Friday, April 29, 2011

Food price inflation and poverty in South Asia

A new ADB study (Global Food Price Inflation and Developing Asia) finds that a 10% rise in domestic food prices in developing Asia, home to 3.3 billion people, could push an additional 64 million people into extreme poverty based on the $1.25 a day poverty line. Also, if the global food and oil price hikes seen in early 2011 persist for the remainder of the year, economic growth in the region could be reduced by up to 1.5 percentage points.

The report estimates that a 10%, 20% and 30% increase in food prices would increase percentage of poor by 2.0, 4.1, and 6.1 percentage points respectively in Nepal. This translates into 0.55, 1.10, and 1.65 million people respectively. This calculation is based on food price elasticity of poverty. To address food insecurity, the Nepali government has planned to import 100,000 tons of rice (to be financed by WFP) and is releasing 30,000 tons of rice allocated for food deficit mid-and far-western regions. It is also subsidizing food prices at government depots.

The table shows corresponding figures for the other countries in South Asia (excluding Afghanistan and Maldives). It looks like rural India would have the largest impact of food price inflation on poverty. Sri Lanka faces the least impact (among South Asian countries) by food price inflation.

Food prices and poverty (USD 1.25-a-day poverty line) in South Asia
ADB 2011 estimate Change in percentage of poor (in percentage points) with an increase in food prices by Change in number of poor (in millions) with an increase in food prices by
10% 20% 30% 10% 20% 30%
Bangladesh 2.5 5 7.5 3.83 7.65 11.48
Bhutan 1.8 3.5 5.3 0.01 0.02 0.03
India—Rural 2.9 5.8 8.8 22.82 45.64 68.45
India—Urban 2.1 4.3 6.4 6.68 13.36 20.04
Nepal 2 4.1 6.1 0.55 1.1 1.65
Pakistan 2.2 4.5 6.7 3.47 6.94 10.41
Sri Lanka 1.2 2.4 3.6 0.24 0.47 0.71

The report notes that production shortfalls caused by bad weather along with the weak US dollar, high oil prices and subsequent export bans by several key food producing countries have caused much of the upward global price pressure since last June, with double digit increases seen in the price of wheat, corn, sugar, edible oils, dairy products and meat. Rice prices are likely to continue their uptrend as the effects of La NiƱa persist, prompting consumers to seek less costly and less nutritious substitutes. Persistent structural and cyclical factors such as rising demand for food from wealthier emerging economies, changing diets, competing uses for food grains, shrinking available agricultural land, and stagnant or declining crop yields, are also causing the upward pressure.

In the longer term, structural adjustments are needed to secure food supplies. These include measures to improve crop productivity, increased infrastructure investments (e.g. irrigation and food transport/storage), stronger market integration, and closer global/regional cooperation on food production and supplies. Countries should refrain from export bans on food items.

Meanwhile, a different study by Maros, Martin and Hassan (2011) of the WB found that the food price rise of 2010-11 led to an average poverty change of 1.1 percentage points in low income countries and 0.7 percentage points in middle income countries. The net increase in poverty was 44 million people (falling below the $1.25 per day extreme poverty line).