World Bank sees winners, losers from food price spike

Global food prices hit a record high last month, the UN food agency said this week, outstripping levels that sparked riots in several countries in 2008. Policymakers are concerned that unchecked it could spark further unrest, protectionism and inflation.

World Bank Vice President Octaviano Canuto said the issue would be a major priority both the bank and G20 group of emerging and developed nations.

"It is a worry," he told Reuters in a telephone interview from his office in Washington. "For food importing countries, it will be negative for growth -- although in food producing countries it could increase income for poor farmers."

He said he feared prices could remain high for two years.

"If you look at supply and demand, I would expect prices to remain high and not just in 2011 but to 2012 as well. In time, there will be a supply response -- you can do things like improving crop yields, improving agriculture in poor countries -- but it will take time."

The urban poor for whom food made up the greatest proportion of household purchases would be the hardest hit, he said.

He said he did not believe the food price spike would have a serious impact on consumption habits in the emerging Asian economies that are seen as increasingly important for global growth.

"The idea that this will significantly impact raw economic consumption in emerging markets just does not work," he said. "When we're talking about emerging demand powering global growth, we're not talking about poor African countries. We're talking about growing middle-income mainly Asian countries. There, food makes up an increasingly smaller part of consumption. If there is an effect, it will be very modest."

LIKES CASH TRANSFERS

Canuto said the Bank was not currently looking at raising new funds from donors but it was open to requests from poor countries needing additional financial support -- although it said more important was that poor countries adopted the correct policies. He said he thought new requests were quite likely.

Based on the experience of 2008, he said cash transfers to the poorest appeared the most effective way of reducing the humanitarian impact on the poorest, while ratcheting up subsidies could leave countries struggling fiscally.

Overall, Canuto said the impact would be very varied among countries, particularly because a softer dollar -- which is helping drive commodity prices higher -- is also pushing some emerging currencies higher.

"That was not the case for every country, but for some it will reduce the effects," he said. "A lot depends on the consumption habits in a country -- which commodities they generally consume."

In 2008, swiftly rising commodity prices in part fuelled by short-term investors jumping in call for demands for greater regulation of commodity markets. But Canuto said he did not believe this would be necessary.

"We do not believe that commodity markets need regulation any more than other financial markets," he said. "We would believe that the market generally reflects the reality of supply and demand."