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NEWS UPDATES Asean Affairs        7 January 2011

Asia scrambles as food prices skyrocket

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Record high food prices are moving to the top of the agenda for many Asian policymakers as the prospect of higher inflation in 2011 poses a major threat to the region's strong revival from the global financial crisis.

The United Nations' food agency (FAO) said on Wednesday that food prices hit a record high last month, moving beyond levels of 2008, when riots broke out in countries as far afield as Egypt, Cameroon and Haiti.

Food inflation in many Asian countries, including China and India, is already in double digits, raising fears that the price pressures could spread more broadly to other sectors and pose a threat to both economic and social stability as millions of Asians live in poverty.

The FAO said sugar and meat were at their highest since its records began in 1990. Prices were at their highest since 2008 crisis levels for wheat, rice, corn and other cereals.

Benchmark prices solely in Asia for rice suggested a different picture.

The region's staple food now stands at $535 per ton, less than half its 2008 levels of more than $1,000 a ton that prompted several governments at the time to impose curbs on exports to protect their domestic markets.

However, the fact that rice is far from the lofty levels of the 2007-08 food crisis should offer no comfort for policymakers.

"I wouldn't be terribly surprised if 2011 resembles in many ways 2008," said Frederic Neumann, regional economist at HSBC in Hong Kong.

Surging food prices have proved a trigger for social protests in the past, forcing governments to cave in to demands for action.

Last year, wheat futures prices rose 47 percent, buoyed by a series of weather events including drought in Russia and its Black Sea neighbors.

Luke Matthews, a commodity strategist at Commonwealth Bank of Australia, said there was little reason to expect any let up in the global rally in food prices.

Fan Cheuk Wan, head of Asia Pacific research at the private banking division of Credit Suisse, favors Indonesian palm oil firm Indofood Agri Resources and suggested investors avoid companies that could get hit by price controls.

World Bank President Robert Zoellick urged governments in a newspaper opinion column to avoid protectionist measures as food prices rise and called upon the Group of 20 leading economies to take steps to make sure the poor get adequate food supply.

Still, Asia's rapidly rising consumption as developing economies such as India, China and Indonesia emerge on the world stage is a major factor behind the rise in food prices.

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