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ADB: Food prices may push millions of Asians into poverty
Poor families may find it tough to pay for medical care, children's education

“Recent gains in poverty reduction made in Asia will be undermined”

Resurgent global food prices, which averaged 10 per cent in many economies and posted record increases in the first two months of 2011, may push nearly 30 million Indians and 64 million people in the Asian region into extreme poverty, the Asian Development Bank (ADB) said on Tuesday.

In its new report titled ‘Global Food Price Inflation and Developing Asia,' the Manila-based multilateral lending agency report warned that a 10 per cent rise in food prices would push as many as 23 million Indians living in the rural area and 6.68 million in the urban areas to below poverty line at U.S.$ 1.25 (around Rs. 55.65) earnings a day. In case, the food price hike is to the extent of 20 per cent, the resultant impact would be pushing 45.64 million in rural areas and 13.36 million living in cities into extreme poverty.

Gradual ascent of prices

The ADB report pointed out that while food prices had been expected to continue a gradual ascent in the wake of the sharp spike in 2008, the “fast and persistent” increases in the cost of many Asian food staples since the middle of last year, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region which has rebounded rapidly and strongly from the global meltdown.

“For poor families in developing Asia, who already spend more than 60% of their income on food, higher food prices further reduce their ability to pay for medical care and their children's education,” ADB's Chief Economist Changyong Rhee said. “Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia,” he said.

The ADB report noted that if the global food and oil price hikes witnessed in early 2011 continue for the rest of the year, economic growth in the region could get reduced by up to 1.5 percentage points. “In India, Indonesia, and Malaysia, in particular, the adverse effects of the increase in global food prices in 2011 tend to take a larger toll on GDP [gross domestic product] growth in 2012 rather than in 2011,” it said.

Noting that food price inflation reached double digits in Bangladesh, China, India, Indonesia, the Republic of Korea, Pakistan, Sri Lanka, and Viet Nam, the report pointed out that some countries such as China, India, Indonesia, Korea, Malaysia and Thailand have been fighting inflation through tighter monetary policy. “To the extent that inflationary pressures are supply-driven, as in 2007–2008, higher interest rates may be less effective in controlling it,” the report said.

While lauding India's increasing investment in agriculture to bolster productivity and keep food prices in check, the ADB report projected the pattern of higher and more volatile food prices in Asia to continue in the short-term, especially when grain stocks have fallen. Adding to this are structural and cyclical factors that were at play during the 2007-2008 crisis, including rising demand for food from more populous and wealthier developing countries, competing uses for foodgrains, shrinking available agricultural land, and stagnant or declining crop yields.

The report noted that production shortfalls caused by bad weather along with the weak U.S. dollar, high oil prices and subsequent export bans by several key food-producing countries have caused much of the upward global price pressure since last June, with double digit increases seen in the price of wheat, corn, sugar, edible oils, dairy products and meat.

“To avert this looming crisis it is important for countries to refrain from imposing export bans on food items, while strengthening social safety nets,” said Dr. Rhee.