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‘High food prices a new threat to Asia'

Special Correspondent
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Resurgent global food prices, which averaged 10 per cent in many economies and posted record increases in the first two months of this year, may push nearly 30 million Indians and 64 million people in the Asian region into extreme poverty, the Asian Development Bank (ADB) warned on Tuesday.

In a report titled “Global Food Price Inflation and Developing Asia,” the Manila-based bank said that a 10 per cent rise in food prices would push as many as 23 million Indians living in the rural areas and 6.68 million in the urban areas to below poverty line (BPL) at $ 1.25 (around Rs. 55.65) earnings a day.

In case the food price hike is to the extent of 20 per cent, the resultant impact would push 45.64 million in the rural areas and 13.36 million in the urban areas into extreme poverty in India.

The report pointed out that while food prices were expected to continue a gradual ascent in the wake of a spike in 2008, the “fast and persistent” increases in the cost of many Asian food staples since the middle of last year, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region, which has rebounded rapidly and strongly from the global meltdown.

“For poor families in developing Asia, who already spend more than 60 per cent of their income on food, higher food prices will further reduce their ability to pay for medicare and their children's education,” ADB's Chief Economist Changyong Rhee said. “Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia.”

The report noted that if the global food and oil price hikes witnessed in early 2011 continued for the rest of the year, economic growth in the region could get reduced by up to 1.5 percentage points. “In India, Indonesia, and Malaysia, in particular, the adverse effects of the increase in global food prices in 2011 tend to take a larger toll on the GDP [gross domestic product] growth in 2012, than in 2011.”

It noted that food price inflation had reached double digits in Bangladesh, China, India, Indonesia, Republic of Korea, Pakistan, Sri Lanka, and Vietnam. It pointed out that countries such as China, India, Indonesia, Korea, Malaysia and Thailand were fighting inflation through tighter monetary policies. “To the extent that inflationary pressures are supply-driven, as in 2007–2008, higher interest rates may be less effective in controlling it,” it said.

While lauding India's increasing investment in agriculture to bolster productivity and keep food prices in check, the report projected the pattern of higher and more volatile food prices in Asia to continue in the short-term, especially when grain stocks had fallen. Adding to this were structural and cyclical factors that were at play during the 2007-2008 crisis, including rising demand for food from more populous and wealthier developing countries, competing uses for food grains, shrinking available agricultural land, and stagnant or declining crop yields, it said.

The report noted that production shortfalls caused by bad weather along with a weak U.S. dollar, high oil prices and subsequent export bans by several key food-producing countries had caused much of the upward global price pressure since June last, with double digit increases seen in the prices of wheat, corn, sugar, edible oils, dairy products and meat.

“To avert this looming crisis, it is important for countries to refrain from imposing export bans on food items, while strengthening the social safety nets,” said Dr. Rhee. “Efforts to stabilise food production should take the centre stage, with greater investments in agricultural infrastructure to increase crop production and expand storage facilities to better ensure [that] grain produce is not wasted.”

10% hike in costs is likely to affect nearly 30 million Indians

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