Friday, April 29, 2011

Soaring Food Prices Again Threaten to Push Millions of Asians into Poverty -ADB

MANILA, PHILIPPINES - Resurgent global food prices, which posted record increases in the first two months of 2011, are again threatening to push millions of people in developing Asia into extreme poverty, says a new report from the Asian Development Bank (ADB) titled 'Global Food Price Inflation and Developing Asia'.

Food prices had been expected to continue a gradual ascent in the wake of the sharp spike in 2008. The report says that fast and persistent increases in the cost of many Asian food staples since the middle of last year, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region which has rebounded rapidly and strongly from the global economic crisis.

Domestic food inflation in many regional economies in Asia has averaged 10% in early 2011. The ADB study 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.

"For poor families in developing Asia, who already spend more than 60% of their income on food, higher food prices further reduce their ability to pay for medical care and their children's education," said ADB Chief Economist Changyong Rhee. "Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia."

The report adds that 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.

In the short term, the pattern of higher and more volatile food prices is likely to continue the report says, noting that grain stocks have fallen. Adding to this are structural and cyclical factors that were at play during the 2007 to 2008 crisis including rising demand for food from more populous and wealthier developing countries, competing uses for food grains, shrinking available agricultural land, and stagnant or declining crop yields.

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.

"To avert this looming crisis it is important for countries to refrain from imposing export bans on food items, while strengthening social safety nets," said Dr. Rhee. "Efforts to stabilize food production should take center stage, with greater investments in agricultural infrastructure to increase crop production and expand storage facilities, to better ensure grain produce is not wasted."

Asian governments have already taken many short term measures to cushion the harsh impacts of food price inflation, including measures to stabilize prices. However rising demand for food from developing Asia and low food productivity mean policymakers must also focus on long term solutions to avert a future crisis, the report says.

The report says there is also a need to calm speculative activities in food markets. It recommends enhanced market integration, and the elimination of policy distortions that create hurdles in transferring food from surplus to deficit regions.

It also notes that cooperation between Asian nations can help better secure food supply for the region's people. The ASEAN Integrated Food Security Framework, under which the 10 member ASEAN group of countries has agreed to establish an emergency regional rice reserve system, is a positive step in that direction.

Thursday, April 7, 2011

Is Maldives heading towards a failed state? Can we get out of the vicious cycle?

The recent events of unrest in Egypt, Libya, and Bahrain remind us of so many things; which are frightening and exciting too. It seems that some form of democracy is preferred in all countries. Hence, to change an existing autocratic regime, most times require social turmoil, involving deaths and destructions to property. It’s not necessary that change occur after some form of turmoil. The main reason why political instability and elicit widespread action for change is triggered is that people become too ‘unhappy’. This unhappiness most of the time comes through tough, hardship life circumstances, in other words, through high unemployment, higher prices, high inequality, and overt corruption. Widespread distrust and feelings of hopelessness by large segments of the population, leads to uprisings. Seem familiar?

When Maldives embraced many political and governance reforms during 2007-2008, and a significant proportion of the population wanted a regime change, people, or at least I had high hopes for the country. We’d hoped that our judiciary and other institutions will be freed from corruption, and break away from the vicious cycle that we were in for the last 30 years. The reason we were trapped in a vicious cycle was that there was uneven distribution of economic power. The natural resources were unfairly controlled by very few families in the country. In such a situation, in order to protect their property and wealth, they obtained the political power to even influence the judicial system in the country. Hence, an environment that enables constraining the powerful emerges only when a significant share of the population has economic power through their property holdings or their human capital. When there are many (instead of a few), with properties and wealth, there can be a collective power to advocate for an effective police force and an impartial judicial system. We can have a failed state, and stay failed if we do not have an even distribution of economic power.

Why do you think we are all faced with increased in crimes in the form of killings, rapes, stabbing, overt corruption, and many more in our country? It is because we have a judiciary without the appropriate distribution of power backing them. In simple words, majority of the population are not able (or do not have the power) to pressure the judiciary to become impartial, majority of the people do not have the political power to pressure the government to enforce the court sentences. In the case of protecting properties; and ordinary citizen does not have the power to do so, while a powerful businessman has his own private ‘gangs’ to protect his property. They don’t need an effective fair court or a helpful policeman. However, if there are numerous ‘businessmen’ with the enough resources and wealth, when they come well-organized, collectively they can have the political and economical might to make sure the institutions work.

What I’m trying to say is that, having the control of our country’s resources in the hands of only a few people, is inimical to the broader protection of property, because either way, the large powerful owners can protect their interests even without a fair and objective judicial system, hence they have no interest developing the system. In fact, for them it would be better if the judicial system does not develop, so that their privileged violations can be continued.

Just like ownership of property or resources, increasing the widespread distribution of improved human capital also plays an important role in bringing about the balance of power. Hence, broadening access to education, and skill acquisition offers another route to spreading economic power in a country.

So, we will be heading towards a failed state, if our country’s wealth continues to be controlled by the strongest businessmen, who effectively also runs (or influence) the government. In the end, we will be in the same situation as the last 30 years, as we were under a dictatorship.