Food prices unlikely to climb down soon: WB expert
Saturday, 22 November 2008
FE Report
A World Bank (WB) official has recently predicted no noticeable fall in rice and wheat prices in the international market in the near future despite a bumper production of the food items this year.
Higher cereal prices are likely to continue as potential threat to balance of payments and poverty reduction efforts in South Asia, including Bangladesh, the official said in a report.
Though there is bumper global wheat harvest and increased rice production in FY09, it is clear that the underlying economics of food markets has changed dramatically, he noted in the report
Unless energy prices were to collapse to the level found in 2004, food prices are not likely return to the normal level as that of 2004, the report said
The prices of rice and wheat in the global market might be around $560 per tonne and $340 per tonne respectively in 2009 and $500 per tonne and $300 per tonne in 2010, said the report titled "Global food price inflation: implication for South Asia, policy reactions and future challenges".
According to report, the rice price between 2002 and May 2008 increased five fold. The price started rising from 2004 when it was being traded at nearly $110 to $120 per tonne in the global market.
"Adverse effect of the rise in global commodity prices on macroeconomic balances has been substantial. Economic growth is showing signs of slowdown…….The emerging global financial crisis is adding fuel to the fire, with further adverse consequences for macroeconomic balance and growth," Sadiq Ahmed, author of the report said.
The large increase in prices of food grains has huge adverse implication for world poverty, said Mr. Ahmed who is the sector director of the South Asia region of the Washington-based multilateral donor agency.
"A recent study of WB showed the poverty has increased by 3.0 percentage points in South Asia during 2005 to 2008. The total world poor may have increased by 73-105 million."
According to the report the food inflation hit to record 20 per cent in South Asia (SA) where the people spend 25 to 60 per cent of their total income for the staple food.
Only in Bangladesh the rice price increased by nearly 40 per cent within May 2007 to July 2008.
"In the absence of wage adjustment in Bangladesh, the increase in rice prices reduces real household's expenditure by an average 5.0 per cent. The impact is large for urban (5.5 per cent) than the rural households (4.6 per cent)," said Mr. Ahmed, a Bangladeshi-born development specialist.
"The impact is much worse for the bottom quintile, where average income declines by 10.5 per cent as compared with less than 2.5 per cent for top two quintiles," he said in his paper.
Mr. Ahmed, a Boston University graduate, said the adverse affect is highest for households headed by agricultural and non-agricultural day workers and lowest among households headed by salaried workers.
"The rising food and fuel prices have been a major source of inflationary pressure in South Asia. In Bangladesh and Nepal food prices made a bigger impact on inflation than fuel prices," his report said.
The WB executive said the food inflation in South Asian countries has hit to record 20 per cent and increase of global commodities prices in last few years has estimated to suffer an income loss of equivalent to some 9.6 per cent of gross domestic products (GDP) between January 2003 -April 2008.
Mr. Ahmed said given the sharp rise in commodity prices, the SA region has experienced sever terms of trade loss, deterioration of external and internal trade balance and adverse economic and social impact on the poor.
The WB sector director in his report suggested the South Asian nations to shift their policy efforts to increase the farm productivity, improve rural infrastructure and extension of the regional cooperation for ensuring the food security in the future years.
A World Bank (WB) official has recently predicted no noticeable fall in rice and wheat prices in the international market in the near future despite a bumper production of the food items this year.
Higher cereal prices are likely to continue as potential threat to balance of payments and poverty reduction efforts in South Asia, including Bangladesh, the official said in a report.
Though there is bumper global wheat harvest and increased rice production in FY09, it is clear that the underlying economics of food markets has changed dramatically, he noted in the report
Unless energy prices were to collapse to the level found in 2004, food prices are not likely return to the normal level as that of 2004, the report said
The prices of rice and wheat in the global market might be around $560 per tonne and $340 per tonne respectively in 2009 and $500 per tonne and $300 per tonne in 2010, said the report titled "Global food price inflation: implication for South Asia, policy reactions and future challenges".
According to report, the rice price between 2002 and May 2008 increased five fold. The price started rising from 2004 when it was being traded at nearly $110 to $120 per tonne in the global market.
"Adverse effect of the rise in global commodity prices on macroeconomic balances has been substantial. Economic growth is showing signs of slowdown…….The emerging global financial crisis is adding fuel to the fire, with further adverse consequences for macroeconomic balance and growth," Sadiq Ahmed, author of the report said.
The large increase in prices of food grains has huge adverse implication for world poverty, said Mr. Ahmed who is the sector director of the South Asia region of the Washington-based multilateral donor agency.
"A recent study of WB showed the poverty has increased by 3.0 percentage points in South Asia during 2005 to 2008. The total world poor may have increased by 73-105 million."
According to the report the food inflation hit to record 20 per cent in South Asia (SA) where the people spend 25 to 60 per cent of their total income for the staple food.
Only in Bangladesh the rice price increased by nearly 40 per cent within May 2007 to July 2008.
"In the absence of wage adjustment in Bangladesh, the increase in rice prices reduces real household's expenditure by an average 5.0 per cent. The impact is large for urban (5.5 per cent) than the rural households (4.6 per cent)," said Mr. Ahmed, a Bangladeshi-born development specialist.
"The impact is much worse for the bottom quintile, where average income declines by 10.5 per cent as compared with less than 2.5 per cent for top two quintiles," he said in his paper.
Mr. Ahmed, a Boston University graduate, said the adverse affect is highest for households headed by agricultural and non-agricultural day workers and lowest among households headed by salaried workers.
"The rising food and fuel prices have been a major source of inflationary pressure in South Asia. In Bangladesh and Nepal food prices made a bigger impact on inflation than fuel prices," his report said.
The WB executive said the food inflation in South Asian countries has hit to record 20 per cent and increase of global commodities prices in last few years has estimated to suffer an income loss of equivalent to some 9.6 per cent of gross domestic products (GDP) between January 2003 -April 2008.
Mr. Ahmed said given the sharp rise in commodity prices, the SA region has experienced sever terms of trade loss, deterioration of external and internal trade balance and adverse economic and social impact on the poor.
The WB sector director in his report suggested the South Asian nations to shift their policy efforts to increase the farm productivity, improve rural infrastructure and extension of the regional cooperation for ensuring the food security in the future years.