Coping with rising food prices in Asia

Global food prices are at the highest levels in history and it is likely that prices will remain high for several years. Governments, donors and international agencies must act to minimise the impact of inflation and food shortages, which hits poor communities in developing countries hardest.

Rising food prices have played a central role in accelerating inflation across Asia and the Pacific region during 2007 and early 2008. For example, high prices for rice and wheat directly affected three billion Asians.

Research from the International Fund for Agricultural Development, in Italy, looks at the impact of high food prices on poor people in Asia. Food prices in Asia may not have increased as dramatically as global prices, but inflation is set to have a long term impact.

In India, food price increases have slowed recently but inflation is still at 11 percent, up from 3 percent last year, and more people are being pushed into poverty. Poor people are suffering the most serious impacts; many are switching to cheaper, less nutritious food and reducing what they spend on non-food costs, such as children’s school fees. International organisations predict that malnourishment levels will rise, mainly due to higher food prices. 

The research shows:

• The price of crude oil affects food prices because it is needed for growing, processing and transporting food.
• Oil prices have plummeted recently, but it is uncertain whether this will result in lower food prices.
• Rising living standards in emerging economies such as China and India are increasing the demand for improved diets composed of more expensive commodities – this drives up food prices.
• The declining value of the US dollar is increasing the price of commodities quoted in dollars.
• The increasing demand for ethanol (made from corn) and biodiesel fuel (made from vegetable oils) also increases the global price of these commodities.

While some studies on this issue exaggerate the potential impact of global prices on poverty – the World Bank estimates there will be 105 million more poor people globally because of food price increases – the seriousness of the challenge is undeniable.

Policy responses so far have been ineffective. Countries that export food have introduced measures to restrict exports; Russian and Kazakhstan raised export taxes on wheat, for example. And importing countries have tried to increase buying – India reduced tariffs on wheat imports. But these measures have pushed prices up even further.

The researchers recommend that international agencies, donors and national governments:

• propose a new global institutional arrangement to suppress speculation and panicky government responses, for example a global grain reserve
• review World Trade Organization rules on export barriers
• examine targets for biofuel production, considering its impact on food supplies
• boost agricultural growth by helping small farmers through research, better access to services and natural resources, and improved markets and insurance schemes
• buy and distribute food aid in ways that benefit local economies and reduces costs, for example buying from local or regional markets
• enhance social protection measures such as targeted food distribution, integrated child development schemes and rural public works.

Source(s):
‘Soaring Food Prices: A Threat or Opportunity in Asia?’, IFAD Report, IFAD: Rome, by Ganesh Thapa, Raghav Gaiha, Katsushi Imai and Varsha S. Kulkarni, 2008

id21 Research Highlight: 26 January 2009

Further Information:
Ganesh Thapa
International Fund for Agricultural Development
Via Paolo di Dono
44 00142 Rome
Italy

Tel: 39 654591
Fax: +39 65043463
Contact the contributor: g.thapa@ifad.org

International Fund for Agricultural Development, Italy

Katsushi Imai
Department of Economics
School of Social Sciences
University of Manchester
Arthur Lewis Building
Oxford Road
Manchester M13 9PL
UK

Tel: +44 161 2754827
Fax: +44 161 2754928
Contact the contributor: katsushi.imai@manchester.ac.uk

Department of Economics, School of Social Sciences, University of Manchester, UK

Other related links:
id21 insights 73 ‘Improving the nutrition status of children and women’

‘The price of hunger: the relationship between poverty and food intake’

id21 classic: Poverty and famines