Higher food costs deepen misery in Asia

Last Updated 20 February 2011, 12:30 IST

And in China restaurant owners are feeling the squeeze. Inflation is climbing across Asia as the cost of food jumps, echoing the previous global food crisis, which peaked in 2008. While people in the United States and other wealthy western nations will barely feel the effects of higher prices, getting enough to eat is big challenge for tens of millions in Asia.

Poor families typically spend more than half their household incomes on food and are bearing the burnt. Global food prices have hit “dangerous levels” that could contribute to political instability, push millions people into poverty and raise the cost of groceries, according to a new report from the World Bank.

The report said global food prices have jumped 29 per cent in the past year and just 3 per cent below the all-time peak hit in 2008. The Bank’s president Robert Zoellick, said the rising prices have hit people the hardest in the developing world because they spent as much as half their income on food.

The Bank estimates the costlier corn, wheat and oil have pushed 44 million people into extreme poverty since June last. The World Bank’s food price index rose by 15 per cent between January and October alone. The increase was driven by volatile global trading in wheat, corn and soybeans. “There is no room for complacency,” Zoellick said. “Global food prices are now at dangerous levels, and it is also clear that recent food price rises are causing pain and suffering for poor people around the globe.”

He was worried that some countries might react to food inflation by banning exports or implementing price controls, which would only aggravate the problem. Wary of political unrest, governments are trying to keep food price inflation from spilling into rest of their economies. Officials face a tough dilemma as they raise interest rates to dampen inflation. Too fast and they will choke off economic growth, too slow and the problem could spiral out of control.

Liu Shaozhen, who runs a fast food restaurant in Beijing with her husband, said she was now paying 225 renminbi, or $34, for a 20 kg tub of salad oil, nearly double what it cost when they opened the business a few months ago.  Rice costs nearly 40 per cent more. But fierce competition means she cannot charge more or serve smaller portions. “I am not making any profits now, and actually I am losing money,” said Liu.

The UN Food and Agricultural Organisation said food costs had reached a historic high but that recent good harvests were staving off the kind of food emergency felt in 2008, when shortages and skyrocketing prices caused riots in poor nations.

Other experts fear that the worst is not over. In January, inflation hit 7 per cent in Indonesia and 8.2 per cent in India - where the cost of vegetables rose by almost two-thirds - while in China, it was near a 28-month high as food costs jumped more than 10 per cent.

“Just three years after the terrifying food crisis of 2007-2009, prices of the most important commodity of all are skyrocketing,” economists at the global bank Credit Suisse wrote in a report on food price inflation. “Asian inflation is amongst the most sensitive in the world to food price shocks and, despite the likely introduction of further food subsidies and other price controls, we have yet to reach the highwater mark of the latest one.” Huge swings in prices are characteristic of the latest bout of food inflation. In Indonesia, the price of chili peppers vaulted as much as tenfold in recent months because of heavy rainfall that decimated crops.

Some farmers took to arming themselves with machetes to guard their fields from chili rustlers, and even President Susilo Bambang Yudhoyono weighed in, urging people to grow the spicy staple in their own backyards. The Indonesian finance minister, recently, said that he would ask the Group of 20 major economies to press financial market players to not speculate on food prices, after ricing costs for staples like rice drove inflation in the country, the biggest economy in Southeast Asia, to a 21-month high last month.

“Indonesia wants the G-20 forum to be able to put pressure so there will be no speculators” on food commodities, Agus Martowardojo, the finance minister, said before a trip to a G-20 meeting this week in Paris. The causes of food price inflation are hotly debated, with explanations varying from country to country. But one common factor is extreme weather events that are occurring more frequently, wiping out crops. Floods in Australia, Pakistan and India have helped push up food prices, as have droughts in Argentina and Eastern Europe.

The UN food agency has warned that the worst drought in China in six decades is putting pressure on global wheat prices - already up a third since mid-November. Officials in China, the world’s largest wheat grower, announced $1 billion in spending to alleviate the problem with emergency irrigation and cloud seeding to make rain. Also, the Chinese central bank said recently on its website that it would use monetary tools, like guiding loans to the agricultural sector, to stabilise grain prices.

In India, onion prices shot up in January after unseasonable rains damaged crops in the western state of Maharashtra, the main producer. Anger over the high prices erupted into street protests, led by opposition parties, when prices for onions, a dietary staple in South Asia, nearly tripled to Rs 80 Kg, or almost $4 a pound, in December and January. India responded by quickly importing onions from its longtime rival, Pakistan. Prices have since stabilised at Rs 20 per Kg, helped by an export ban and a fresh harvest.

But over all, food prices are still higher than before, according to residents food vendors and restaurant owners. Indians are having to switch to cheaper substitutes, raising to concerns about possible malnutrition.

“I stopped buying meat for my family as onion was a major ingredient to eating seasonal vegetables, which cost much less,” said Rajesh Kumar, a government clerk with a wife and three children to look after. In other places, political instability is pushing up food costs. Chocolate prices to strife in Ivory Coast, which placed a one-month ban on cocoa bean exports.

Growing middle classes in Asia are also raising demand for food, as people with more income seek meals with more variety. Economists say higher energy prices also play a role, not only through higher transport and fertiliser costs but also by encouraging farmers to use more of their land to grow crops for bio-fuels.

(Published 20 February 2011, 12:30 IST)

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