Wednesday, May 21, 2008

Economic Highlights Spore

Food price hike could set back global poverty fight

(Singapore) Higher food prices could erase seven years of progress in eliminating global poverty, said a senior World Bank official yesterday. But a concerted push by major food producing countries to boost the supply in world markets - especially in the case of rice, where only a fraction of total production is sold to other countries - could help bring down prices from current record levels, said World Bank managing director Juan Jose Daboub. He was speaking to reporters after a public lecture at the Lee Kuan Yew School of Public Policy. Already, the sharp rise in food prices over the past two years has plunged some 100 million people back into poverty, forcing them to survive on less than US$2 a day, he said. 'If food prices double in the next three years, we will go back about seven years in the fight against poverty.' He repeatedly called for 'concerted efforts' by governments to address some of the problems, including market failures due to distorting subsidies and trade barriers, that had led to the surge in the price of basic food commodities such as rice, wheat and corn.

International rice prices have nearly doubled in less than six months, according to the United Nations Food and Agriculture Organization (FAO). The April reading of the FAO's rice price index, which is based on 16 rice export quotations, was 1.9 times what it was in November last year, when prices started to climb sharply, and more than twice what it was in April last year. Repeated bids by the Philippines to buy several hundred thousand tonnes of rice over the past few months and recent export restrictions by net rice exporters such as Vietnam and Cambodia drove up international rice prices even further, according to the FAO report. But since just 7 per cent or 30 million tonnes a year of the world's rice production is traded internationally, a joint effort by the largest producers to boost rice supply in world markets could bring prices down from the current record levels of more than US$1,000 a tonne, said Mr Daboub. The World Bank is urging some of the largest rice producing countries in Asia such as China, Japan, Thailan and Vietnam to add one million tonnes - about 3 per cent of current yearly rice exports - into world markets to stop the price surge, he said. 'If you have four or five key players making very bold decisions, that can have a very positive effect.' But he is not in favour of major rice exporters setting up a cartel to manage rice supplies, similar to the Organization of the Petroleum Exporting Countries (Opec).

The idea of an Opec-like group of rice producers in South-east Asia was first suggested, then dropped, by Thailand earlier this month. 'I don't think it's a good idea to have any more cartels than we already have,' said Mr Daboub. Removing obstacles such as trade barriers and price subsidies to encourage markets to boost food supply 'is the most crucial but also often the most difficult action', he said. Despite this, 'I still have a lot of faith in markets working and markets fixing themselves', he added. 'It is better to have an imperfect market than a perfect bureaucrat' making decisions on how to allocateresources, he said. Still, food prices are likely to stay high for two to three years, as it will take time for supply to adjust to meet the greater demand for food, he said. 'It's not a short term phenomenon.' 'In the last 10 years, there has not been enough investment in agriculture and agricultural research,' partly because health and education had become bigger priorities for investment for many governments, he said. Any short-term measures taken by governments to ease the pressure of higher food prices on the most needy in their countries now should be targeted and responsible to avoid long-lasting market distortions that would affect their economies later on, he said. 'You cannot make isolated decisions and hope to be part of theinternational community. There is a price to pay for that.'

Source: Business Times

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