Food Crisis Challenges Asian Leaders

Southeast Asian countries are struggling to curb food prices as energy costs climb. Many governments have banned rice exports to safeguard supplies, but economists say restrictions only drive world prices higher.

rice Thai farmers harvest rice in a field in Thailand's troubled southern Narathiwat province on April 26, 2008.
NEW YORK— High energy costs have sent food prices soaring throughout Asia and around the world, but misguided government policies could make the problem even worse, economists say.

Asia has been struggling with what the World Food Program (WFP) calls a “silent tsunami” of price hikes, threatening every continent and putting 100 million people at risk. For many more, rising prices mean declining nutrition and health.

Food prices are “a matter of daily struggle, sacrifice and... even survival” for some 2 billion people, World Bank President Robert Zoellick said April 29. The bank estimates overall food costs have jumped 83 percent in three years.

In one year alone, world wheat prices have climbed 130 percent, while rice is up 74 percent, the United Nations Educational, Scientific, and Cultural Organization (UNESCO) said.

Higher fuel prices are a major factor, pushing up planting, transportation, and fertilizer costs. New demand for biofuels has diverted food sources such as corn. But greater demand for grain and meat in emerging countries such as China has also played a part.

East Asia’s poor hit hard

China’s per capita meat consumption has surged 150 percent since 1980, according to the U.N. Food and Agricultural Organization (FAO). The agency estimates that it takes five to seven kilos of grain to produce each kilo of pork. Demand for pork is so high in China that prices reportedly rose 48 percent last year.

The pressure on Asia’s poor has been intense.

In Cambodia, for example, poor families spend 70 percent of their income on food, the World Bank said in an April report. By contrast, only 6 percent of household income is needed for food in the United States, the U.S. Department of Agriculture said.

“The middle class can substitute down from meat into grain, but the poor really just are between a rock and a hard place,” Tufts University economics professor David Dapice said.

The problems have hit hard in remote areas. In the northern Laotian province of Huaphan, prices for Grade A rice have grown to 5,000 kip (58 cents) per kilogram from 3,500 kip last year, the official Vientiane Times said.

Even in Thailand, the world’s leading rice exporter, consumers in the northeastern province of Ubon Ratchathani near Laos have switched to lower-grade grains due to price hikes of up to 48 percent.

The price spike may be temporary because world production of rice, wheat, and other commodities has never been higher, but the effects may be long-lasting, said Homi Kharas, senior fellow at the Brookings Institution and a former World Bank official.

Kharas worries that families will be forced to cut diets and take children out of school to work in the fields.

“Malnutrition does have long-term consequences, taking children out of school ... does have long-term consequences,” Kharas said in an interview, arguing that aid should be targeted to prevent such effects.

Making a bad situation worse

A vendor selling steamed-buns from a roadside stall gathers a bundle of leeks on April 23, 2008 in Beijing. Photo: AFP
But economists are also concerned that official policies are making a bad situation worse. Many governments have responded to price increases by banning food exports, hoping to boost domestic supplies. But these policies have backfired.

“Most recently, the sharp increase in prices has been in part the result of export restrictions that have been introduced by several countries, and this has really driven up the prices very rapidly,” Vikram Nehru, World Bank chief economist for Asia and the Pacific, said.

Nehru said that 26 countries have curbed exports so far. The result is a drop of supplies on the world market and the threat of shortages in importing countries.

“If everybody begins to do this, there’s very quickly a substantial choking off of rice supplies in world trade,” Nehru said. “And since demand continues to be there and continues to rise, this leads to a very substantial increase in prices.”

Export curbs spark hoarding

The export restrictions send all the wrong economic signals to the market, as well as to farmers. Threats of shortages and spiraling prices cause hoarding, shrinking available supplies. Farmers are also prevented from profiting by selling abroad, making them unwilling to invest.

“One can understand the politics of it because they’re trying to keep prices down locally, but the signal to farmers is to discourage further crop expansion,” Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington, said. The result could be even shorter supplies in coming months.

Nehru said the bank is urging governments to target aid for the poor while allowing prices to fluctuate so that farmers have the incentive to produce.

Spiralling fears

By failing to trust in world trade, governments create fears that will cause them to stockpile supplies and keep them from other countries, Kharas said.

“In international trade there is always the risk and the temptation of beggar-thy-neighbor policies, and I think this is a good example,” he said. Food shortages have already sparked riots and unrest in Egypt, Indonesia, and the Philippines.

While Thailand continues to export rice, countries including China, Cambodia, and Vietnam have all imposed some form of export restrictions. In Vietnam’s case, the curbs are scheduled to last until June.

‘Rice fever’ in Vietnam

Vietnamese Prime Minister Nguyen Tan Dung recently sought to calm fears with an unprecedented four-hour, live television broadcast with leaders from eight Vietnamese cities. He banned rice speculation after shoppers in Ho Chi Minh City rushed to buy up available supplies.

Dung threatened serious punishment for anyone trying to manipulate rice prices and said the country had more than enough rice to feed itself.

In Ho Chi Minh City, some rice varieties have surged 200 percent in price, according to the Vietnam Fast News Web site. Residents of Mekong River Delta cities such as Can Tho and Soc Trang have also bought and stored rice, while in the central areas of Qui Nhon and Hue the situation is worse.

Dapice, who also serves as economist for the Vietnam program at Harvard’s Kennedy School of Government, said the country stopped rice exports after traders over-committed at prices that were lower than they are now.

Paddy rice prices have climbed 85 percent in the past year, but the government has issued assurances that the country still has adequate stocks.
Crisis in Burma

In Burma, according to Australian economist Sean Turnell, economic conditions have worsened considerably since nationwide unrest in August and September 2007.

“The price of rice in Burma has increased by around 50 percent in the last year,” Turnell told RFA’s Burmese service, noting that Burma, decades ago, was a massive producer and exporter of rice.

Skyrocketing fuel prices and moribund tourism in the wake of the unrest and crackdown have made matters worse, Turnell said. A huge 70 percent of household spending in Burma goes toward the purchase of food, indicating a crushing level of poverty, he said.

Trouble in mountainous Laos

In Laos, rice millers’ association spokesman Somphone Chandy said prices appeared set to continue rising because the cost of fertilizer, pesticides, and irrigation has also surged.

Remote, mountainous Phongsali province brings in food from elsewhere in Laos—Oudomxai and Luang Namtha  provinces—because not enough food is produced to feed Phongsali’s 16,000 mostly rural residents.

“Presently we must buy rice from surrounding provinces,” Ounkeo Kong, the deputy director of the Phongsali trade and industry office, said. “In our area we still haven’t used fertilizer, so the price of fertilizer went up and we haven’t bounced back.

“We cannot increase the size of our fields, because there is very little flat land,” he added.

In Xekong and Savannakhet provinces, too, residents said, prices are skyrocketing.

“Things are expensive,” Savannakhet resident Thao Bounthanh said. “The price of rice and the price of food have shifted, but nobody has yet complained or called for help…The cost of living has increased, and people face hardship in paying for food.”

Hunger in Cambodia

In Cambodia, the poor have faced a crisis since the WFP was forced to halt rice supplies for 450,000 children at over 1,300 Cambodian schools in March. The problem came after suppliers failed to honor contracts due to rising prices and shortages.

Rice dealers demanded U.S. $620 per ton, more than double the price charged a year ago, and Thai B-grade rice has since increased to about U.S. $1,000 per ton, reports said.

Original reporting by Michael Lelyveld and RFA’s Burmese, Khmer, Lao, and Vietnamese services. Edited by Sarah Jackson-Han

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