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ADB says rising food prices threaten Asia's poor

Associated Press - April 27, 2011

Kelvin Chan, Hong Kong – World food prices that surged 30 percent in the first two months of the year threaten to push millions of Asians into extreme poverty and cut economic growth, the Asian Development Bank said Tuesday.

The surging prices translated into domestic food inflation of 10 percent on average in many Asian economies, which could drive 64 million people into poverty, the bank said in a report, adding that it will also erode the living standards of families already living in poverty.

Food prices have been driven higher by surging oil prices, production shortfalls due to bad weather and export restrictions by several food producing countries.

If higher food and oil prices persist for the rest of the year, they could shave as much as 1.5 percentage points from economic growth in developing Asian countries, the report said.

Some countries will be hit harder than others. Singapore is highly vulnerable to inflation because the tiny city-state must import all its food. On the other hand, South Korea, where food accounts for a relatively small part of the consumer price index, will get off more lightly.

The rapid increases in the cost of food are a serious setback for the region that has rebounded rapidly from the global economic crisis.

Declining grain stocks, higher demand from Asian countries with big populations that are growing wealthier and a dwindling amount of agricultural land will continue to keep food prices high in the short term.

So will competition for food grains from biofuel production and stagnant or declining crop yields. Drought in China's major wheat-producing belt and flooding in rice-producing regions of Asia have reduced supplies of those crops.

ADB chief economist Changyong Rhee said food export bans and other short-term measures should be avoided. Instead, he urged greater spending to boost agricultural productivity and more investment to improve irrigation, food storage and other infrastructure.

"Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia," he said.

Poor families in Asia are hit much harder by food price inflation because they spend as much as 60 percent of their income on food, a much higher proportion than in developed countries. Asia's developing countries are home to two-thirds of the world's poor – about 600 million people – who live on $1.25 a day or less.

In contrast, people in the US and other wealthy countries spend about 15 percent of their income on food, so the impact on rising food prices on their wallets isn't as big. And a lot of the food sold in wealthy countries is processed, so manufacturing costs account for a bigger share of the final price.

The ADB is a development lender whose mission is to alleviate poverty through loans, grants and assistance projects.

Global food prices jumped 34.2 percent in February over a year ago following a 28.4 percent rise in January, according to the Food and Agriculture Organization's (FAO) benchmark index. Surging cereal, edible oil and meat prices were behind the increases.

The FAO warned that 29 countries in Africa, Asia, Middle East and Latin America and the Caribbean would need food assistance. Afghanistan and Pakistan are among those that will face severe food shortages in part due to factors such as social unrest and ethnic conflicts. Cambodia and Laos also face unfavorable prospects for crops due to delayed and erratic rains.

[Associated Press writer Hrvoje Hranjski in Manila contributed to this report.]

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