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From: wolda002@umn.edu
Date: Sat Jan 22 2011 - 02:44:31 EST
Record high food prices stoke fears for economy By Neil Fullick and Peter
Apps<http://blogs.reuters.com/search/journalist.php?edition=us&n=peter.apps&>
SINGAPORE/LONDON (Reuters) - Record high food prices are moving to the top
of policymaker agendas, driven by fears it could stoke inflation,
protectionism and unrest and dent consumer demand in key emerging economies.
The United Nations' food agency (FAO) said on Wednesday that food prices hit
a record high last month, above 2008 levels when riots broke out in
countries as far afield as Egypt, Cameroon and Haiti.
In Asia, official data and analyst estimates both pointed to inflationary
pressures. Chilli prices have increased fivefold in Thailand in the last
year and Indonesia's president called for households to plant food in their
own gardens.
President Susilo Yudhoyono Bambang told a cabinet meeting people should be
"creative" in planting, with Trade Minister Mari Pangestu leading the way in
planting at home.
"I have 200 chilli plants in flowerpots," Pangestu told a briefing on
Thursday. "The agriculture ministry is informing farmers how to take care of
the plant and also encouraging consumers to plant chilli in their own
yards."
Surging food prices have often provoked unrest in urban areas of poor
countries, where food makes up a high proportion of household purchases.
Analysts say African and Caribbean economies dependent on food exports could
be particularly hard hit, helping stoke unrest and potentially pushing
governments toward imposing export bans and expropriating foreign-owned
farmland.
If Asian and other emerging consumers have to spend more of their income on
food, other purchases will fall -- and that could be bad news for a global
economy that has placed much of its hopes for recovery on consumption in
developing economies.
World Bank President Robert Zoellick urged governments in a newspaper
opinion column to avoid protectionist measures as food prices rose and
called upon the Group of 20 leading economies to take steps to make sure the
poor get adequate food supplies.
French President Nicolas Sarkozy has asked the World Bank to conduct urgent
research on the impact of food prices ahead of G20 meetings later this year,
a source familiar with the matter said.
INDIAN INTEREST RATE PRESSURE
Food price protests were seen a factor in the ousting of Indonesia's
long-term autocrat Suharto in 1998, and anger over a farmland purchased by
South Korean firm Daewoo at a time of rising prices was in part blamed for a
2009 coup in Madagascar.
India's food price inflation rose to a one-year high of more than 18 percent
in the year to the end of December, data on Thursday showed. That, along
with rising fuel prices, is the main reason analysts expect the central bank
to raise rates this month.
The Indian government has used a range of measures for years to ensure
stable food prices, but since last year has boosted the release of national
stocks of grains and has pledged to continue duty-free imports of crude
vegetable oils.
In China, several cities have implemented direct controls to limit food
price increases and the central government has vowed to eliminate
speculation in the country's commodities markets.
The cost of food rose 11.7 percent in the year to November, while non-food
items were up just 1.9 percent. But, reflecting concerns that inflation is
creeping beyond food to the wider economy, consumer goods prices and housing
costs showed clear jumps.
Fu Bingtao, an economist with the Agricultural Bank of China in Beijing,
said in a report the price of grains, the country's most important food,
would rise in 2011 by 10 percent, adding to an 11.7 percent rise in 2010.
"Speculative trading and hoarding of specific agricultural products may
continue," he said.
The FAO said sugar and meat were at their highest since its records began in
1990. Prices were at their highest since 2008 crisis levels for wheat, rice,
corn and other cereals.
Benchmark prices solely in Asia for rice suggested a different picture.
The region's staple food now stands at $535 per tone -- less than half its
2008 levels of more than $1,000 a tone that prompted several governments at
the time to impose curbs on exports to protect their domestic markets.
ASIAN POLICY DILEMMA
But most experts expect upwards price pressure to continue, particularly if
countries slap on export bans and further squeeze supply, and short-term
investors again buy into agricultural commodities as they did in 2008.
Last year, wheat futures prices rose 47 percent, buoyed by a series of
weather events including drought in Russia and its Black Sea neighbors. U.S.
corn rose more than 50 percent and U.S. soybeans jumped 34 percent.
Alongside bad weather in Australia, Europe, North America and Argentina,
rising Asian demand is at the heart of the spike. China, for example, is
expected to buy 60 percent of globally traded soybeans in 2011/12, double
its purchase of four years ago.
Dry, hot weather has hit soy and corn crops in Argentina, a leading
exporter, fueling a rally in U.S. grains futures in recent weeks on supply
fears. After an uneasy start, climate conditions have improved in
neighboring Brazil, the world's No. 2 soy provider.
Higher interest rates do little to ease pressure on food prices. Demand is
inelastic because people have to eat, but current price pressures are
largely supply-led, so tighter monetary policy would not directly help.
The danger, however, is that food inflation spreads to the wider economy.
"I think there's an urgent need to be more pre-emptive in tightening
monetary policy to prevent some of these inflation pressures from erupting,"
Neumann said. Some central banks had taken some action but more needed to be
done.
South Korea, like other Asian countries that run trade and current account
surpluses, could give more room to its currency to rise to offset rising
import costs on food.
But higher interest rates or the likelihood of a rising currency would just
encourage a flood of portfolio capital from investors spurning sluggish
growth in developed economies. And rising currency could hurt exports, the
major pillar of many economies.
(Reporting by Reuters bureaux; Writing by Neil Fullick; Editing by Vicki
Allen<http://blogs.reuters.com/search/journalist.php?edition=us&n=vicki.allen&>
)
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