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July 22, 2008

ADB: Days of cheap food are over
The era of cheap food for Asia is over as surging demand, supply problems and the growing production of biofuels will keep food prices high, Indonesian news agency Antara quoted

the Asian Development Bank (ADB) as warning Tuesday.

In its latest Asia Economic Monitor report, the Manila-based lender warned that while previous food price surges were "cyclical and temporary," the higher prices now being seen were

caused by permanent changes.

"This time, the impetus appears to come from persistently rising demand ... primarily from rapidly-growing emerging market economies, suggesting that there is a structural and permanent

trend at work," AFP quoted the report as saying.

The ADB cited the average 7.4 percent growth in gross domestic product (GDP) in Asia since 2000, saying it had created a "structural shift in demand, particularly for food."

Higher incomes have resulted in increased food consumption and a greater demand for meat, which bolsters the need for grain and feed stock.

This shift comes as agricultural productivity remains low or stagnant, with production unable to meet the demand due to low capitalisation and underinvestment in agricultural research

and development, the bank said.

Growing urbanisation has also created competing demands for land and water, while rising energy prices have increased the costs of fertiliser, irrigation and food transport by 30-50

percent in the past year, it said.

Production of biofuels in Europe and the United States, frequently supported by government subsidies, have also driven up the prices of agricultural commodities such as corn, forcing

increased use of substitutes like soybean and palm oil.

The ADB said public hoarding, through export bans and restrictions in China, Thailand and Vietnam, and panic-buying in the Philippines, had contributed to the price pressures.

Because only 10 percent of total rice production is traded internationally, any news of supply disruptions, especially in big producer countries such as Vietnam and Thailand, quickly set

off price spikes, the bank said.

Strong economic growth is likely to keep demand on the rise, while biofuel production is expected to grow.

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