Targeted Food Subsidies Would Help South Asia Cope with Future Food Price Spikes

MANILA, PHILIPPINES – A spike in the cost of food staples like rice and wheat could push tens of millions more people into extreme poverty in South Asia but food subsidies targeted at the very poorest in the region would help them cope with still-high prices, says a new report by the Asian Development Bank (ADB).

South Asia’s high population growth rates and the high number of people already living on or close to the extreme poverty line of $1.25 a day mean it is one of the most vulnerable regions in the world to food price shocks.  Spending on food already accounts for half the total budget of low-income households.

“Subsidizing the cost of a basic meal for the poorest and most vulnerable in places like India means the help goes to those who need it the most without putting an excessive burden on government finances,” said Hiranya Mukhopadhyay, an economist in ADB’s South Asia Department and an author of the report.

The study says that a 10% rise in prices could push almost 30 million more Indians and nearly 4 million more Bangladeshis into extreme poverty. Pakistan is also at risk, with the same price leap causing an additional 3.5 million more people to drop to or below the $1.25-a-day income mark.

Nepal and Sri Lanka would be less affected, although a further surge in wheat prices would be especially painful for Sri Lanka, which is completely dependent on imports of the staple and has already seen prices hit historical highs in recent years.

The report – Food Price Escalation in South Asia – A Serious and Growing Concern - notes that after peaks in 2008 and 2011, prices of key food commodities have eased somewhat, although the rate of decline has been slower in South Asia than the international average. In addition, the region suffers from higher overall food inflation rates than the rest of developing Asia, with food making up a bigger share of items measured by the consumer price index.

Short-term weather shocks and costlier oil account for some of the past price upside but the study says rapid population growth, changing food consumption patterns linked to higher incomes, and stagnating agricultural output are more critical factors driving rising food demand and inflation.

Although governments in the region have taken steps to counter higher prices, some measures may not be helpful to neighboring countries. India’s temporary food export restrictions, for example, could have had adverse impact on prices in neighboring countries, as India is the world’s second largest rice producer.

Long term, governments must step up support for agricultural research to spark another “green revolution” to lift output and help develop crops more resistant to weather extremes. More investment in infrastructure, such as irrigation systems and farm-to-market roads to improve distribution and reduce post harvest losses is also essential.

Strengthening home-grown initiatives such as the food bank established in 2008 by the South Asian Association for Regional Cooperation may also help to smooth out price volatility and improve food security in the South Asian region during times of shortage, the report says.