SINGAPORE – 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. 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 tonne, less than half its 2008 levels of more than $1,000 a tonne 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 2007/2008 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.
“Food price inflation could really go into double digits across the region and rise to such an extent that it undermines the purchasing power of households and as a result then slows consumer demand and overall economic growth,” he said.
“And that’s a problem for Asian economic growth. But really it’s also a problem for the rest of the world because as the Asian consumer increasingly is helping to stabilize world demand, it’s actually a challenge of wider global significance.” 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.
“We do believe that the structural drivers behind high food prices are likely to persist for some time,” he said. “We have tight stocks in the corn and sugar markets, we have world wheat stocks susceptible to turn lower with forecasts of La Nina to persist for the next three months or so.” La Nina is a weather pattern that brings cooling temperatures, resulting in higher rainfall in Australia, a major wheat and sugar exporter, and parts of Southeast Asia.
The structural drivers make food commodities and the stocks of food companies hot investment sectors this year, said Terence Wong, an analyst at brokerage DMG in Singapore.
He cited vegetable grower and processor China Minzhong and animal drug maker China Animal Healthcare as his top tips in the local market.
Asia scrambles to contain food inflation
