January 12, 2011

South Korea to battle against food price hikes

South Korea has launched its plan on Tuesday (Jan 11) to combat the threat of rising food prices, as policymakers grow increasingly worried that inflation could ruin the global recovery.

Central bankers meeting under the auspices of the Bank for International Settlements warned on Monday (Jan 10) that rising prices in fast-growing economies were an increasing menace and it was important to anchor inflation expectations.

The G20 also weighed in late last week, promising action to find ways to bring down high food prices, which have already pushed food inflation in countries such as Brazil, China and India into double digits and forced farmers in Indonesia to guard their high-value chilli crops around the clock.

The United Nations food agency provided an uncomfortable reminder of the 2008 global food crisis, when riots erupted in several countries and others banned food exports, by reporting last week that world food prices had risen above 2008 levels.

In South Korea, where food makes up about 15% of the consumer price index (CPI), the government said it would increase the supply of vegetables, meats and fish ahead of Lunar New Year holidays that start at the end of January.

The government listed 16 agricultural and fish products for additional supplies after the country's President Lee Myung-bak declared a "war on prices" in the year's first cabinet meeting on January 4.

"The measure is aimed at keeping prices stable, as demand is increasing for those products ahead of the New Year holiday, and is also aimed at taming expectations of price volatility," said Lee Yong-jae, a finance ministry director in charge of the measures.

South Korea also said it would set up a trading company for the longer term to import grains directly. The move is part of anti-inflation measures due to be announced Thursday (Jan 13) after consumer prices rose in the year through December more than expected, led by food and fuel prices.

The grains trading company will be established in Chicago in the first half of this year to manage global food price volatility. The country imports 14 million tonnes of grain a year and the company will buy about 30% of the total in the future.

French Agriculture Minister Bruno Le Maire called for stricter regulation to avoid speculation on commodities leading to market swings. But he said the current situation was not as worrying as in 2008, thanks to a string of bumper harvests in Africa.