Asia food inflation may hurt recovery

Manila: Asia must tackle food price inflation aggressively to preserve economic gains and protect some of the world's poorest people now that the region's recovery has gathered strength, the Asian Development Bank's (ADB) chief economist said.

In an interview coinciding with the issuing of an ADB report, Changyong Rhee acknowledged that food price rises, if left unchecked, could generate instability. But he said Asian leaders were well aware of the danger and could take action to guard against the sort of unrest gripping the Middle East.

"The reason why we are emphasising food inflation more than the recovery aspect is that unlike the last two years, Asia's economic recovery is on more firm ground," he said on Tuesday evening in his office at ADB headquarters.

Social instability

"And rising food prices can cause some social instability too." He said the ADB expected global food prices, which have risen 30 per cent, to steady at these higher levels in the second half of the year.

Food accounts for a higher proportion of consumer spending in Asia, according to the ADB — 40 per cent or more in the consumer price indexes of Bangladesh, Cambodia, India, Pakistan, Philippines, and Sri Lanka — and the continent's 3.3 billion people include two-thirds of the world's poor.

The ADB report said food price inflation in Asia of around 10 per cent in early 2011, could pull more than 64 million people below the poverty line of $1.25 a day if sustained.

And a failure to act, the multilateral lender said, could have far-reaching consequences.

"Efforts to stabilise food prices must take centre stage," the report said. "Otherwise, the riots that are occurring in some regions may spread to other parts of the world."

Oil prices

The ADB said the food price rise compounded by a projected 30 per cent increase in oil prices could reduce growth by as much as 1.5 percentage points.

But oil price rises had already exceeded that in annual terms, Rhee said, and if sustained the impact on growth could therefore be higher.

Rhee said many of of Asia's pooreer countries imported large amounts of food, making them among the most vulnerable to rising prices. And they had no large foreign exchange reserves or the fiscal ability to fund large assistance measures. But he said policymakers would find a solution, even if it was not perfect.

Food programmes

"That is why each government is really focused on short-term measures such as providing subsidy and food programmes, trying to stabilise domestic food prices and building up social safety nets," he said.

"Given that many policymakers understand this problem, I don't see any short-term risk of having this kind of instability in the region."

That said, food security would be a recurring issue that needed long-term solutions such as investment, infrastructure, better productivity and crop yields.

The problem, Rhee said, was that once prices stabilised or moderated, political and media interest faded quickly.