Long-term solutions to food crisis needed now

World Economic Forum: Price hikes caused mainly by government policies, says key speaker
Hazlin Hassan, Straits Times 17 Jun 08;

KUALA LUMPUR - GLOBAL business leaders and Asian policy-makers yesterday urged governments to urgently implement long- term solutions to reduce the impact of spiralling food and fuel prices amid warnings that it could spark social unrest and protectionism.

The food and fuel crises dominated discussions at the two-day World Economic Forum (WEF) on East Asia, an annual gathering of businessmen, politicians, policy-makers and analysts.

Mr Peter Brabeck-Letmathe, chairman of the Swiss-based multinational food company Nestle, attributed two-thirds of the food price hikes to policy moves.

He said only about 10 per cent of the food price increase is due to spiralling cost of fuel while another 10 per cent is due to changing lifestyle, referring to increasing demand in China and India.

He blamed about one-third of the price hike on governments promoting increased biofuel production, saying that one-third of corn production in the United States will go into biofuels.

Another third is due 'to political decisions to stop exports', he told a panel discussion, referring to countries such as Argentina, Kazakhstan and Ukraine.

He added that governments are also to blame for distorting agriculture prices with subsidies.

Malaysian Prime Minister Abdullah Badawi has warned of a 'real disaster' unless bold steps are taken to tackle the global inflation crisis.

'About 100 million or more people have descended into poverty worldwide while low and middle-income groups everywhere are feeling the strain of increased food prices on their budget,' he said late Sunday.

He urged developed nations to think again on issues such as the much-criticised farm subsidies, as well as a shift towards biofuel production.

Mr Michael Roux, chairman of Australian investment bank Roux International, believed oil prices would collapse if the US goes into a recession.

'We are seeing lots of distortions in the market, and we are just paying the price for some of these distortions,' he said, citing the diesel stockpile by China ahead of the Olympics as an example of a short-term distortion that has pushed up prices.

Tun Musa Hitam, chairman of Malaysia's Sime Darby, the world's largest palm oil company, said governments should seek long-term solutions rather than knee-jerk reactions.

He blamed the rising prices on 'political inability and a lack of political will'. 'At the government level, they have to get their act together,' he said.

Malaysia this month increased fuel prices by up to 63 per cent, fuelling protests across the country.

The soaring cost of food and fuel has led to unrest in Indonesia, the Philippines and Spain.

Indonesian Trade Minister Mari Pangestu urged countries not to panic in response to the crisis.

'It's important not to panic. It is something that we globally cannot afford. When you panic you may not undertake the appropriate policies.'

She said the rise in prices is already leading to protectionism although it hasn't led to 'actual sanctions'.

She said Indonesia has introduced programmes to help the poor by offsetting the impact of higher prices.

For example, it has reduced import tariffs and VAT tax related to agriculture products and also encouraged farmers to boost soya bean production, she said.

Mr Ahn Ho-Young, South Korea's Deputy Trade Minister, said his government has announced a US$10 billion (S$13.7 billion) programme to help low-income workers and small enterprises, as well as cut its dependence on foreign oil.