January 13, 2011

 

Grain crop price hikes bother Asian market

 

 

Rising grain crop costs in Asia are deepening concern among governments fearful of a repeat of the 2008 food crisis that fuelled riots across and beyond the region.

 

A global alarm bell was sounded last week when the UN's Food and Agriculture Organisation warned that millions of people were at risk after its world food price index broke through the peak 2008 levels to hit a record high.

 

The warning was swiftly echoed by World Bank president Robert Zoellick who said rising prices were "re-emerging as a threat to global growth and social stability".

 

In Asia, the inflationary upswing is causing serious jitters in the region's three most populous countries, China, India and Indonesia - seen as especially vulnerable to a further surge in the price of staples such as rice and wheat.

 

In India, Prime Minister Manmohan Singh called in his top cabinet ministers on Tuesday (Jan 11) to discuss the problem, with food inflation climbing above 18% and unseasonal rains in southern India threatening crop production.

 

Wary of the political fallout, Singh's government has already made efforts to keep prices in check, releasing rice and wheat stocks and extending a ban on the export of pulses.

 

But the finance ministry's chief economic adviser, Kaushik Basu, warned it was dangerous to over-estimate the strength of the government's hand.

 

"It is an utter mistake to think that it is fully within the control of the government to move prices of food up and down. Government is just an enabling body; it can only give signals, intervene strategically to keep the situation as much under control as possible," Basu said.

 

The food price surge is fuelling overall inflation and presenting India and China - whose fast-growing economies are both key engines of the global economic recovery - with tough choices when it comes to monetary tightening.

 

India's central bank pushed up interest rates six times in 2010, while China hiked its rates twice in the last three months of the year.

 

Economists say interest rates are a crude instrument to tackle rising food prices, however, which are influenced by a complex array of supply and demand factors.

 

The current price pressure is the combined result of bad weather affecting production in some countries, increasing Asian demand, export restrictions and speculation.

 

With food inflation at 11.7% in November, the Chinese government has vowed to ensure adequate supplies of food staples and to crack down on speculation in commodities markets.

 

Following a recent visit to China, the UN special rapporteur on the right to food, Olivier De Schutter, said Beijing needed to address issues such as soil degradation and a loss of arable land to ensure food security for the future.

 

"The recent food price hikes in China are a harbinger of what may be lying ahead. This situation should encourage China to move towards more sustainable types of farming," De Schutter said.