Asian policymakers need to address long-term social and structural implications of higher food prices, as well as the short-term macroeconomic issues, or risk condemning tens of millions of people into poverty, the ADB’s chief economist has warned.
Food inflation has risen significantly across the region over the past nine months, prompting policymakers to enact a series of price controls, interest rate rises and subsidies in a bid to limit the inflationary effects, prevent speculative hoarding and manage the impact on people’s day-to-day living expenses.
However, ADB chief economist Changyong Rhee believes that the real impact of rising food prices will be in terms of exacerbating poverty, not headline inflation.
“[Food price inflation] is more than a macroeconomic problem, it’s a poverty problem,” he told Emerging Markets.
The ADB estimates that a 10% increase in domestic food prices across the region this year alone would push an additional 64 million people into poverty.
A combination of these measures and an improved harvest outlook for this year, as higher global prices have persuaded farmers to increase their planting acreage, mean that many economists expect immediate headline food price inflation to begin to moderate from the second half of this year.
“I think that the rate of food price inflation will start to decline from this summer, and I expect deflation in food prices a year later,” Michael Spencer, Deutsche Bank’s chief Asia-Pacific economist, told Emerging Markets.
However, the ADB’s Rhee warned that, in the past, policymakers have tended to ignore food prices once headline pressures have subsided, which has contributed to growing food supply concerns in the region.
“When food prices increased in 2007-08, policymakers and the media were very attentive, but after the crisis when food prices stabilised, no one paid attention,” he said.
“We are worrying that this pattern seems to be quite recurrent. Whenever food prices increase this becomes a hot issue, but when prices stabilise, no one pays attention.”
Dr. Shenggen Fan, director-general of the International Food Policy Research Institute, echoed Rhee’s concerns that policymakers may well fail to address adequately the long-term structural causes of rising food prices.
In particular, he urged policymakers to factor the likely impacts of climate change into both their near-term and long-term agricultural and investment strategies.
“In the long-run, the impact of climate change will make food production much more vulnerable and stressed,” he told Emerging Markets. “Policymakers are aware of the consequences of climate change, but the problem is that they have too many other priorities.
“Policymakers in emerging Asia tend to pay attention to many other issues because their political interests don’t have a long-term horizon; they’re interested in the next four or five years, not the next 50.”
And, together with Rhee, Fan warned that the ultimate victims of this lack of long-term planning will be the region’s poor. “The poor will be the hardest hit, no question,” he said. “Rich people will be able to adapt or even migrate to other places.”