespread bloodshed will return after Iraq nearly slid into all-out sectarian civil war in 2006 and 2007. Indeed, a car bomb killed 63 people in Baghdad last week. But violence is not the main thing on their minds anymore.

As she prepared a meal of chicken kebabs and boiled potatoes for her husband, daughter and grandson, Azzawi rattled off the impact rising food prices have had on her household budget.

Half a kilo of chicken last week cost 2,250 dinars (90 pence), she said. This week it was 2,750 dinars. A jar of jam used to be 1,250 dinars, now it is 1,500 dinars.

"There goes my budget," added Azzawi, 58.

"But rising prices are better than the insecurity we had before. If I had to choose, I'd take the high prices."

In Baghdad, it is hard to have a conversation with anyone these days without the subject of food prices coming up.

"So security has improved, what's really hurting now are prices, which are getting worse," said supermarket owner Mohammed Jabbar as he packed hamburgers into his shop's freezer.

Spiralling food and energy costs pushed Iraq's annual inflation to 16 percent in April, the central bank said last week, up from a 17-year-low of 12 percent in December last year.

Rampant inflation is not new to Iraqis, who have lived through decades of war and U.N. sanctions.

Current levels compare favourably to the 66 percent annual inflation rate in January 2007, when raging violence disrupted fuel and food supplies, causing prices of goods to skyrocket.

In response, the central bank nearly doubled interest rates to 18 percent, eventually bringing inflation down. Now, rising global prices threaten those gains.

Poor harvests, low grain stocks and rising demand have sent global food prices to record highs. In the arid Gulf region, perennial water shortages have exacerbated these problems.

Although Iraq is more arable than some of its desert-covered neighbours, war and instability have left agricultural production in tatters. Most food is imported.

"We import the simplest things, even tomatoes and aubergines from Syria, Jordan, Iran and Turkey," said Batiaa al-Kubaisi, an economist and Director General of the Planning Ministry. "Costs go up there and consumers will pay higher prices here."


Ironically, the sanctions that hobbled Iraq's economy in the 1990s led to the creation of something officials say helps soften the blow of high global food prices: a rationing system.

Saddam Hussein introduced ration cards to cope with food shortages caused by sanctions imposed for his invasion of Kuwait in 1990. Iraq's Trade Ministry says this system still feeds nearly two thirds of Iraq's estimated population of 27 million.

Ministry spokesman Mohammed Hanoon said every Iraqi family gets a card entitling them to food through 55,000 outlets.

"Iraq's food aid system is effective," Hanoon said.

"The food crises causing violence in other countries hasn't hit Iraqis. They get rations. Not everything, but the basics: flour, rice, sugar."

Recipients are grateful for the aid.

"It makes food more affordable. I don't have the added burden of buying sugar or cooking oil," said Azzawi.

Yet economists doubt whether food handouts such as these are sustainable in the long run. The International Monetary Fund has repeatedly warned countries against what it sees as wasting money on non-discretionary subsidies and handouts.

Kubaisi said food rations had cost the Iraqi government $4 billion (2 billion pounds) in 2007 and the Planning Ministry had requested double that figure this year to cope with rising global prices.

But he said huge receipts from exports of crude oil at record prices meant Iraq could afford to maintain the system.

"Even with prices increasing, the government has the ability to pay. Iraqis get the same quantity and quality as before."

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