Monday, April 21, 2008

Global Food Price Increase

The surge in global food prices risks setting back the world's anti-poverty efforts and, if not properly handled, could hurt global growth and security, United Nations Secretary-General Ban Ki-moon said on Sunday.

Opening a U.N. trade and development conference in Accra, Ghana, Ban said the huge increases in prices of food staples like cereals since last year could erase progress made towards U.N.-set goals of halving world poverty by 2015.

The problem of global food prices could mean seven lost years ... for the Millennium Development Goals," he said.

"We risk being set back to square one," Ban told the U.N. Conference on Trade and Development (UNCTAD) meeting.

The food price surge has sharply increased the risk of hunger and poverty in developing countries and has already sparked food riots in parts of Asia and Africa.

The U.N. chief noted that several countries had moved to try to offset the food squeeze by barring exports of rice and wheat, or introducing incentives for easier imports of foodstuffs.

"This threatens to distort international trade and exacerbate shortages," he said.

"If not handled properly, this crisis could result in a cascade of others ... and become a multidimensional problem affecting economic growth, social progress and even political security around the world," Ban told the conference.

Food Price Increase In Malaysia

Responding to the urgency of an impending global food crisis, Datuk Seri Abdullah Ahmad Badawi called on the private sector to venture into agriculture and food production.

Major conglomerates under Permodalan Nasional Berhad and others should expand into the agricultural sector to help the country be self-sufficient in food, the prime minister said.

"The country will face problems if we continue depending on imports of food items such as rice. We have all the resources such as land and manpower. Why don't the major conglomerates use these to venture into agriculture and food production?

"We have to effectively tackle the issue of food production as it is vital for us to ensure we have enough food in the country."

Speaking at the launch of PNB's Unit Trust Week, Abdullah said the country had to make preparations immediately to source for food supplies for the nation and not wait for shortages to arise.

"We have to be prepared early to face any possibilities. This is where the major conglomerates and the private sector can help us."

Abdullah said the government would ensure the country attained 100 per cent self-sufficiency in food from the current 60 to 70 per cent.

Dismissing the notion that large-scale investments in agriculture and food production would end in losses, Abdullah said the conglomerates must take up the challenge of entering into food production rather than focusing solely on plantation crops such as oil palm.

"We are not the only ones who will be facing a food shortage in the future. This will be a global phenomenon and if the countries which are exporting food stop doing so, it could impact negatively on the nation and people.

"The government is also in the midst of building up a food stockpile, opening new agricultural areas and providing subsidies for food production. We also want farmers to increase their productivity."

Abdullah said a food shortage could also be a blessing for a country like Malaysia, which has a large land area, if it eventually manages to export food.

"However, before looking into this aspect we have to ensure there is enough food for our nation and its people. I do not want the people to face any shortage and this is why it is vital for us to increase our food production capacity," he said.

On Saturday, Abdullah announced a RM4 billion fund to increase food production in the country and to keep prices down. He said a large tract of land in Sarawak would be turned into the country's new rice

ALL indicators point to the world running headlong into an environment of high prices and shortages of basic needs. The chance for any one country to escape the impact is almost nil.

Already the world is forced to accept crude oil being traded at above US$117 per barrel.

A few months ago, oil futures traders in New York were betting that prices would hit US$200 a barrel before the year end.

Impact of high oil prices will spread across most other sectors. It will become more expensive to power industries as the cost of electricity generation would also rise in tandem with global oil prices.

It will also be costlier to own cars, to use public transport, to produce goods and transport them. All these point to higher end prices that consumers will have to pay for goods and services.

These are but the tip of the iceberg in terms of what lies ahead.

Another potentially big problem could come from an even more vital source -- the food sector.

Problems in the food sector are not isolated from the high global oil prices. The high price of oil has made producing crops and manufacturing food a lot more expensive than before.

Adding to that is the unpredictable global food production as erratic world weather reduces harvest volumes and eventually cuts overall supplies.

On the other hand, demand remains high as global populations continue to rise and emerging economic powerhouses use more petroleum to power their industries and increase intake of food items.

Worldwide too, the World Bank has noted a marked reduction in investments channelled towards food production in recent years as nations have moved towards industrialisation, relegating agriculture to the lower rungs of their priorities.

Meanwhile, in the developed world, the cultivation of crops is now more aimed towards production of biofuels instead of food.

This combination of factors contributing to the food problem suggests that it is a structural issue which, in turn, means that it will not go away quickly.

The impact is, however, beginning to rear its ugly head in the form of deadly street riots in several least developed and developing countries, in protests against the high prices of wheat and rice and also of their shortages.

At the United Nations, officials are warning that rising food prices will cause widespread public unrest and threaten political stability.

In Asia, concerns are escalating over shortages and the rising prices of rice. Even in Thailand, the world's top producer of rice, shortages have been reported.

Vietnam and India have recently said they were halting rice exports to build their own stockpiles.

In Malaysia, the leading rice company, Padiberas Nasional Bhd said the domestic stockpile could last between four and six months.

Agriculture and Agro-based Industry Minister Datuk Mustapa Mohamed recently said the government would allocate RM6 billion more to boost rice production, with the target being to reach self-sufficiency of between 70 per cent and 90 per cent. Malaysia imports between 650,000 and 800,000 tonnes of rice a year.

Mustapha also said the country would maintain its annual padi production of 1.6 million tonnes this year, covering about 73 per cent of Malaysia's needs.

Elsewhere, a recent report in the Financial Times said world demand for rice had exceeded supply in six of the last eight years and global rice stocks were at their lowest level since 1976.

"We are facing a huge problem," said International Monetary Fund chief Dominique Strauss-Kahn recently, warning that instability induced by food shortages and high prices could shake governments, even if they have done nothing to contribute to the problem.

Ministry Action To Combat Increase

The prices of essential goods will be standardised in the peninsula and Sabah and Sarawak as part of the government's initiatives to reduce the burden of the people in the face of rising costs.

Deputy Prime Minister Datuk Seri Najib Razak had said the government would soon unveil initiatives to reduce the burden of consumers as global food prices rise.
The Cabinet Committee on Inflation would draw up plans to address the issue, he said.

Shahrir said the number of essential items might be increased from the present 11, which include cooking oil, chicken, bread, sugar, flour and condensed milk.

For a start, the committee had decided that the price of liquefied petroleum gas in Sabah and Sarawak would be standardised, with the price in the peninsula at RM1.75 sen per kilogramme.

This means that the price of the commodity would be reduced by eight sen per kilogramme, involving annual subsidies of RM16 million.

Shahrir said the government would strive to standardise the prices of as many items as possible, especially those whose prices were controlled by the government.