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East Asia and Pacific: Food Prices

Sustained increases in food prices

Food prices throughout the region have risen significantly since the middle of 2010, contributing to an increase in headline inflation. Relative to 2009, the pace of food price increases quickened in most countries during 2010, except for Cambodia and the Philippines.

Due to short-term and structural factors, 12-month food inflation is now higher than a year earlier in all EAP countries, with increases of 10% or more in Mongolia, Indonesia, Vietnam and China. Short-term factors have included adverse weather in the region and beyond. But the increase in food prices is unlikely to be a temporary phenomenon: sustained strong growth in demand is expected in emerging economies and until supply adjusts—which may take years—prices will remain high and volatile.

Macroeconomic challenges facing Asian policy makers

Most East Asia & the Pacific authorities have begun tightening monetary policy and withdrawing the fiscal stimulus introduced in 2009-10. Some countries have been more cautious than others, keeping accommodative policies for longer and delaying with the withdrawal of stimulus, because of worries about the strength of the global recovery and concerns that higher interest rates may encourage some types of capital inflows.

Short-term policy options to slow increases in food prices and soften their impact include:

  1. Tighter monetary and fiscal policy;
  2. Measures to help procure additional quantities of food (rice) and
  3. Steps to protect the most vulnerable

Food prices and their impact on economic growth

The effect from higher food prices on economic growth is likely to be moderate, but their impact on the poor and those near the poverty line will be substantial. Under the assumption that higher food prices are unlikely to be a temporary phenomenon, and as policymakers will need to tighten monetary policy more strongly than earlier expected, the impact on economic growth in 2011 is likely to be negative.

The impact on the vulnerable has varied across countries

An abundant rice harvest in Cambodia and Thailand, and ample stocks in the Philippines have kept domestic price increases for rice, the region’s staple, modest. Prices have surged in Indonesia, by contrast, partly due to weather shocks. And with the inflation rate for the poverty basket much higher than the overall inflation rate, poverty is estimated to have increased by nearly 1 percentage point in Indonesia from a year earlier despite strong economic growth.

The price of rice

Domestic rice prices also vary across countries. They have risen strongly in Indonesia, barely moved in Cambodia and Thailand, and have increased moderately in the Philippines. Moreover, some countries are moving to significantly increase rice imports to boost domestic stocks. The rice market remains highly exposed, with over 50% of global rice supplies coming from Thailand and Vietnam. Indonesia and the Philippines are having a high risk of contingent imports.

A global food crisis

According to the February 2011 edition of Food Price Watch, the World Bank’s food price index rose by 15% between October 2010 and January 2011. It’s 29% above its level in 2010 and is only 3% below its 2008 peak.

Food staples, at a glance:

  • Wheat: Prices have risen the most, doubling between June 2010 and January 2011.
  • Rice and Maize: Although the increase in rice prices has been more moderate than for maize and wheat since mid-2010, rice prices remain as elevated relative to 2007 as those for maize and wheat. Global rice prices are still a third below the 2008 peak for now, but they are more than double the level during 2000 to 2007.

Implications: 44 million driven into poverty

Higher food prices—mainly for wheat, maize, sugars and edible oils—have pushed 44 million more people in developing countries into extreme poverty (where people earn under US$1.25 a day) since June 2010.

Price hikes and high volatility in food prices are among the key challenges facing many developing countries today. Rising energy prices, which add to food costs, add to the problem.

What can be done to help?

  • Help small holder farmers with seeds and fertilizer, better weather forecasting, and better ways to get produce to the market
  • Expand nutritional and safety net programs in countries where food prices are rising fastest, especially for pregnant women and babies under the age of two
  • Avoid food export restrictions
  • Find better information on food stocks
  • Promote more investment in agriculture, less food-intensive biofuels, and climate change adaptation.

Last updated: 2011-06-23

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