Asian nations grapple with soaring food prices

Pork prices were up 57 per cent in June in China, leading Prime Minister Wen Jiabao, to vow to curb inflation even as growth slowed. India had to buy onions from Pakistan this year, and Indonesia told spice lovers to grow their own chilies as shortages stoked prices. A wider variety of diet and greater purchasing power for nonfood items leave wealthier nations less vulnerable to spikes in the cost of food.

Food makes up more than 30 per cent of inflation indexes on average in Asia, compared with about 15 per cent in Europe and less than 10 perc ent in the United States, according to Rabobank. The sensitivity of their economies to swings in meat and vegetable costs means emerging-market policy makers need to raise interest rates more to stem inflation when global agriculture prices soar.

“People can’t change their diets overnight,” said Song Seng Wun, an economist at CIMB Research in Singapore who has analysed Asian economies for more than two decades.

“All monetary policy can do is to try to contain what is perhaps a supply disruption issue from broadening to the wider economy.” The price of rice, the staple food for about half of the global population, has surged 69 per cent in the past year, according to futures traded on the Chicago Board of Trade. The export price of rice from Thailand, the world’s biggest exporter, has jumped 23 per cent.

Within Asia, home to 60 per cent of the world population, food’s weighting in consumer price indexes varies from about 45 percent in the Philippines and India to more than 30 per cent in China and about 10 percent in South Korea, Rabobank said.

“For low-income countries, food expenditures normally account for a larger share of the consumption basket,” said Yao Xianbin, director general for the regional and sustainable development department at the Asian Development Bank in Manila. “As countries get wealthier, food expenditure will account for a declining share of total expenditure.” Outside of Asia, Mexico has also seen challenges from reliance on a relatively limited diet.

An increase in the cost of tortillas prompted a slump in 2007 in Mexican bonds and the peso. President Felipe Calderon arranged a price freeze with tortilla makers, and the central bank raised rates into 2008 even as the global financial crisis took hold. Higher food costs have benefited some Asian food companies.

The Asia Pacific Food Index of 50 stocks, compiled by Bloomberg, is up about 8 percent in 2011, while the MSCI AC Asia Pacific index is down 0.6 per cent. Pork prices have lifted the shares of producers like Henan Chuying Agro-pastoral, which has risen 17 per cent this year.

In China, the rise in pork prices made up more than a fifth of the overall inflation rate in June. Chinese will eat an estimated 38.8 kilograms, or 85.5 pounds, with 9.6 kilograms of chicken and 4 kilograms of beef, according to the U.S. Department of Agriculture.

Inflation has breached the Chinese government's 4 per cent target for 2011 every month this year, with consumer prices up 6.4 per cent in June from a year earlier, the sharpest increase in three years. The nation has raised lending rates five times since mid-October.

The nation should invest in research for hog producers to help steady costs, Shenggen Fan, director general of the Washington-based International Food Policy Research Institute, said in an e-mail.

World food prices held near a record in June as the cost of sugar, meat and dairy products increased. An index of 55 food commodities rose to 233.8 points in June from 231.4 points in May, the UN. Food and Agriculture Organisation said July 7. The index climbed to an all-time high of 237.7 in February. A fivefold jump in Indonesian chili prices last year made the product costlier than beef, The Jakarta Globe reported in January.

The Indonesian agriculture minister, Suswono, who goes by a single name, said at the beginning of 2011 that the government would distribute chili seeds to 100,000 households, the paper said. Bank Indonesia, while trailing counterparts from Thailand to Malaysia this year, raised rates in February.

In India, where the price of onions has at times become an election issue, the central bank has raised rates 10 times since the start of 2010. The country, one of the world's biggest onion growers, said in December that it would buy the vegetable from abroad and banned exports after excess rainfall damaged crops and drove prices higher.

About 42 per cent of Indian house-holds are vegetarian and rely on pulses — the edible seeds of leguminous plants, like lentils — for protein, according to a report submitted to the FAO by the International Food Policy Research Institute. The country accounts for 73 per cent of the world’s production of tur dal, one of its staple seeds.

“Some part of food inflation is due to higher prices of staple pulses, which are very specific to India,” said Shubhada Rao, chief economist at Yes Bank, based in Mumbai. “It is very specific consumption, and there is no adequate supply of these commodities in the global market.”

Indian food-price inflation quickened to a three-week high of 8.31 percent for the week ended July 2. The nation's benchmark wholesale price index was up 9.44 percent last month from a year earlier, after a 9.06 per cent increase in May.