Food price rises in Asia threatening growth

A woman looking at price tags of vegetables at a supermarket in Seoul yesterday. South Korea is one of several Asian countries where food price inflation has already risen by double digit figures. -- PHOTO: REUTERS

MANILA: Sharp rises in food prices are threatening economic growth in Asia and could push millions more into extreme poverty, the Asian Development Bank said in a report released yesterday.

Food prices in Asia have increased an average of about 10 per cent so far this year, which the bank calculated could force an additional 64 million people in Asia below the poverty income threshold of US$1.25 (S$1.50) per person a day, if prices remain at current levels.

If food prices go up by more than 30 per cent over the year, then the poverty number will swell by 193 million.

There are currently about 903 million Asian people living in poverty, out of a total population of 3.3 billion.

'Whenever we say that Asia's growth rate is booming and Asia is a new global growth centre, people misunderstand the point,' said Professor Changyong Rhee, the chief economist of the bank, which is financed by governments and helps fund infrastructure projects around the region, among other activities.

'Asia is home to two-thirds of the world's poor. There is still a long way to go,' the South Korean added.

Asia is both a major contributor to global inflation and vulnerable to its effects.

Growth in China and India is blamed for pushing up prices of many commodities. Yet Asia's population density and uneven income distribution make people in the region especially susceptible to spikes in food prices, Prof Rhee said.

Poor are worst hit by rising food prices

The poor in Asia are much harder hit by rising food prices as they typically spend about two-thirds of their income on food, much higher than in developed countries.

Poor countries that are net food importers are the most vulnerable to the increases, Prof Rhee said, citing Bangladesh, the Philippines, India and Sri Lanka as examples.

A bigger concern is that local food prices for certain staples are rising faster than global prices. For example, between June last year and February, global rice prices increased by 16.8 per cent. However, domestic rice prices went up by 21.4 per cent in Bangladesh, 21.6 per cent in Indonesia, and 36.7 per cent in Vietnam.

A continued rise in prices for food and fuel could leave the region's consumers with less disposable income to spend on electronics, clothing and other products.

Inflation could also lead central banks to further raise interest rates.

Taken together, these factors could slow down economic growth of Asian nations, with Singapore projected to suffer the highest gross domestic product (GDP) drop by as much as 1.5 percentage points this year, based on the bank's estimation of 10 Asian countries.

If the trend continues, Singapore's GDP would drop by 0.8 percentage points next year.

The average dip in GDP across Asian countries is estimated to be around 0.6 percentage points.

Food price inflation has already risen by double-digit figures in countries such as China, India, Indonesia, South Korea, Pakistan, Sri Lanka, Vietnam and Bangladesh.

The rapid increases in the cost of food are a serious setback for the region, which has rebounded rapidly from the global economic crisis.

Much depends on whether global food prices continue to climb.

Last month, food prices dropped for the first time in eight months, although experts said this could be a slight pause before prices shoot up again.

On Monday, Barclays Capital, a securities firm, reported that food prices in Vietnam, one of the countries in the region that have been hit worst by inflation, rose 24 per cent this month over the past 12 months, the fastest pace in more than two years.

But Ms Prakriti Sofat, the analyst at Barclays who wrote the report, predicted that prices in Vietnam, especially of rice, would fall in the coming months as farmers who had been hoping for even higher prices sell off their stocks before the arrival of a new harvest.

'We believe rice prices should taper off as the spring harvest begins in May,' Ms Sofat said.

Prof Rhee also expects a moderation in food prices later this year, but he fears it could lull governments into inaction. 'It's time for us to talk about long-term investments in food to make sure this problem is not recurring,' he said.

The report stated: 'New farming techniques and crop varieties need to be developed and transferred to farmers to adapt to farming conditions that have increasingly become even more challenging, especially in the face of dwindling resources (such as agricultural land and water) and the adverse effects of climate change.'

NEW YORK TIMES, AGENCE FRANCE-PRESSE, ASSOCIATED PRESS

16.8%

Increase in global rice prices between June last year and February.

21.4%

Increase in domestic rice prices in Bangladesh.

21.6%

Increase in domestic rice prices in Indonesia.

36.7%

Increase in domestic rice prices in Vietnam.

Impact on Singapore: What the report says

SINGAPORE will be the hardest hit among 10 Asian nations, if food and fuel prices continue to soar, according to a report by the Asian Development Bank.

The report projects that the Republic's gross domestic product (GDP) could dip by as much as 1.5 percentage points if global food prices and oil prices both rise by 30 per cent throughout the whole of the year.

And if the 30 per cent rise persists through to next year, Singapore's GDP will go down another 0.8 percentage point, it predicted.

Singapore is highly vulnerable to inflation because the country must import almost all of its food and fuel.

The Republic's Trade and Industry Ministry's figures show that Singapore's economy grew by 14.5 per cent last year and it grew by another 8.5 per cent in the first three months of this year.