High food prices prevented nearly 20 million people emerge from poverty in Asia and the Pacific

ESCAP study warns food inflation can delay MDG 1 achievement by 5 years

High food prices prevented 19.4 million people in the Asia-Pacific region from climbing out of poverty last year and persisting food and oil inflation can keep up to an extra 42 million people poor in the region, a new United Nations study released today said.

An assessment by the UN Economic and Social Commission for Asia and the Pacific (ESCAP) warns that rising food prices can postpone the achievement of the first Millennium Development Goal (MDG) on poverty reduction by half a decade in many countries in the region, particularly Bangladesh, India, Lao People’s Democratic Republic and Nepal.

“Rising food prices are adding to inflationary pressures across the Asia-Pacific region. They are seen as a key downside risk to sustaining recovery in 2011. More startlingly high food prices in 2010 have kept 19.4 million people in poverty in the region, people who otherwise would have been out of poverty today,” says the study by ESCAP’s Macroeconomic Policy and Development Division (MPDD).

Bad weather in key food-producing countries, increasing use of crops in biofuels and speculation in commodity markets have added to a long-term decline in agriculture investment and affected global food supplies, according to the study which examines the underlying causes of inflation in the region and its wider impact, and suggests short-, medium and long-term policy responses for governments and central banks.

It analyses different scenarios for the year ahead for inflation presently forecast at 4.6 per cent for developing ESCAP economies. The scenarios assume food price inflation at half the 2010 rate, at the same rate as in 2010 and at twice the 2010 rate. Under these scenarios, higher food and rising oil prices may slow down poverty reduction even further, affecting from 10 to 42 million additional people. Policy responses to high food prices over the short term include mild monetary tightening by the central bank. After a temporary supply shock, inflationary expectations can be prevented from becoming entrenched through a monetary response, says ESCAP. Other short-term measures include lower tax and tariff rates, freer imports and bigger food stocks to lessen the impact of temporary supply shocks.

“Strengthening social protection programmes including food safety nets and food vouchers or other such measures are critical to protect the poor and vulnerable people who are most severely affected from soaring food prices”, said Dr Noeleen Heyzer, United Nations Under-Secretary-General and ESCAP’s Executive Secretary.

The study underlines the importance of regional cooperation through joint buffer stocks such as those created by ASEAN and SAARC in the face of temporary supply shocks.

Over the medium and longer terms, reversing the neglect of agriculture in public policy and overseas aid priorities is vital. Promoting higher agricultural productivity is the key policy response with public resources needing to be shifted from subsidizing consumption to boosting agricultural productivity. This requires a sustained programme of agricultural research, public education and better-designed rural extension programmes.

Given the role of speculative activity in exaggerating food and oil price shocks driven by massive liquidity injections in the developed countries of the West, the ESCAP study recommends the regulation of such activity, including position limits, rather than an outright ban.

The single most important policy initiative for developing countries in the region is to give priority to boosting the agriculture sector. Imbalances in global supply and demand of food could be substantially minimized if today’s net importing countries, particularly the least developed countries in Africa and Asia, improved their agricultural productivity.