Asian, Pacific states to see higher food prices
Sunday, 30 March 2008

Food prices in the Asian and Pacific states, including Bangladesh, are expected to remain high, says a UN report, according to Internet.

Grains and oilseeds, key feedstuffs in the production of bio-fuels, led to a marked increase in agricultural commodity prices in 2007, selling at the highest prices in almost 30 years, says the report published on Thursday.

The annual survey the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) says country’s inflation in 2007 remained virtually unchanged from 2006, standing at 7.8 per cent.

However, food inflation was even higher, at 10.3 per cent, affecting people living on low and fixed incomes. The inflation was fuelled by global increases in some commodity prices, higher utility tariffs, and by local supply- and demand-driven factors.

To contain food inflation, the government expanded the network of utility stores, extending it even to rural areas. The State Bank of Pakistan responded to high inflation by tightening its monetary policy.

However, the problem of inflation cannot be tackled without addressing the large budget deficit, and it is expected to remain around last year’s level, points out the survey.

The cost of oil reached 100 dollars per barrel in January 2008; soybean prices jumped to a 34-year high; corn prices approached an 11-year high; wheat prices were just under their recent all-time high; rapeseed prices rose to record highs; and palm oil futures hit a historic high.

With an advance movement towards use of bio-fuels, the region must prepare for higher food prices, warns the UN report on region’s performance. For many countries in the region, food prices are a bigger inflationary concern than oil prices since food accounts for a far higher proportion of consumer spending, the survey points out. Because higher prices for food affect low-income households so severely, governments may need to consider providing subsidies to the poor in the form of food stamps or cash, suggests the report.

Agriculture provides employment to 60 per cent of the working population in the Asian and Pacific region. Four decades of neglect of agriculture has, however, weakened the sector’s capacity to lower poverty and inequality. Growth and productivity in agriculture have been slowing, and the “green revolution” that boosted agricultural yields in the 1970s has bypassed millions, it says. Agricultural labour productivity has a significant impact on poverty reduction.

Estimates by ESCAP show that a one per cent increase in agricultural productivity would lead to a 0.37 per cent drop in poverty in the Asia-Pacific region. Given the large agricultural labour productivity gaps among countries in the region, the potential gains appear to be substantial.

The survey proposes a two-pronged strategy to ensure that agriculture is both economically and socially viable, restoring its vital role as an engine for reducing poverty and inequality. According to the survey, developing economies in the Asia-Pacific region, having enjoyed their fastest growth in a decade, are expected to see it moderate to 7.7 per cent in 2008, a slight reduction from the growth rate of 8.2 per cent in 2007.

The main short-term challenge to economic prospects comes from the still unravelling sub-prime crisis in the US and its impact on world economy. Over 600 million of the world’s poor still live in Asia, nearly two thirds of the global total, mainly in rural areas.

Other statistics are equally staggering. As many as 97 million children remain underweight, and four million die before reaching the age of five.

While the region is well prepared to ride out the current turbulence in the global economy, smaller economic shocks can severely affect those most vulnerable in the population.

The survey says that increasing agricultural productivity in the region can have a profound impact on reducing poverty and proposes a two-track strategy to ensure that agriculture is both economically and socially viable. By October 2007, developing economies in the Asia-Pacific region had accumulated 3.4 trillion dollars in foreign reserves, up from 2.7 trillion dollars at the end of 2006.

While reserves have been accumulated partly as a buffer against financial crises, the rapid increase has also been the result of a struggle to control the appreciation of regional currencies, says the survey.

Asia faces a sharp rise in food costs, due partly to surging demand for crops used in biofuels, and governments should do more to shield the region’s poor from economic shocks, a U.N. commission said Thursday Economic growth in the region will slow as the U.S. credit crisis hurts demand for exports, but a robust expansion in China and India should help Asia avoid a major slump, the U.N. Economic and Social Commission for Asia and the Pacific said in a report.

“Rapidly rising food prices will be the key challenge in the coming year,” Shuvojit Banerjee, an economist for the commission, said at a Beijing news conference.

“With the march towards biofuels apparently unstoppable, the region has to prepare for sustained inflation through higher food prices.”

Economic output for the sprawling region, which stretches from Japan to Georgia, should grow by 7.7 percent, down from 8.2 percent in 2007, the commission said. It said inflation should ease to 4.6 percent, down from 5.1 percent last year, though price rises in countries such as China will be higher.

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