Catch 22

The political effects of rising prices 1/3
an interview with Leila Farsakh

BI: What kind of effect will rising food prices have on Palestinian society?

Farsakh: Rising food prices will have major effects on the Palestinian economy. The first way we're noticing it is with inflation. Inflation in Gaza has increased by 4.6 percent and in the West Bank by around two percent. People are already complaining about oil prices, which is one factor that affects food prices, and we know today that 36 percent of Palestinians are food insecure. That increase in prices is just going to increase demand for food aid.

So if you combine the fact that you have poverty at around 65 percent, which means that 65 percent of the population are living under two dollars a day, and all predictions are that food prices are going to double, that means two things: the international community will have to increase its aid and this aid will go mostly on food security. If the predictions are right, food insecurity will double and that's a significant amount.

The second is how to alleviate this food insecurity: is it going to be with cash, which then can raise inflation, or food, which will create unemployment. So we are in a catch 22 situation that can only aggravate the political and economic catastrophe we are living.

BI: Palestine has a significant agricultural sector. Is there not a way in which the international community can strengthen that sector to alleviate the effects of rising food prices, even take advantage of them?

Farsakh: There is a misconception that Palestine is mainly an agricultural society. Palestine was an agricultural society when the occupation started 40 years ago. Today, less than 15 percent of Palestinians work in the sector. During the second intifada and with the Israeli closures we've seen a return of labor to agriculture. But there is low productivity and low efficiency because of the financial and political constraints on production. For instance, we don't have a significant rise in percentage of land use.

There has been a doubling of vegetable production over the last ten years, which is not insignificant. But at the same time there has been a drop in cash crops, most importantly for flour. That is largely because of constraints in exports, that you can't export anything. What is happening with vegetable production and crops is that they have become localized, since you can't get Gaza produce to Hebron or Hebron produce to Ramallah.

What we conclude from that is we have an agricultural sector that has become a reservoir for labor. It is productive, but not efficient enough, partly because of a lack of investment but mainly because of lack of export markets and accessibility even to local markets. Rising food prices should improve the chances of production, but if there is no access they won't help.

BI: Potentially, then, 60 percent of Palestinians are likely to end up food insecure. What can the government do?

Farsakh: The government has limited resources, cannot increase taxes on the population and depends on customs revenue from Israel. The only avenue it has is international aid. And we already have a lot of international aid, we are among the most subsidized countries in the world, about a quarter of GDP, so the PA cannot do much.

What it can do is try to solve the political crisis and the crisis of negotiations, but it seems to me at this particular junction that Annapolis is not going anywhere and the Israelis don't seem very interested in reaching a solution. If the PA wants to do something it should consider dissolving itself and let the international community and Israel take responsibility for what is going on. This of course would be a major political and economic move. I don't think the situation will improve as a result, in fact it will worsen before it improves. But I think we have reached a stalemate on the economic, political and diplomatic level and maybe it will do more good in the long run to dissolve the PA than to continue in this way.

BI: Do you think the rising food prices alone could force such a situation?

Farsakh: We have to see what are the manifestations of rising food prices. In Egypt rising food prices will lead to demonstrations. In the West Bank I do not see that rising food prices will lead to strikes or demonstrations against the PA because everybody is aware of the limitations of the PA. We had that crisis last year when the Hamas government was suffering from the international boycott and still is in Gaza. The real question is will the food crisis create a situation as bad and alarming as the international boycott. I do not see that happening in the short run, though it may happen in the long run.

Leila Farsakh is a US-based political economist currently teaching at Birzeit University. - Published 29/5/2008 © bitterlemons-international.org