Rising food prices and dwindling global stocks have put many governments in developing Asia and the Pacific under enormous pressure to put food on the table of the most vulnerable and poor in their countries. Over a billion people in the region are seriously affected by the food price surge, as food expenditure accounts for 60% of the average total expenditure basket. Food and energy together account for more than 75% of total spending of the poor in the region.
Several short-term cyclical and long-term structural factors have combined to spark the recent surge in the prices of rice and other cereals. Rising energy prices are pushing up prices of fertilizers and fuels. This, along with declining food stocks, diversion of food crops acreage to bio-fuels, and unfavorable weather events in some countries which have caused supply disruptions, has contributed to the surge in food prices.
In addition, underinvestment in agriculture has led to stagnating food-grain yields and slow development of high-yielding and pest-resistant varieties. Incentives for farmers have been distorted by interventionist policies, and change in land-use patterns in developing economies has led to loss in agricultural land.
Higher disposable incomes in rapidly developing Asian economies and a shift to greater meat-based protein consumption have led to greater demand for food and feed grains in the region.
Looking at the supply-demand dynamics, we believe that the era of cheap food is over. And this has serious implications for developing Asia. High food prices will undermine the gains in poverty reduction in Asia and make it difficult to attain the Millennium Development Goals of halving extreme poverty by 2015.
The situation is serious, and governments have responded with subsidies, imposed price controls and caps on exports to offer immediate short-term relief. While the domestic imperatives to do so are understandable, we feel these measures are likely to be counterproductive and prolong price volatility.
Instead, we believe targeted income- and cash-support measures are more effective in alleviating the impact of rising prices on the poor and raising farm productivity. Through targeted support to the poor rather than general price subsidies, governments will be able to focus on the truly needy and ensure better coverage, as well as free up resources to boost much-needed investment in the farm sector.
The provision of targeted support will also allow governments to address the distortions in the incentives for increased production in the short term. The right incentives, accompanied by dependable, affordable and timely access to inputs and credit at market interest rates, will enable farmers to invest in improved inputs, which will then lead to an expansion in output, stabilize prices and keep them from spiraling up.
We recognize that revamping public distribution systems or introducing conditional cash transfers within the next four to six months is no easy task and the supply response in the next harvest season also remains uncertain. We are supporting the International Rice Research Institute and the International Food Policy Research Institute in their efforts to boost research and help farmers to overcome key constraints.
In the medium- to long term, governments will need to further build on the gains in supply by addressing the inadequacies in infrastructure and ineffectiveness of institutions, and by promoting research and development of new technologies.
The spike in food prices is not only hurting rural and urban poor, but also hitting hard those who are just above the poverty line. Asian Development Bank estimates show that a 30% increase in food prices in the Philippines and Pakistan, for example, would increase the number of poor by an additional nine million and 22 million people, respectively.
Asia has achieved remarkable success fighting poverty in the past few decades and shown great resilience in overcoming several challenges to emerge as one of the most dynamic regions of the world. We now need to overcome the specter of high and rising food prices to ensure the poor are not left behind, so the fruits of progress can be shared by all.
Reprinted from The Wall Street Journal Asia © 2009 Dow Jones & Company, Inc. All rights reserved.