Food Price Hikes Add To The Woes Of The Impoverished

[webfact]

EDITORIAL

Food price hikes add to the woes of the impoverished

By The Nation

Inflationary pressure and the risky monetary policies of developed nations are causing disruption to Asia's long-term economic recovery

Global food prices are on the rise. In the first two months of this year, food prices have posted record increases. Governments worldwide are on the defensive. Millions of people in Asia are being pushed into extreme poverty. A new report from the Asian Development Bank (ADB) titled "Global Food Price Inflation and Developing Asia" has warned about the difficult times ahead. The report says that fast and persistent increases in the cost of many Asian food staples since the middle of last year, coupled with the crude oil price reaching a 31-month high in March, are a serious setback for the region. Asia's rebound from the global economic crisis seems short-lived as inflation and food concerns in particular threaten to destabilise the social and political environment.

The recent crises in Tunisia and Egypt, which have seen a change in government, were due to the rising cost of living and high unemployment. In part, this economic crisis has spilled over into regional turmoil, with Libya facing a full-blown war. In Asia, according to the ADB, domestic food inflation in many regional economies averaged 10 per cent in early 2011. The ADB study finds that a 10 per cent rise in domestic food prices in developing Asia, home to 3.3 billion people, could push an additional 64 million people into extreme poverty based on the US$1.25 a day poverty line.

"For poor families in developing Asia, who already spend more than 60 per cent of their income on food, higher food prices further reduce their ability to pay for medical care and their children's education," said ADB chief economist Changyong Rhee. "Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia."

Asia is now bearing the brunt of the policy mistakes and the economic crises in the developed nations, which have resorted to extremely loose monetary policy to revive their economies without resorting to the painful course of financial and economic restructuring. The US Federal Reserve has been monetising government debts, printing new money to pay for the old money because the government has been running huge deficits. With interest rates touching almost zero per cent, the cheap dollar has driven up commodity prices and the financial markets are creating bubbles. Since investors are worried about the future outlook of the reserve currency status of the dollar, they have shifted their funds into hard assets, including oil. With higher oil prices and higher commodity prices in general, inflation and a food crisis will ensue.

The United States has blamed China for causing massive global imbalances because it has kept its currency artificially low through a currency peg regime. But China has retorted that the US should restructure its economy and financial system rather than blame someone else.

The spectre of conflict between the superpowers does not bode well for the international community. The ADB report adds that if the global food and oil price hikes seen in early 2011 persist for the remainder of the year, economic growth in the region could be reduced by up to 1.5 percentage points. Already, Thai economic growth has been revised downward from 4.2 per cent to 3.7 per cent on global inflationary pressure and the impact from supply shocks from Japan, which is still reeling after its earthquake, tsunami and nuclear disasters.

In the short term, the pattern of higher and more volatile food prices is likely to continue the report says, noting that global grain stocks have fallen. Rice prices are likely to continue their uptrend as the effects of the weather pattern La Nina persist, prompting consumers to seek less costly and less nutritious substitutes.

"To avert this looming crisis, it is important for countries to refrain from imposing export bans on food items, while strengthening social safety nets," said Dr Rhee. "Efforts to stabilise food production should take centre stage, with greater investments in agricultural infrastructure to increase crop production and expand storage facilities, to better ensure grain produce is not wasted."

-- The Nation 2011-04-29

[trogers]

What's the fuss? Less disposable income for booze and lottery tickets?