Food prices mean trouble for poor and politicians

Reuters News
|
Posted: Jun 17, 2011 7:19 AM
Food prices mean trouble for poor and politicians

By Ed Stoddard and Naveen Thukral

JOHANNESBURG/SINGAPORE (Reuters) - Just a few months ago Alpheus Molepo's daily lunch of "pap" or corn meal and meat cost 20 rand ($3.30). Now it costs 25 rand.

"This is why we are crying," Molepo, 55, a Johannesburg taxi driver, said as he sat under the winter sun by his vehicle, complaining that business was down while food costs were up.

Molepo is not alone.

The impact of skyrocketing food prices is echoing across the globe, in households and in the corridors of power ahead of a summit in Paris next week of G20 farm ministers.

On the ground, people like Molepo are being hit hard throughout Africa, Asia and Latin America where poor families spend 50 to 90 percent of their income on food. The pain is compounded by a jump in fuel prices.

"When food prices go up, the ones who are on the lowest incomes in the world may have to sell their possessions, borrow money just to survive," said Heidi Chow, a campaigner with the UK's World Development Movement.

Global food prices hit a record high earlier this year, according to the UN Food and Agriculture Organization.

Adverse growing weather has been the immediate trigger in sending wheat prices up 50 percent over the past 12 months and sparking a doubling in corn prices.

Prices are also being bolstered by a wave of newly urbanized middle class families in emerging powerhouses such as China switching to diets needing more intensive agricultural inputs.

But the impact of price spikes is uneven.

In some countries the cycle has boosted local currencies, shielding their economies to a degree from imported fuel costs, while the weather has brought bumper crops to some regions and drought to others.

Many governments, wary after riots erupted during the last food price spikes three years ago, are seeking to cool food prices through subsidies and other mechanisms while monetary officials worry about knock-on impacts on inflation.

HIGH FUEL PRICES

The lopsided impact of the global trends is on full display in Africa, where South Africa has had a good harvest of its staple maize, but the central bank there remains wary of food price pressures which are seen fueling wage demands from the country's unionized mine workers.

About 3,000 km northeast in Kenya, a 90 kg (200 lb) bag of maize is now fetching about 4,000 shillings ($45.66), double the cost in 2009, when the country had a bumper harvest.

It helped push the year-on-year inflation rate up to a seven-month high in May of 12.59 percent.

In some countries it is a matter of life and death.

"Animals have perished and so far some people have starved to death. If food prices continue to soar many Somalis will die," Yusuf Moalim Amin Badiyo, Somalia's agriculture minister, told Reuters.

A spike in global oil prices by over 50 percent over the past 12 months has added to the pain. In a vicious circle, unrest in the Mideast and North Africa, partly inflamed by high food prices, led to a loss of supply from Libya and provoked fears of more supply shocks from the oil-rich region.

South African taxi driver Molepo blames high fuel prices for his sluggish business, while food traders in a market in Burundi's capital of Bujumbura see a link with soaring cooking oil and food costs.

"The main cause of this is higher fuel prices," one trader said, noting that it was costing more to transport food from the countryside to the market.

ASIAN RESPONSE

While many African governments are facing the tough choice of blowing their budgets on subsidies or risking street anger, many Asian nations have already acted to cool food inflation.

In Asia, blessed with a bumper rice crop, nations have used measures such as offloading state grain reserves into the market, curbs on speculators and policy tightening.

In China, food prices fell 0.4 percent in April from March but were 11.5 percent higher than a year earlier, while India's food price index rose 7.70 percent in the year to April 30, the slowest rise since end-March 2009.

In Indonesia, Southeast Asia's biggest economy, inflation in May eased to 5.98 percent to fall within the central bank's 2011 target range for the first time this year.

"We have seen food prices a little more contained in some of these Asian countries, which is largely a result of pro-active government policies," said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia.

"For example, China has been pro-active in managing supplies for grains, oilseeds and sugar. What we have seen is that when domestic food price inflation show signs of getting out of control, they are more willing to put reserves back on to the domestic market."

China just suspended regular rapeseed oil auctions and lifted a 7-month price cap on retail vegetable oil prices, a possible signal that supplies may be plentiful enough to ease food inflation worries.

India is expecting food inflation to fall further in the second half of the fiscal year as forecasts of a normal monsoon raise prospects of a bumper grain and oilseed harvest.

Still, analysts say Asia is vulnerable to food price shocks, given the volatility in global agricultural markets.

In Latin America, the World Bank says in a recent report that it does not expect "the latest acceleration of food prices to lead to a dramatic increase in poverty levels ... However, certain vulnerable groups and countries are expected to experience rising poverty and negative welfare shocks."

In Honduras for example, food accounts for over 80 percent of the expenditure of the poorest 20 percent.

And the commodity cycle has been a double-edged sword there, with the terms of trade improving for some nations which produce food and other commodities.

"In a real sense, Latin American economies are richer as a result of these terms of trade improvements," Augusto de la Torre, the World bank's chief economist for Latin America and the Caribbean region, told Reuters on the sidelines of a conference in Johannesburg.

"However, the internal distribution of these gains is a very difficult issue. And when you have this transference of food and fuel prices you get a lot of losers and winners," he said.

(Additional reporting by Patrick Nduwimana in Bujumbura, Beatrice Gachenge in Nairobi, Abdi Sheikh in Mogadishu)

(Editing by Eric Onstad)