Egypt, India, the Philippines, Vietnam, Indonesia, Cambodia, parts of Africa, Mexico, Italy, China, Russia, Argentina: the list is growing by the day of governments who now see the rising cost of food and all the social and political problems that brings, as far more important that good governance, low debt, the US recession, subprime debt or American foreign and economic policy.
Even in the developed world the impact is startling. Biofuels in Asia, Europe and the US are withering because of rising costs for corn, canola and palm oil. Food riots have happened in Mexico over the cost of tortilla flour. Italians have protested about the sharp rise in the cost of flour for pasta and bread.
Farmers are being blamed in some countries, such as Argentina and parts of Europe; in the US it's causing an explosion in land values and incomes in parts of the country that have been slowly withering away.
The irony won't be lost on Americans that in the midst of a recession farmers and some of the biggest companies in the US (think Cargill and Archer Midland) will be booming, some with record incomes, and much of it (like Europe) subsidised.
India, for example, spent $US600 million on rice and wheat subsidies in 2004-05. Given the surge in rice, maize and wheat prices since then, the cost could be up by a third to a half: something approaching $US1 billion, which a country like India can ill afford, even in the midst of its boom (which is slowing anyway).
Indonesia which is thinking of banning some rice exports, like China, India, Vietnam and Egypt, may have to pay $US2.2 billion in food subsidies this year, or around 3% of spending by the national government.
Soaring food and fuel prices are driving global inflation. Consumer prices in China hit an annual rate of 8.7% in February, an 11-year high, and reached a 13-month peak in India of 6.8%.
World prices for rice, wheat, soybeans and corn have all increased sharply: rice and wheat prices have doubled in the year - rice is up 30% or more in a week.
Oil prices are up more than 50% in the past year, and more for some derivatives. High petrol prices in the US, now at record levels, are pointing to further upward pressures in the American summer and the so-called driving season when they usually spike in July-August.
The United Nations warned in February that 36 countries, including China, face food emergencies this year, as stockpiles of grains such as rice, wheat, corn and soybeans drop to multi-decade lows around the world and in key supplier nations like the US and Australia.
The World Bank said this week it considered soaring food and fuel prices as greater challenges to East Asian governments than the financial turmoil in the United States and slowing global growth.
Since 2003, oil and non-oil commodity prices have respectively more than tripled and doubled. However, of greater immediate concern for policy makers is the surge in commodity prices over the last 6–9 months - especially for food – that has pushed headline inflation higher and sparked concerns about the adverse effect on the poor.
"In the medium-term the answer clearly lies in greater fuel efficiency, stronger and more productive global agriculture and an open international trading system. But in the short-term the bigger concern is to alleviate the harsh burden this imposes on the poor," the bank said this week.
On Monday, India scrapped tariffs on edible oil and maize and banned exports of all rice except the high-value basmati variety, while Vietnam, the world's third biggest rice exporter, said it would cut rice exports by 11%.
The World Bank said this week in its half year report:
Non-oil commodity prices increased 15 percent in dollar terms over 2007, a fifth year of solid dollar price gains.
That was only a precursor to even more rapid 20 percent gains in just the first 2 months of 2008. Grains, edible oils, and metals prices have been especially buoyant in recent months, supported by strong investment and physical demand (the latter especially from developing countries) as well as by a variety of more specific factors on both the demand and supply sides of the markets.
Low initial stocks; rising input costs (especially energy); competition for limited arable land; weather-related production shortfalls; and strong demand for food, animal feeds, and biofuels have produced a surge in prices for corn, wheat, rice, and soybeans.
Grain and edible oil prices rose 21 percent and 15 percent, respectively, in just the first 2 months of 2008.
Metals prices gained 27 percent in the same period, led by iron ore, copper, lead, aluminum, and precious metals.
China's consumption of the 6 main metals traded on the London Metal Exchange (LME) grew by nearly one-third, or 5.8 million tons, in 2007, up from an average 16 percent growth rate in the previous 7 years.
Growth in Chinese demand alone more than offset lower 2007 consumption in the OECD. A 21 percent increase in China's steel production - the largest in the world - helped set the scene for a 65 percent increase in iron ore prices in early 2008. Economies such as China, Philippines, and Papua New Guinea could see somewhat larger net losses of approximately 0.5 percent of GDP.
On the other hand, rice exporters such as Thailand and Vietnam likely will see substantial income gains because of high rice prices.
Combining the effect of higher food prices with those of additional increases in oil and metals prices, the region could experience an aggregate income loss of approximately 1 percent of GDP in 2008.
Food comprises a larger share of the consumption basket of the population in most developing East Asian economies than it does in developed countries. In the U.S. the share of food in the consumption basket of the average household is 15 percent, while in East Asia it ranges between 31 and 50 percent (31 percent in Malaysia, 34 percent in China, 36 percent in Thailand, 40 percent in Indonesia, 43 percent in Vietnam, and 50 percent in the Philippines).
Rising food prices are quickly taking on a high profile around the region, eliciting a range of policy responses.
