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Mon, May 05, 2008 - Page 11 News List

Asian bank battles soaring food prices

FEED THE WORLD The head of the Asian Development Bank rejected Thailand’s idea of creating a rice cartel, saying that it was better to let the market operate freely

AP , MADRID

The Asian Development Bank (ADB) has announced emergency funding to help poor countries struggling with soaring food prices and warned these could keep rising and stifle economic growth in the region.

“The cheap food era may be over,” Haruhiko Kuroda, the bank’s president, told a news conference on Saturday in Madrid , where the bank was holding its annual meeting.

The new aid will come in the form of soft loans for the governments of countries hardest hit by the global food crisis, such as Bangladesh.

Kuroda declined to give an overall figure for this expenditure, saying it would depend on requests governments make. He said the amount would be “sizable, but not enormous.”

Asia is home to two-thirds of the world’s poor, and nearly 1.7 billion people in the region live on US$2 a day or less.

Asia’s poor are particularly vulnerable to rising prices for staples such as rice because 60 percent of their spending goes toward food, and the figure rises to 75 percent if fuel costs are included, the bank said.

Kuroda said prices of rice, for instance, have nearly tripled in the past four months.

Higher food costs mean higher inflation, which will reduce consumption, savings and investment. And if governments raise interest rates to control inflation, this could reduce demand and trigger an economic slowdown, the ADB said in a report.

FOOD PRICE SHOCK

It estimated a food price shock of 50 percent could cut real growth in Asian GDP by 1.05 percentage points this year and lower growth next year as well.

Many countries in the region are grappling with the crisis by imposing price controls or bans on food exports, but the bank said this can backfire by discouraging farmers from planting, thus reducing supplies and raising prices.

Food-specific aid is a better idea, Kuroda said.

“We believe targeted interventions to protect food entitlements of the most vulnerable and poor are more effective to mitigate the immediate impact of rising food prices,” he said.

He also said the bank does not like Thailand’s idea of creating a rice-exporting cartel along the lines of OPEC, saying it is better to let market forces operate freely.

The Manila-based bank was created in 1966 to fight poverty in the Asia-Pacific region, and every other year holds its annual meeting in one of its 19 member countries that are outside the region. This year it picked Spain.

Soaring prices for staples have been stoked by higher fuel costs, unpredictable weather and greater demand from emerging powerhouses such as India and China.

US President George W. Bush responded to the world’s rising food prices by asking Congress to approve US$770 million in new global food aid for the coming fiscal year.

BUYING ABILITY

The bank says that while stocks of rice are the lowest they have been in a decade, the real problem is one of prices — the ability of poor people to buy food.

At this meeting, the bank will discuss how governments can help these people, including measures such as targeted aid, and over the long term with greater investment in agriculture and infrastructure like irrigation systems to increase production.

The bank wants developed countries to stop paying subsidies for production of biofuels, saying it makes staples more expensive.

The meeting of the bank’s board begins in earnest today and will bring together about 3,000 delegates, including finance ministers, academics and members of other multilateral development agencies.

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