Welcome to Scribd. Sign in or start your free trial to enjoy unlimited e-books, audiobooks & documents.Find out more
Standard view
Full view
of .
Look up keyword
Like this
0 of .
Results for:
No results containing your search query
P. 1
High Food Prices in South Asia

High Food Prices in South Asia

|Views: 64|Likes:
Published by Chandan Sapkota
High food prices in South Asia: Causes and Solutions
High food prices in South Asia: Causes and Solutions

More info:

Published by: Chandan Sapkota on Dec 09, 2011
Copyright:Attribution Non-commercial


Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less





Trade Insight
Vol.7, No.3-4, 2011Chandan Sapkota
hen food prices spiked in mid-2008, the level was cited as being the highest threshold reachedin recent memory. Unfortunately, thisyear’s prices have even surpassed thelimit reached in mid-2008. The Foodand Agriculture Organization’s (FAO)Food Price Index (FPI) averaged 216points in October 2011, much higherthan the threshold reached in 2008, buta moderation from the level reachedduring the middle of this year. Arecent report by the high-level panel of experts on food security and nutritionstates that agriculture price volatilityin the past five years has been higherthan in the previous two decades, butlower than it was in the 1970s.
The rise in world food prices thisyear is attributed to extreme weatherevents in major food producingcountries and restrictions on grain
Causes and solu
High foodprices
in South Asia
South Asian countries need to adopt mul-tiple options—from emergency measuresto reforming the agriculture sector—to ad-dress the impact of high food prices.
food security
Trade Insight
Vol.7, No.3-4, 2011
trade, leading to higher food prices.For instance, Russia, the United States(US), China and Central Asia were battered by drought. India and Russiaimposed embargo on grain exports,the US and the European Union (EU)saw unfavourable weather conditionsand Pakistan and Australia had heavyrains and floods—all putting pressureon food supply and then food prices.The weakening of the US dollar, surgein oil prices, unfavourable weatherevents, commodity market fluctua-tions, and restrictive trade policiesmight further exert upward pressureon global food supply and prices.The FAO predicts that high andvolatile prices are likely to persistthis year and in the coming years too,primarily because of the uncertain-ties surrounding output in majorfood-producing countries and a sharprun-down on inventories.
This comesabout even after forecast of an increasein food production this year and inthe future as well. For instance, cerealproduction this year is expected to be 3 percent higher than in 2010 butprice is not expected to come down.
Cereal price is expected to remain highparticularly in import-dependent de-veloping countries. However, the risein food prices is not homogenous in allcountries. Buoyed by high domesticproduction and market restrictions,some countries might see lower localprices while others might experienceever-rising prices. But food prices willremain high in food-deficit low-in-come countries.After the decline in food pricesfollowing a spike in 2008, food priceshave been surging again in all SouthAsian countries since last year. Thisis not only impacting macroeconomicstability, particularly through increas-ing food import bill, widening tradedeficit, and increasing general prices, but also pushing millions of people be-low the poverty line. Food prices have been rapidly increasing in most of thecountries following a convergence of food-price inflation rates in 2003. Inthe recent period, food price inflationin Pakistan, followed by Nepal, is thehighest in South Asia.
Food prices in South Asia are not im-mune to the changes in prices at theglobal level. The prices reflect bothglobal and domestic trends in output,supply-side constraints, and trade andexchange rate policies. The rapid risein food prices in South Asia is follow-ing the global rise in food prices. Someof the major factors that have beenpushing up food prices are discussed below.
Weather-related shocks
In South Asia, the flooding in Pakistanin 2010 submerged a large swath of land (almost one fifth of total landarea) and destroyed crops. This yeartoo, Pakistan is seeing heavy floodingand has about 4.2 million acres of landsubmerged in water since late August.Similarly, Bangladesh was battered by cyclone and heavy rains, whichaffected food production. Afghanistanis facing long precipitation deficit andlocalizedfloods. These events havetriggered negative supply shocks inSouth Asia. Globally, weather-relatedevents have affected output in Russia,Canada, the US, Australia, China,Argentina and Kazakhstan, amongother major food producers. All of these have amplified supply shocksand pushed up prices.
Demand shocks
Though total production has increasedin most cases, it has not kept pacewith population growth, leading toexcess demand for food items. Theworld population is expected to reachnine billion in 2050. The South Asianpopulation is projected to reach 1.9 billion in 2025 and 2.3 billion in 2050.This will further increase prices if production does not match populationgrowth. Moreover, the added demandfor food from the emerging middleclass in developing countries will putmore pressure on food prices as theyconsume more meat and fish products,which require even more basic fooditems to produce.
The World Bankestimates that the demand for foodwill rise by 50 percent by 2030, thanksto rising population, rising affluence,and a shift in dietary consumption bythe middle class.
Increased demand for biofuels
Biofuel demand was widely seen asone of the factors behind the soaringfood prices in 2007–2008 and it contin-ues to be seen as a major factor behindthe current high food price spree. In2010, the production of corn-basedethanol absorbed about 15 percent of global corn production.
The increasein biofuel demand in the US andthe EU created a demand shock andpushed up food prices, which werealso reflected in food prices in SouthAsia.
Trade distortions
Export restrictions have heightenedanxiety among net food-importingcountries, leading to a situation whereeveryone is pre-emptively purchasingfood from the international marketand stocking it up. This led to a sud-den increase in demand, created hyste-ria, and pushed up food prices. More-over, depletion of inventory addedfuel to fire and sent food prices up inthe interim period, i.e., until the inven-tories were replenished. Protectionisttrade policies were observed recentlywhen food prices skyrocketed. WorldBank economists have estimated thatrestrictions on rice exports explainedalmost 40 percent of the increase inglobal rice price in 2007–2008.
Though speculation of food commodi-ties itself is not a direct cause of highfood prices, excessive speculation mayhave magnified the impact of real food
Rising food pricesare not only im-pacting macro-economic stabilitybut also pushingmillions of peoplebelow the povertyline.
Trade Insight
Vol.7, No.3-4, 2011
demand and price shocks. It mighthave had a second-round effect, ag-gravating the volatility of food prices,after the first round of production andprice shocks.There is still no clear evidenceif speculation in the futures markettriggered higher food prices.
How-ever, a study by World DevelopmentMovement (WDM) squarely blamesthefinancial markets for excessivespeculation and “distorting and un-dermining the effective functioning of agricultural markets”.
The WDM report argues that finan-cial speculators now account for morethan 60 percent of some agriculturalfutures and options markets. It was12 percent a decade and a half ago.Farmers and those having direct com-mercial interests hold just 40 percentof the market, leading to a situationwhere agricultural markets are notresponding to the underlying funda-mentals of demand for and supply of food commodities. The incentives forreal producers of food are waning.The report also notes that total assetsoffinancial speculators have increasedto US$126 billion this year from US$65 billion in 2006.
Fuel costs
Increase in fuel costs due to conflictin the Middle East and North Africaincreased transportation costs of foodgrains, leading to higher prices in theproduct market.
Given the structural change in de-mand for food items (such as dietaryshift to more meat-based productsand crop-based biofuels) in severalemerging and developed countries,the existing high prices might remainsticky at high levels unless the increasein demand is matched by structuralincrease in supply. Unfortunately, thisseems unlikely at least in the shortrun.
Hence, South Asian countriesneed to look for multiple options—from emergency measures to reform-ing the agriculture sector to increasingagriculture production and produc-tivity—to address the impact of highfood prices. Productivity growth (cropproduced per hectare) has to outstripdemand growth in the long run andsupply growth has to respond tohigher prices—both of which will helpease pressure on food markets. Sincethe world’s population is growing at just over 1 percent a year, staple yieldswill have to rise by at least 1.5 percenta year (to also allow for an increasein demand for animal feeds).
Mean-while, the accessibility of food itemsin remote and food deficit places willalso have to be improved. At times,even when there is surplus at nationallevel, some areas within a countrymight face short supply of food, lead-ing to higher prices. For instance, eventhough Nepal is expected to have foodsurplus in fiscal year 2011/12, theWorld Food Programme argues thatthere are still 1.3 million people facingfood deficit due to lack of accessibil-ity. Without accessibility, particularlygood distribution system, people willnot be able to purchase food evenif they are monetarily capable to doso, leading to widespread hunger inremote areas. Nobel laureate Am-artya Sen argues that lack of adequatefood distribution system is one of thereasons why we see famine even whentotal food production is higher duringfamine years when compared to non-famine years.
To address the impact of higherfood prices, various country-specificshort-run and long-run measures
www . c e  p ol    i    n a . c om
food security

You're Reading a Free Preview

/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->