Better living in India, China pushing global food prices: World Bank

April 3rd, 2008 - 12:50 pm ICT by admin  

By Arun Kumar
Washington, April 3 (IANS) World food prices are likely to continue to increase in the near future, a World Bank South Asia expert warns, attributing this phenomenon to rising standards of living in countries like China and India. Increased use of food crops for bio-fuels and animal feeds, and increased oil and fertiliser prices are other factors, Shanta Devarajan, World Bank’s chief economist for South Asia said here Wednesday.

In the face of a dramatic increase in global food prices, expanding existing social assistance programmes that directly target poor households is necessary to protect South Asia’s poor, he said, noting that many countries in the region have cash-transfer programmes and schemes that provide grains at lower costs directly to the poor.

He advised the governments “to enlarge the safety nets by increasing the amount of cash transfers and the number of people receiving low cost grains while still passing on the price increase to other domestic consumers who can better afford it”.

World food prices have been increasing rapidly since 2006, and the rate of increase during 2007 had been much higher than average. According to the Food and Agriculture Organisation (FAO), overall food prices have increased by 75 percent in dollar terms since 2000.

In South Asia, which has the largest concentration of poor people in the world, the increase in food prices is particularly damaging since food accounts for a substantial share of poor peoples’ income.

“Most countries in South Asia are net importers of food and have suffered severe terms-of-trade shocks of one percent of GDP,” said Devarajan. The foreign exchange earnings and international purchasing power of these countries have also decreased.

South Asian countries have very few options available to deal with the challenge. Devarajan advised that governments have to be careful that such measures do not end up hurting those they want to help.

Specifically, the World Bank expert advised New Delhi to phase out the Minimum Support Price (MSP), saying: “The subsidy has a high leakage to higher-income groups.”

Noting the Indian government buys wheat from farmers at an MSP “which is highly distortionary and contributes to high costs for its budget”, Devarajan suggested that the government use this opportunity to do away with this policy, since the world food prices are about the same as MSP.

As Nepal also depends on food imports from India and other countries to manage its needs, Devarajan said: “Nepal needs to expand already existing social assistance programmes in rural areas”.

However, he pointed out that Nepal has a limited social assistance programme to protect the urban poor.

Bangladesh, which imports a substantial portion of major grains consumed by its people, has been particularly badly affected by the continued increase in world food prices. Natural disasters in the past year - two major floods in July and August 2007 and a cyclone in November 2007 - destroyed about two million metric tonnes of rice crops.

Bangladesh is currently importing rice from its immediate neighbours, India and Myanmar, to meet the shortage. Devarajan pointed out that this has already created a problem because India has imposed ban on rice exports or has increased the minimum export price several times in past few months; and each time, the price of rice in Dhaka spiked.

Unlike Bangladesh, Pakistan does not have a widespread social assistance programme that targets the poorest of the poor. In addition, most Pakistani families consume the same kind of wheat, making it difficult to target poor people.

Any subsidy on wheat will thus be an untargeted subsidy. Since a newly elected government has just come to power, it is imperative that it withstands pressure to act in ways that may not be efficient in addressing the needs of poor, Devarajan said.

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