By Rupak D. Sharma
Asia News Network
First Posted 00:14am (Mla time) 03/09/2008
http://opinion.inquirer.net/inquireropinion/talkofthetown/view_article.php?article_id=123604
THE FOOD AND AGRICULTURE ORGANIZATION’S FOOD PRICE INDEX, WHICH is based on export prices for 60 internationally traded foodstuffs, rose 37 percent in 2007 after climbing 14 percent in 2006.
Over the past months, the increase in food prices has accelerated. Prices of wheat, rice, soybeans, corn, palm oil and cocoa have reached record levels, although some commodities have dropped on renewed concern that a slowing US economy will curb demand for raw materials.
Thai rice export prices rose to a 25-year high of $474 a ton last month, up $102 from January, while prices of spring wheat tripled from $8 to $24 a bushel in October last year.
For Juan de la Cruz, this translates into higher prices of his staple and of flour-based products such as pan de sal, noodles and siopao because the Philippines imports rice and wheat.
It doesn’t come as a surprise that higher prices of food and other commodities pushed up the country’s inflation to 5.4 percent in February, the highest in 17 months.
For the poor, the high prices will mean less food on the table.
What are driving food prices up across the globe? Besides the six reasons mentioned in the article below, funds flowing into commodities because of the weak dollar and stock markets are contributing to the surge.
Food prices are likely to further go up until at least 2010, according to an official of the United Nations’ World Food Program.
“Our assessment is that the current level will continue for the next few years … in fact rise in 2008, 2009 and probably at least until 2010,” Josette Sheeran, executive director of the World Food Program, said Thursday. -- Editor.
HERE’S A SET OF statistics that is difficult to swallow.
The price of rice has increased by around 15 percent in Indonesia. In Bangladesh, wheat flour now costs 40-41 taka (about 60 US cents) per kilogram—up around 50 percent. Pork prices in China have surged by around 100 percent to 24 yuan ($3.33) per kilo. And prices of edible oils went up by 50 percent in Nepal.
In general, the average food price rose by 37 percent in the world in 2007 compared with 9 percent in 2006. Asia also fell into its grip, alarming governments, upsetting consumers and increasing worries that food might be scarcer in the coming days.
Reasons
The are several reasons for the surge.
Growing affluence, which is increasing the demand for food;
Oil price hike, which is driving up freight rates and the cost of irrigation and petroleum-based fertilizers;
Supply disruptions like floods in Indonesia and Bangladesh, and protests which result in blockades in Nepal;
Stagnating output in the case of rice and wheat;
Higher prices of agricultural inputs like fertilizer; and
Changing energy policy of governments.
Changing diet
Due to rising income and changing lifestyle, the dietary patterns in developing countries of Asia are changing fast, increasing demand for all foodstuffs, particularly nutritious food like meat and dairy products.
In China, an average person now consumes 50 kg of meat per year compared with around 20 kg in 1980. A similar trend is seen in other rising Asian economies.
“These developments have intensified the demand for feed grains like corn, barley and oats, driving up their prices. And an increment in prices of livestock feed translates into a rise in the cost of meat,” Jean-Pierre A. Verbiest, country director of Asian Development Bank Thailand, told Asia News Network.
In Japan, farmers are gearing up to increase the price of beef after being unable to bear the burden of high corn prices, which went up by a third last year. According to estimates, 3.1 kg of soya or corn feed are required to produce a kilo of pork and 8.3 kg of similar feed are needed to produce a kilo of beef.
But it is not only higher demand for livestock and poultry products that is fueling food prices. In fact, Asians now have greater appetite for all sorts of food, which can be seen in their rising calorie intake.
In India, the average daily per capita energy intake has increased to 2,440 kilocalories from 2,080 in 1980. A Vietnamese now consumes 2,580 kcal of energy a day compared with 2,030 two decades ago, and Chinese intake has increased to 2,940 kcal a day from 2,330 in 1980.
“Over the years, the larger part of this calorie intake will come from consumption of animal products, fruits and vegetables at the expense of cereals,” said Dorjee Kinley, economist at the Food and Agriculture Organization (FAO), Asia-Pacific region.
“It is, thus, important that Asian countries diversify its agricultural practices and policies to cater to the changing diets and consumption patterns,” he said.
Stagnant grain yield
But at a time when demand for food is increasing, grain production, mainly rice and wheat, has remained stagnant, creating short supply and pushing up prices.
Global wheat production went up 1.1 percent last year to 602 million tons. In Asia, it increased 3 percent to 278.3 million tons. Whereas the world adds 70 million mouths to feed a year. Wheat is a key ingredient of bakery items and other foodstuffs.
Rice production in Asia, which contributes to 90 percent of the global rice output, crept up 0.4 percent to 389.9 million tons.
Although many cite this as an indication of declining importance of rice among middle-class Asian families—due to the shift to other nutritious meals—Kinley called it the result of falling investments in agricultural research.
Foreign aid for agriculture and rural development declined to less than $5 billion a year in the late 1990s as against $9 billion in the early 1980s. Only around 4 percent of the development assistance goes to agriculture—meaning less efforts are being put into technology innovation to increase the yields of cereal crops.
Rush for ethanol
Amid the global rush for biofuels, there are speculations that more farmers are allocating a greater portion of land to commercial crops, causing cereal crop yields to stagnate. But statistics show that is not the case in Asia, at least in terms of production.
Corn production in Asia increased 2.2 percent last year compared with 26 percent in the United States. Oil crop production also hovered at 122 million tons last year (similar to that of 2006), showing that Asian farmers still have not joined the ethanol bandwagon in developed countries.
And there are countries like the Philippines where concerns have been raised about biofuel crop cultivation jeopardizing food security and exacerbating carbon dioxide emissions.
However, Asia’s current negligible participation in ethanol production does not mean that prices of biofuel crops in the region have not gone up. Corn price increases in Japan, the largest corn importing Asian country, were the result of higher international prices—triggered by the allocation of more corn for biofuel production in the United States.
There is a growing demand for crops that generate biofuel and returns are high. It, thus, cannot be said that Asian farmers will continue to plow their fields to grown noncommercial crops.
Greater profit margins may encourage farmers to increase commercial crop acreage, causing grain production to decline and inflating cereal prices.
Victims
Shrinking grain production means food will be more expensive and scarcer in countries that meet their food demands through imports. People living in richer food-importing countries may swallow the guilt of rising prices, while those living in countries with moderate per capita income may express it openly, raising fears of social tension.
Recently, protests flared up in Indonesia due to food price increases. Indonesia is one of the largest food-importing countries in Asia. It imports 100 percent of its wheat consumption, more than 70 percent of its soybean needs, 30 percent of beef and meat, 15 percent of sugar and a large portion of rice. Protests were also reported in Pakistan and Malaysia.
But the depressing news for countries like Indonesia is that the situation is not likely to improve anytime soon.
This year, global rice production is expected to go up by 0.3 percent to 429.7 million tons and wheat production is expected to hover at 602.2 million tons. FAO has predicted that if countries like India and China are excluded, the aggregate cereal output would more likely decline in 2008.
While surveys say that world cereal production must go up by around 50 percent by 2030 to meet the global demand, production data indicate that demand will continue to outstrip supply in the coming years. Due to these factors, the International Food Policy Research Institute (IFPRI) has predicted food prices to go up by up to 20 percent by 2015.
Fearing short supply (caused by growing international demand), most food exporting countries in Asia have started tightening food security measures by curtailing exports. To discourage rice exports, India has raised the minimum export price to $500 a ton. Vietnam has decided to lower its export to 4.4 million tons and China is also expected to adopt a similar measure.
Bigger victims
What this translates into is: the days ahead for staple food-importing countries will be tougher. There will be less food in the international market and prices will go up.
Apart from countries that meet their domestic staple food demand through imports, the poor and fixed- or low-income people living across Asia will also be major sufferers.
They include around 300 million people in India who earn less than $1 a day, around 102 million Chinese who live below the poverty line and millions more in countries like Burma, Bangladesh, Nepal and Pakistan.
“Among these, the worst affected will be the urban poor, as they have to pay similar high prices the well-off people are paying, as against their poor counterparts living in rural areas where the food is grown,” Kinley said.
The poor usually respond by reducing the quality of food they take and later the number of meals, according to Kinley.
Young children
A study conducted in rural Central Java in Indonesia in 2004 found that when rice prices increased in the late 1990s, mothers in poor families responded by reducing their caloric intake in order to better feed their children, leading to significant weight loss.
Purchases of more nutritious foods were reduced to enable them to afford the more expensive rice. This led to a measurable decline in blood hemoglobin levels in young children and their mothers, increasing the possibility of developmental damage.
Similar incidents cannot be ruled out as IFPRI predicts a 2-5 percent reduction in calorie intake by 20 percent of the people in Asia by 2020 due to an increase in biofuel crop production.
Way out
Against the gloomy backdrop in which high prices are likely to trigger shortages and malnutrition, the only way to stabilize the situation is by increasing output. To raise production, more land needs to be allocated for agriculture, which again comes at the price of environmental degradation.
In Indonesia, researchers found that converting land for palm oil production could inflict the worst carbon debt, requiring 423 years to pay off. In South Asia, where the focus is on output, there are fears that production of rice, corn and millet could decline by 10 percent or more due to climate change.
Verbiest said these were complex issues. “But different bodies are responding to these calls and researches are being conducted to produce food in a way different from conventional methods,” he said.
It is important that every country keep investing in agricultural research, infrastructure, capacity building, human resource development and technology to increase yield and develop new seed varieties, so that people can grow more in available agricultural land, he said.
In the short term, governments should introduce targeted programs like extending grants to poor unemployed people or developing a mechanism to distribute food at nominal prices to the poor who qualify for it, according to Verbiest.
“But people need not panic as higher food prices are not a long-term phenomenon and you will see prices stabilizing and coming down within two growing seasons,” he said.
“Otherwise, it would be contrary to all the historical trends to see food prices going up for a prolonged period,” Verbiest said.
International prices of selected commodities (In US $ per ton)
Item 2004-2005 2005-2006 2006-2007
Wheat (US No.2 Hard) 154 175 212 Maize (US No.2 Yellow) 97 104 150 Soybeans 275 259 335
2004 2005 2006
Rice (Thai 100%B) 244 291 311 Beef (US) 3,788 4,173 4,126
Source: Food Outlook - Nov. 2007
Food and Agricultural Organization of the United Nations
Prices of selected food items in RP (In peso per kg)
Item 2005 2006 2007 2008
Rice, retail 22.88 23.56 24.72 - Corn (white) wholesale 9.57 11.42 11.88 - Dressed chicken - - 110 120 Beef, w/ bones* - - 160 180 Pork, liempo* - - 140 150
*All figures are annual averages, except for chicken, beef and pork prices, which are monthly retail averages for January 2007 and 2008 in Metro Manila
Source: Bureau of Agricultural Statistics
Compiled by Kate Pedroso, Inquirer Research
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