Little respite seen in rising food prices

Business Times 18 Feb 08;

(HONG KONG) Rising food prices have hit Asia's poor so hard that many have taken to the streets in protest, but analysts see few signs of respite from the growing problem.

An array of factors, from rising food demand and high oil prices to global warming, could make high costs for essentials such as rice, wheat and milk a permanent fixture, they say.

'The indications are in general pointing to high prices,' Abdolreza Abbassian, a senior grains analyst at the UN Food and Agriculture Organisation in Rome, told AFP.

The agency's figures show food prices globally soared nearly 40 per cent in 2007, helping stoke protests in Myanmar, Pakistan, Indonesia and Malaysia.

Yet, Asian economic growth is a key reason why prices rose, said Joachim von Braun, from the International Food Policy Research Institute.

'High growth in per capita income, especially in Asia, is driving demand for food,' said Mr von Braun, the Washington-based group's director-general.

At the same time, Asia's growth has left many of its poor behind, he added.

They spend between 50 and 70 per cent of their meagre incomes on food, making price rises especially debilitating.

'There was also a lack of investment in agriculture, particularly in science and technology and in irrigation,' Mr von Braun said.

Apart from overall higher food demand, changes in taste favouring meat are said to be pushing up prices, since farmed animals feed heavily on grain.

Drought and bad weather, high oil prices stoking transport costs, spiking biofuel demand and low reserves have also played their part, analysts say.

'In Australia, we lost almost a year of wheat due to drought,' said Katie Dean, an economist at ANZ Bank in Sydney.

Cold weather caused grain crops to fail in Europe and the United States, while bird flu culls and disease outbreaks hit Asian poultry and meat supply, she added, citing as an example pig diseases in China.

Elsewhere, Bangladesh is struggling to feed its poor after a 2007 cyclone destroyed US$600 million worth of its rice crop.

The price of rice rose around 70 per cent in Bangladesh last year. It now stands at around 50 US cents per kilogramme, but many Bangladeshis live on less than a dollar per day.

More recently, unexpected snowstorms swept across rice-growing areas in China, where rising food costs have already raised the fear of unrest.

Analysts are still wary of pinning the blame for these events explicitly on the impact of global warming.

But a Stanford University study found that climate change could cut South Asian millet, maize and rice production by 10 per cent or more by 2030.

Climate change, in particular the drive to cut greenhouse gas emissions from conventional fuels to curb global warming, has also driven demand for biofuels. The high cost of crude oil, which hit record levels in January, has made biofuel production more commercially viable.

Farmers are switching to growing crops such as corn or jatropha, a weed, to feed the biofuel industry rather than crops destined for the dinner table.

'Ambitious government biofuel targets are leading to pressure on prices and probably to some sort of structural increase overall in trend food prices,' said Ms Dean.

Thailand, for instance, now requires that all its diesel fuel includes a component made from palm oil, which is also used for cooking. However, the new regulation has sent palm oil prices soaring, contributing to shortages amid shrinking supplies.

The UN food agency's figures show the amount of US maize used for biofuel has doubled since 2003, and predict European wheat use for ethanol could rise 12-fold by 2016.

Such trends have led worried Asian governments to address the rise in food prices following popular unrest.

Indonesia has cut tariffs on soyabean imports, a staple food it gets mostly from the United States, and wants to curb its reliance on imports. Malaysia is to establish a national food stockpile. It recently arrested dozens of activists protesting food price rises.

Vietnam said that it would suspend rice exports, and India did so last year, said Duncan Macintosh, Manila-based development director for the International Rice Research Institute.

But while economists expect food supplies to rise somewhat in response to higher prices, Mr Macintosh said that others doubted it was that easy.

'Myanmar could increase rice production, Indonesia's got a bit of spare land, but there isn't some huge new area that could kick in quickly,' he said.

Urbanisation and industrialisation in Asia were eliminating farmland and soaking up scarce water resources, he added.

Meanwhile, government policies were trying to push people out of subsistence agricultural lives into the industrial sector and urban jobs. 'The key is to increase the productivity per hectare right across Asia,' he said. 'But that is a very long-term fix.'

'Even if prices fall,' cautioned Mr Abbassian, 'the chances they will come down substantially are perhaps not there.' - AFP