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Food security fears as supplies dwindle
25-06-2008
RICE was the front page story in Singapore's newspapers on successive days in April – because citizens of the affluent City State had depleted rice stocks in local supermarkets. To induce public calm, Singapore's Ministry of Trade and Industry took to assuring Singaporeans that supplies were adequate, and that there was no need to draw on the national rice stockpile.
In an unprecedented move, reporters were invited to one of Singapore’s three Government warehouses, showing floor-to-ceiling stockpiles of rice. Singapore has sufficient stock for three months in an emergency. Elsewhere in Asia, queues have been forming to buy rice or to receive rice subsidies from their governments.
And Thailand, the world's largest rice exporter – of about 20 million tons of milled rice each year – was forced to release 650,000 tonnes from its 2.1 million tonne rice reserve stock onto the domestic market.
Fifty per cent of people in Asia rely on rice as a food staple. Already, nearly 70 per cent of agricultural land in the region is under rice cultivation. Major rice exporters, India and Vietnam, have introduced quotas to regulate the volume of their exports – to protect domestic supplies.
The rising trend in international food prices is expected to accelerate in 2008.
The US wheat export price rose from US$375 per tonne in January to US$440 per cent in March. Global wheat prices increased 181 per cent over the 36 months to February 2008.
Thai rice export prices rose from US$365 per tonne to US$562 per tonne. Grain and edible oil prices globally rose 21 per cent and 15 per cent respectively in the first two months of 2008.
Food crop prices are expected to remain high in 2008 and 2009, then to begin to decline as supply and demand respond to high prices.
However, prices are likely to remain well above 2004 levels through to 2015 for most food crops, according to the World Bank.
The Bank says its forecasts are consistent with those of other major organisations, such as the Food and Agriculture Organisation (FAO), the Organisation of Economic Co-operation and Development (OECD), and the United States Department of Agriculture. It says the sharp rise in international food prices is likely to have a significant impact on living standards of the poor throughout the developing world. This presents one of the more urgent and difficult problems facing governments in Asia.
In the US, the share of food in the consumption basket of the average household is 15 per cent, while in Asia, it ranges between 31 and 50 per cent. Malaysians spend on average 31 per cent of household income on food; Chinese, 34 per cent; Thais, 39 per cent; Indonesians, 40 per cent; Vietnamese, 43 per cent; and Filipinos, 50 per cent. High food prices are having the biggest effect on the poorest countries.
In response to the global shortage and escalating prices of grain, dairy and other food products, governments are bringing in subsidies to ease the pain of their poorest citizens. Exactly how much those subsidies cost is unclear.
In China, for example, exports of a number of staple foods have been banned, and Beijing has set quotas on the export of grain. It has introduced price control on instant noodles, and on university cafeteria prices.
As well, large producers and wholesalers need approval before increasing prices on grains, edible oil, meat products, eggs and milk. The Government has increased supply of grain from China’s reserve stockpile.
Even affluent Singapore plans to give cash and rebates to needy citizens.
India has long imposed price ceilings on a range of goods. In March, the Government sought approval from Congress for an additional Rs189 billion to enhance food and fertiliser subsidies. India’s Government is wary of social unrest, having had to quell riots caused by a shortage of onions in the past. In the 2007 financial year, India’s total food subsidies were estimated at Rs480 billion – higher than the budgetted Rs300 billion.
Last year, Malaysia spent RM43.4 billion on subsidies for petrol, rice, cooking oil and other products considered essential. Malaysia produces 70 per cent of its own rice requirements.
Indonesia has released its rice stockpile to dampen prices and to ensure the poor are able to buy. It has also lifted a monthly quota of subsidised rice for poor households. Similarly, Indonesia provides subsidised cooking oil to the poor – and has increased export tax on palm oil. Total Indonesian food subsidies are expected to rise from a budgetted Rp7.2 trillion to Rp19.8 billion in 2008. Additionally, Indonesia is spending around Rp130 trillion to subsidise fuel prices (around 12 per cent of the Central Government’s budget in 2007).
With oil prices at US$100 per barrel, it is estimated that Indonesia's budgetary cost of fuel and electricity subsidies will rise to almost US$28 billion this year. (China, India, Korea, Thailand, Taiwan, Bangladesh and Vietnam have introduced subsidies to blunt the full impact of the surge in global oil prices.)
Provision of subsidies in any form is frowned upon by the likes of International Monetary Fund, and the additional expenditure will be burden on the budgets of poor countries, like Indonesia or the Philippines.
The issue of food security was first raised by Japan back in the 1990s in forums such as Asia Pacific Economic Co-operation (APEC). Japan and Singapore are net importers of food.
The world is facing what has been described as a "perfect storm", with the convergence of various factors. The sharp rise in oil prices and climate change fears have combined to push governments into development of biofuel.
Most incremental maize production between 2004 and 2007 went into biofuel production in the United States. Demand for wheat, soy, maize and palm oil has risen as production of biofuel is stepped up. Existing stocks of these foods have been depleted by an increase in global consumption for other uses.
Higher energy prices are also leading to higher input costs for farmers, including more expensive fertilisers.
Higher living standards in China and India are leading to high food consumption and increasing demand for high protein food. The increase in global food demand comes at a time when production has fallen because of rapid urbanisation in both countries, where land has been converted to industrial use.
ATI Magazine Online May 2008 |
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