On the Beat | By Wong Chun Wai

Food for thought

On The Beat


IT’S not a good time to be the head of a government. The skyrocketing prices in fuel and food have led to rioting in 22 countries, at the last count, and at least one government has collapsed because of these problems.

In April, the Haiti government fell after 16 senators in the Caribbean nation sacked Prime Minister Jacques-Edouard Alexis following a week of rioting against the rocketing prices of rice, beans and cooking oil.

The World Bank said at least 33 countries were being threatened with social and political unrest.

In European Union countries, in at least 15 nations, the inflation rate has soared, the highest since 1994 following the increases.

From Africa to Europe and Asia, people have taken to the streets to protest against this crisis.

Last week, in Kuala Lumpur, a huge crowd demonstrated against the fuel price hike after Friday prayers. It is an issue that touches the nerve of Malaysians, as their pockets have been burnt and any move to increase prices would always be unpopular.

But any promises to reduce fuel or food prices can only be regarded as far-fetched although the quantum of any price hike is debatable. Populist decisions are popular but unsustainable, even harmful, to the country in the long run.

Economists have singled out the Philippines for introducing popular wide-scale food subsidies that can lead to a dangerous level of food stock shortages eventually. It has also increased food imports by jacking up the budget deficit.

Since the last 30 decades, oil prices have soared at least five times and that means everything needed for food production – from fertilisers to transportation – have shot up.

It has not helped that extreme weather conditions have hit wheat- and rice-exporting countries such as Russia, Kazakhstan, Australia, Vietnam, Myanmar and Bangladesh.

Besides export controls and bans by India and Vietnam on rice, Ukraine, for example, has export quota. After harvesting more wheat than they could sell at home, farmers were forced to toss US$100mil of rotten grain into the Black Sea early this year – just when many countries were facing a shortage of food.

Last week, the Konrad-Adenauer-Stiftung brought together editors from Europe and Asia to Bangkok to meet rice producers, traders and experts to review the declining stock of rice among exporting nations.

Asian Development Bank executive director Sebastian Paust, who spoke to editors, warned that the prices of wheat, grain and rice might stabilise but highlighted that food had become a commodity that was now heavily bet on.

The Chicago Mercantile Exchange, he said, had showed the volume of contracts increased by 20% since January to more than a million contracts a day. There is also the Multi Commodity Exchange of India in Mumbai.

Hedge funds alone this year amounted to about US$40bil in financial markets, with shares in food-related companies being snapped up.

AMP Capital Investors Shane Oliver reportedly said traders and speculators flocked to commodities, including food, this year because it was one of the few investments that provided solid returns.

But Paust said structural factors such as neglect of rural areas, insufficient investments, insecure land tenure rights, urban migration, rising energy prices, lack of incentives in agricultural products and the massive demand for food consumption, especially in India and China, were also contributing factors.

Rice trader Vichai Sriprasert said the prices of rice would not go down, citing climate change as a serious threat, but dismissed speculations on rice futures. He said Thai politicians, wanting popularity, would keep prices at a minimum.

The Thai Rice Exporters Association president said hoarding and panic buying could lead to a periodic price increase but it could also mean lower demand.

But it’s not all bad news. International Rice Research Institute development director Duncan Macintosh said new hybrids for unfavourable environments had been successfully tested, with vast improvement in biotech for breeding efficiency.

Rice expert Dr Ammar Siamwalla of the Thailand Development Research Institute predicted the price of rice would slide back, if there were no climatic disasters.

Paust said India planned to make speculative future trading more costly at the commodity exchange, adding that countries should make agriculture a political priority. There are also calls to strengthen social safety nets through targeted income support for the poor rather than generalised food subsidies or trade measures.

Countries are now also re-looking the biofuel trend as cereals should not be used to feed machines but people. Since 2000, cereal use for industrial purposes like biofuel jumped by more than 25%, according to reports. It is a sin to do so in the name of environment.

There’s also a lesson for all government leaders – don’t ignore food production for manufacturing and cash crop commodities.

For editors, agriculture stories may not sell newspapers and they are ignored until there is a food shortage. It’s food for thought for all.