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Thursday, Feb. 3, 2011

Food crisis threatens Asia


SINGAPORE — Is Asia on the edge of another food supply crisis that will stoke inflation, protection and political unrest?

Some recent developments suggest that it is. Many Asian countries — including the biggest emerging economies China, India and Indonesia — are battling to curb soaring prices of some food items.

The farm ministry in Japan, Asia's second-biggest wheat importer, signaled recently that it planned to raise prices for flour millers as early as this month. This follows weather damage to wheat crops in Australia and North America, the main sources of supply to Japan where flour is used to make bread, noodles, dumplings and cookies.

In Asia, bad weather, rising affluence, increasing demand particularly for grain-intensive meat, and under- investment in agriculture, have all contributed to food price inflation. Low interest rates may also be playing a part, as investors use cheap money to trade in farm and energy commodities, driving prices higher.

If unchecked, this could hit consumer spending in Asia, which is leading the revival of the global economy. France, as chair of the Group of 20 leading economies this year, says it should be a priority of the group to craft a collective response to "excessive volatility" in food and energy prices.

Rising food costs have raised fears of a repeat of the global spiral in 2007-2008, when prices of both rice and wheat, Asia's largest staple food items, soared. Rice prices tripled in the six months to May 2008, prompting some exporting countries to restrict overseas sales to ensure there was enough for home consumption.

Rice is a key political barometer in the developing world, where it is the staple of more than 3 billion people, over half the planet's population. About 90 percent of rice is grown in Asia.

When rice prices tripled in 2008, the World Bank estimated that an additional 100 million people were pushed into poverty.

Populous Bangladesh and Indonesia are importing substantial amounts of rice to build their stockpiles. Indonesia recently surprised the market by buying 820,000 tons of rice from Thailand, four times the volume initially sought, as it raced to complete a total order of 1.5 million tons by the end of next month.

The seemingly precarious food supply situation prompted the United Nations Food and Agriculture Organization to issue a call to governments on Jan. 26 not to repeat past mistakes by taking action that could aggravate the problem.

"Export restrictions, for example, applied by some surplus food-producing countries, exacerbated the global food market situation during the 2007-2008 crisis," said Richard China, director of the FAO's Policy and Program Development and Support Division.

He added that the agency strongly advised against such measures because "they often provoke more uncertainty and disruption on world markets and drive prices up further globally, while depressing prices domestically and hence curtailing incentives to produce more food."

World food prices climbed 25 percent last year to a record in December, mainly reflecting higher sugar, grain and oilseed costs. However, the supply outlook for rice and wheat in Asia today appears to be significantly better than it was before the last food crisis, at least in the short term.

Thailand, the world's biggest rice exporter, has pledged to maintain 2011 exports at up to 9.5 million tons, after shipping 9 million tons in 2009. The Philippines, the world's biggest buyer of rice last year, said it would cut its 2011 imports by at least half, compared with record purchases in 2010, further easing worries about a tight rice market this year.

Rice production and national buffer stocks in Asia are higher than three years ago. The FAO reported recently that the region's rice harvest in 2010 was forecast to reach a record level of 627 million tons, 2.1 percent more than in 2009. The improvement was mainly due to better harvests in India and the Philippines.

The FAO said that early projections for the 2011 wheat harvest in Asia pointed to a crop about the same as in 2010, when it amounted to 224 million tons. This, too, was a record although prolonged drought in China's grain belt may reduce Asian wheat output.

Flood damage to Australia's wheat harvest and an expected cut in exports of the grain to Asia is contributing to concerns about food security. Indonesia is a major market for Australian wheat.

Moreover, the rate of production increase for both rice and wheat in Asia lags behind population growth. As result, prices are higher than they would otherwise be. In the first two weeks of January, the benchmark Thai export price averaged $546 per ton, 9 percent lower than a year earlier and 43 percent below its peak in mid-2008.

Averaging $330 per ton in the first half of January, the benchmark U.S. wheat price was about 50 percent above its level a year earlier, although still 31 percent below its record high in March 2008.

The International Rice Research Institute, based in the Philippines, says that rice prices need to be brought down to about $300 per ton, a level that would allow Asia's 200 million rice farms to make some profit yet would keep the grain affordable for poor rice consumers.

IRRI says that to achieve this target, an additional 8 million to 10 million tons of rice must be produced annually for each of the next 20 years.

This is big challenge. It could be done in two ways, by expanding output in existing rice producing countries and by enlarging the small circle of net rice exporters.

Expanding local production would involve improving yields, building irrigation schemes to convert rice land depending on rain to produce just a single crop each year into double- or triple-cropping rice systems, and converting land to rice production that is currently used for other agricultural activities.

At present, just four Asian countries — Thailand, Vietnam, India and Pakistan — account for about 70 percent of the world's rice exports. The United States provides another 12 percent.

In Asia, only Cambodia and Myanmar appear to have enough suitable land to become surplus rice producers. Outside Asia, the main potential for extra rice production is in South America and Africa.

However expanded rice output is achieved, it will make an important contribution to food security in Asia.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.


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