Michael Richardson, for the Straits Times 31 Jan 11;
IS ASIA on the edge of another food supply crisis that will stoke inflation, protection and political unrest?
Some recent developments suggest that it is. Many Asian countries, including China, India and Indonesia, are battling to curb soaring food prices.
Bad weather, rising affluence, increasing demand for grain-intensive meat and under-investment in agriculture have contributed to the rises. Low interest rates may also play a part, as investors use cheap money to trade in farm and energy commodities, driving prices higher.
If unchecked, this could hit consumer spending in Asia, which is leading the revival of the global economy. France, as chair of the Group of 20 leading economies this year, considers it a priority to have a collective response to 'excessive volatility' in food and energy prices.
Rising food costs have raised fears of a repeat of the global spiral in 2007 and 2008, when prices of rice and wheat, Asia's largest staple food items, rose sharply. Rice prices trebled in the six months to May 2008, prompting some exporting countries to restrict overseas sales to ensure there was enough for home consumption.
Rice is a key political barometer in the developing world, where it is the staple of more than three billion people, or over half the planet's population. About 90 per cent of rice is grown in Asia. When rice prices trebled in 2008, the World Bank estimated that an additional 100 million people were pushed into poverty.
Populous Bangladesh and Indonesia are importing substantial amounts of rice to build their stockpiles. Indonesia surprised the market last week by buying 820,000 tonnes of rice from Thailand, four times the volume initially sought, as it raced to complete a total order of 1.5 million tonnes by the end of next month.
The situation prompted the United Nations Food and Agriculture Organisation to issue a call to governments last Wednesday not to repeat past mistakes by taking action that could aggravate the problem, such as export restrictions.
Mr Richard China, director of the FAO's policy and programme development support division, added that the agency strongly advised against such measures, which 'provoke more uncertainty and disruption on world markets and drive prices up further globally, while depressing prices domestically and hence curtailing incentives to produce more food'.
However, the supply outlook for rice and wheat in Asia today appears to be significantly better than it was before the last food crisis, at least in the short term.
Thailand, the world's biggest rice exporter, has pledged to maintain this year's exports at 9 to 9.5 million tonnes, after shipping 9 million tonnes in 2009.
The Philippines, the world's biggest buyer of rice last year, said it would cut its imports this year by at least half, compared with record purchases last year.
Rice production and national buffer stocks in Asia are higher than those three years ago. The FAO forecast recently that the region's rice harvest last year would reach a record level of 627 million tonnes, 2.1 per cent more than in 2009. The improvement was mainly due to better harvests in India and the Philippines.
Early FAO projections for this year's wheat harvest in Asia pointed to a crop similar to last year's level of 224 million tonnes. This, too, was a record although prolonged drought in China's grain belt may reduce Asian wheat output.
Moreover, the rate of production increase for both rice and wheat lags behind population growth. As a result, prices are higher than they would otherwise be.
Averaging US$330 (S$425) per tonne in the first half of this month, the benchmark United States wheat price was about 50 per cent above its level a year earlier, although still 31 per cent below its record high in March 2008.
The International Rice Research Institute, based in the Philippines, says rice prices need to be brought down to about US$300 per tonne, a level that would allow Asia's 200 million rice farms to make some profit, yet would keep the grain affordable for poor rice consumers. To achieve this target, an additional 8 to 10 million tonnes of rice must be produced every year for the next 20 years.
This big challenge can be met in two ways: by expanding output in existing rice-producing countries and by enlarging the small circle of net rice exporters.
Expanding local production would involve improving yields, building irrigation schemes to convert rice land depending on rain to produce just a single crop each year into double- or treble-cropping rice systems, and converting land to rice production that is currently used for other agricultural activities.
At present, just four Asian countries - Thailand, Vietnam, India and Pakistan - account for about 70 per cent of the world's rice exports. The US provides another 12 per cent.
In Asia, only Cambodia and Myanmar appear to have enough suitable land to become surplus rice producers. Outside Asia, the main potential for extra rice production is in South America and Africa.
However expanded rice output is achieved, it will make a vital contribution to food security in Asia.
The writer is a visiting senior research fellow at the Institute of Southeast Asian Studies.
