No quick fix to soothe Asia's rice shortage fears

Business Times 28 Apr 08;

Policymakers should focus on sustainable increases in productivity

(MANILA) Asia's fear of impending rice shortages looks to have become something of a self-fulfilling prophecy and exposed the over-reliance of many of the region's economies on food subsidies and other market-imbalancing steps.

Economic analysts and experts said that the sense of crisis should begin to ease with harvests arriving in markets in coming weeks, but policymakers should take this as a wake-up call to start focusing on sustainable increases in productivity.

Spooked by the possibility of a shortfall and surging prices, Asian nations have in recent weeks slapped export curbs on their staple food and subsidised prices, reversing years of economic reform. The measures have helped stoke inflation and sowed more panic, the analysts said.

'The current rice crisis is sort of man-made,' said Randy Barker, acting head of Philippines-based International Rice Research Institute's social sciences division. 'We sort of created this situation by restricting exports and even on the imports side, countries are trying to build stocks.'

Trade officials are now urging the World Trade Organisation (WTO) to push food-producing countries to maintain exports to prevent a worsening of the crisis.

'At the moment, there is no shortage but the controls are based on the national security point of view. It's a decision by governments,' said Kazuyuki Tsurumi, representative of the Food and Agriculture Organisation of the United Nations in Manila. 'When the harvest in 2008 becomes clear, maybe some countries' export bans will be relaxed or lifted, I hope.'

Because rice is a staple in most Asian nations and any shortage could lead to unrest and instability, governments are extremely sensitive to its price. Food prices have led to deaths in street protests elsewhere in the world in recent weeks.

In Asia, workers have rioted in Bangladesh over soaring food costs and there is unease, although no violence, in Indonesia and the Philippines, among the world's biggest rice importers.

The current rice crisis has not only challenged some Asian governments' commitment to free trade, analysts said, but has exposed the soft underbelly of fundamentally healthy economies.

On the face of it, the region's economies are healthier after ambitious reforms following the turmoil of the 1997/98 financial crisis. Governments beefed up their balance sheets with current account surpluses and banks strengthened their capital bases. But without strong welfare systems to provide a safety net for millions of people living close to subsistance levels, governments still fall back on food and fuel subsidies as their main social policy.

'It has been a main tool of this (Philippine) administration and past administrations but there are moves to see if this can be avoided in the future,' said Jose Mario Cuyegkeng, economist at ING Bank.

India, the world's second largest rice exporter in 2007, and Vietnam have imposed trade bans. Indonesia has raised planned food subsidy spending in its revised 2008 state budget. In the Philippines, the state's National Food Authority could be almost US$1 billion in the red this year against about US$62 million last year, newspapers have said.

Price controls are quick, costly to governments and they tend to become entrenched over time, analysts said. Instead, the authorities should target financial help to special groups and boost investments, Mr Cuyegkeng said.

'It's making sure that the next harvest season will produce a better yield. To a certain extent, it's a wake-up call to attend to the agricultural sector.' - Reuters