High Food Prices in South Asia_2011-09-27

8/4/2019 High Food Prices in South Asia_2011-09-27

1/46

1 DRAFT paper @ CS_2011-09-24

High Food Prices in South Asia: Status, Impact and Solution

Chandan Sapkota, SAWTEE, 2011-09-24

Abstract: Global food prices have surpassed all thresholds recorded in the past. The food-deficit

low-income countries have been particularly hit hard by persistent rise in global food prices.

Apart from negatively impacting progress made in poverty alleviation and auguring political

instability, it has destabilized fragile fiscal balance in several low-income countries. On this

backdrop, this brief focuses on the status of food prices in South Asia, how they are coping with

it, and lay out viable solutions, including safety net measures. While all South Asian countriesare facing high food prices, some are in more desperate situation than others. Addressing the

impact of high food prices would require both domestic and regional initiatives. At the domestic

level, short-term (emergency food supply and safety nets) and long-term measures (structural

reform of agriculture sector) should be initiated. At the regional level, South Asian countries

should focus on bringing into operation the concept of emergency food reserves, further

liberalizing trade of agriculture goods, and harmonize agriculture policies and cooperation to the

extent possible, among other measures.

**************DRAFT*********************

Presented at South Asian Consultation on Food Justice in a Resource Constrained South

Asia, 26-27 September 2011, Kathmandu, Nepal (Organized by Oxfam and SAWTEE)


2/46


1. Global rise in food prices

Global food prices have been rising unabated. When food prices spiked in mid-2008, the level

was cited as being the highest threshold reached in recent memory. Unfortunately, this years

prices have even surpassed the limit reached in mid-2008 (see Figure 1). The Food andAgriculture Organizations (FAO) Food Price Index (FPI)1 averaged 234 points in June 2011,

one percent higher than in May this year and 39 percent higher than in June last year. A recent

report by the high level panel of experts on food security and nutrition states that agriculture

price volatility in the past five years has been higher than in the previous two decades, but lower

than it was in the 1970s (HLPE, 2011).

The rise in prices of food commodities is not homogenous. Prices of some food items have

increased more than the other. For instance, currently price of sugar has been the highest of all

commodities tracked by the FAO. Sugar price declined till May 2011 and then again started to

rise rapidly. Price of cereals (particularly wheat and maize), dairy, and meat are consistently

rising while that of oil and fats is stabilizing (though at an already high level compared to last

year).

The rise in world food prices after July 2010 is attributed to extreme weather events in major

food producing countries and restrictions on grain trade, leading to higher food prices. For

instance, Russia, the US, China and Central Asia were battered by drought. India and Russia

imposed embargo on grain export, the US and the EU saw unfavourable weather conditions and

Pakistan and Australia had heavy rains and floodsall putting pressure on food supply and then

food prices. Currently, the Horn of Africa is facing food emergency primarily caused by

prolonged droughts especially in areas struggling with conflict and internal displacement such as

Somalia.2

1The FAO Food Price Index is a measure that tracks the monthly change in the international prices of a basket of

five food commodity groups (cereals, oilseeds, sugar, dairy and meat). The index is considered as a global

benchmark for food price trends.

2Near Record High Food Prices Keep Poorest People on the Edge. http://go.worldbank.org/4ENIS0R0Y0


3/46


Moving forward, weakening of the US dollar, surge in oil prices, unfavourable weather events,

commodity market fluctuations, and restrictive trade policies might further exert upward pressure

on global food supply and prices.3

Figure 1: Rising food prices

Source: FAO

The FAO predicts that high and volatile prices are likely to persist this year and in the coming

years too, primarily because of the uncertainties surrounding output in major food producing

countries and a sharp run down on inventories (FAO, June 2011b). This comes about even after

forecast of an increase in food production this year and in the future as well. For instance, cereal

production this year is expected to be three percent higher than in 2010 (FAO, June 2011a) but

price is not expected to come down. Figure 2 shows that compared to last year, cereal price have

increased the most of all food commodities. Cereal price is expected to remain high particularly

in import-dependent developing countries.

Food prices in the long term are expected to increase further and remain volatile. A recent study

shows that the average world market price, relative to 2010 level, of processed rice would rise by

31 percent in 2020 and by 73 percent in 2030 (Willenbockel, June 2011). The corresponding

figures for maize are 33 percent and 89 percent, respectively. Note that the rise in food prices is

3http://www.fao.org/economic/est/volatility/faqs/en/


4/46


not homogenous in all countriesbuoyed by high domestic production and market restrictions,

some countries might see lower local prices while others might experience ever-rising prices.

But, as mentioned earlier, food prices will remain high in food-deficit low-income countries.


5/46


Box 1: Food commodity prices between June 2010 and June 2011

Prices of cereals, crucial component of food basket of South Asians, increased the

most. This gets reflected in domestic prices via trade policy, exchange rate and supplycosts.

The FAO Food Price Index averaged 234 points in June 2011, 39 percent higher

than in June 2010.

The FAO Cereal Price Index averaged 259 points in June, 71 percent higher than

in June 2010.

The FAO Oils/Fats Price Index averaged 257 points in June, 53 percent higher

than in June 2010.

The FAO Dairy Price Index averaged 232 points in June, 14 percent higher than in

June 2010.

The FAO Meat Price Index averaged 180 points, 18 percent higher than in June

2010.

The FAO Sugar Price Index averaged 358 points in June, 59 percent higher than

in June 2010.

Figure 2: Percent change in prices between June 2010 and June 2011

Source: Computed using FAO food price indexes

0

10

20

30

40

50

60

70

80

Food Price

Index

Meat Price

Index

Dairy Price

Index

Cereals Price

Index

Oils Price

Index

Sugar Price

Index

Change in prices between June 2010 and June 2011


6/46


2. Impact of high food prices on economy and households

At household level, higher food prices mean higher spending to meet normal daily dietary needs

and potentially a cutback on discretionary expenditure. The households, particularly those in the

low income deciles, in developing countries are hit harder by higher food prices because foodrepresents a much larger share of their total spending, i.e. demand for food is highly price

inelastic when compared to developed countries citizens.4 South Asian households spend more

than 50 percent of their income on food items while the citizens of developed countries spends

about 10 percent of income on food. Higher food prices reduce household savings and non-food

expenditure.

However, if a household is a net producer of food items, then it will gain when prices rise. This

is true of major food producing and exporting countries. For instance, farmers in northern

hemisphere capitalized on rising food prices by shifting production to soybean plantation after its

prices spiked rapidly in 2007 and 2008 (FAO, June 2011a). Large landholding farmers follow

price signals more easily and try to reap higher income when prices of particular food item rise.

This happened in theMercosurarea, where large land owning households easily reacted to

planting crops whose prices were high in the market (IFAD, 2011). Unfortunately, this is not the

case in South Asia, where a majority of the households own small, fragmented land from where

total output is insufficient to meet household annual food demand and consumption.

Since higher food prices compel households to spend more on food items rather than invest in

income generating activities and also reduce their real income, many households might

experience widening poverty gap and thus fall below the absolute poverty line. In fact, this was

the case during the recent spikes in food prices. 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. About 44 million people fell below the poverty line of US$1.25-a-day,

according to a study by the World Bank economists (Ivanic, Martin, & Zaman, 2011). Worse, forthose households failing to bridge the poverty gap, higher food prices would also mean higher

probability of hunger and malnutrition (HLPE, 2011).

4Note that as citizens get richer, the share of expenditure on food of total expenditure is relatively small and

stable, i.e. for rich citizens the price elasticity of demand decreases. Unfortunately, South Asia does not have

enough of such consumers or households. This is one of the reasons why the low-income countries are relatively

more affected by rising and volatile food prices than the developed countries. For more see (HLPE, 2011)


7/46


At macroeconomy level, low-income food-deficit countries are the ones most affected by higher

food prices. First, they face difficulties in financing food imports. Second, they find hard to

maintain fiscal balance in the face of increasing food subsidies, which might be warranted for

certain section of the population that cannot meet daily food demand. It might widen fiscal

deficit and deteriorate current account balance and overall balance of payments. Furthermore,

high food prices drags up inflation, which might force governments to implement fiscal austerity

measures to avoid overheating of economy, impacting growth rate.5

A recent ADB study

estimated that a 30 percent rise in food prices might choke off 0.6 percentage points of GDP

growth rate of low income countries, including South Asian countries (ADB, 2011, p. 18).

Meanwhile, in the case of net food exporters, higher food prices mean higher exports revenue,

stimulation of economic activities, and comfortable fiscal space to launch targeted welfare

programs. Unfortunately, only India is a net food exporter in South Asia and so far has the

luxury of launching exhaustive social protection and public works programs that are financed

domestically.

Higher food prices also affect political stability. A latest study has showed a close association

between higher food prices and political instability in the Middle East and North Africa (MENA)

region (see Figure 3). Riots and protests are likely when the FAOs Food Price Index crosses a

threshold of 210 (Lagi, Bertrand, & Bar-Yam, 2011). The study warns that protests may reflect

not only long-standing political failings of governments, but also the sudden desperate straits of

vulnerable populations.

5The speed and extent of transmission of global food prices to domestic level depends primarily on exchange rate,

supply costs, and trade policies. Undervalued exchange rate means more spending to import food items. Increase

in supply costs (due to production shocks, poor infrastructure and transit facilities, and blockade and strike along

major transportation routes) increase cost of food items in the product market. Restrictive trade policies (high

tariff and non tariff barriers) increase final cost of food items.


8/46


Figure 3: Food prices and political instability

Source: (Lagi, Bertrand, & Bar-Yam, 2011, p. 3). The chart shows time dependence of FAO

Food Price Index between January 2004 and May 2011. The red dashed vertical lines correspond

to beginning dates of food riots" and protests associated with the major recent unrest in MENA.

The figures in parentheses show death toll initially linked to food riots. The inset shows FAO

Food Price Index from 1990 to 2011.


9/46


3. High food prices and its impact on South Asia

When compared to the US and the EU, South Asia was relatively less affected by the global

financial crisis. But, the region was not so lucky during the global economic crisis and the global

rise in food and fuel prices. Following the liberalization of markets over the past two decades,domestic prices in South Asian countries are connected to international prices to some extent.

For net food deficit countries, it has meant an increase of food imports in total food supply,

opening up a channel for international food prices volatility to be reflected in domestic markets.

After the decline in food prices following a spike in 2008, they have been surging again in all

South Asian countries since last year. It is not only impacting macroeconomic stability,

particularly increasing food imports, widening trade deficit, and increasing general prices, but

also pushing millions of people below the poverty line. Food prices have been rapidly increasing

in most of the countries following a convergence of its growth rates in 2003. In the recent period,

food price inflation in Pakistan, followed by Nepal, is the highest in South Asia. Apart from

adversely affecting poverty reduction efforts in the region, rising food prices also slow down the

progress being made in achieving the Millennium Development Goals (MDGs).

3.1.Food prices in South Asia

All the countries in South Asia have seen rise in food prices following the two episodes (2007/08

and 2010/11) of global food price spike. However, the extent of rise in food prices due to global

food price spike is different across South Asia. For instance, landlocked countries have faced

higher, sticky and volatile prices than coastal areas. Meanwhile, food prices have been varying

within country itself as they are stable in areas with good supply chains, but high in remote areas.

This implies that policy responses should primarily be country-specific. Additionally, within

countries different categories of households are affected differently, i.e. the households in the

lower income deciles are the most affected. Transfers and public works intervention to address

food insecurity have to take this into account to eschew leakage and enhance efficiency.

To show how prices of basic food items are rising, let us focus on two of the major food crops

rice and wheatconsumed in South Asia. Figure 4 and Figure 5 depict retail prices of wheat and

rice in one major city of each South Asian country (except for Maldives for which data is not

available).


10/46


Retail price of rice increased in all countries during mid-2008. It cooled off a little bit but is still

high and rising. Overall, retail price of rice is highest in Pakistan. It is followed by Sri Lanka,

India, Nepal, Bhutan, and Bangladesh. Recently, retail price of rice in Bhutan is rising rapidly

even though it still has lower price than in Bangladesh.

The price of rice is picking up since the beginning of this year. As of July 2011, retail price of a

kilo of rice was USD 0.59, USD 0.52, USD 0.51, USD 0.49, USD 0.47 and USD 0.44 in

Pakistan, Sri Lanka, India, Nepal, Bhutan and Bangladesh, respectively. In July 2008, the figures

were USD 0.74, USD 0.58, USD 0.47, USD 0.54, USD 0.35, and USD 0.50 in Pakistan, Sri

Lanka, India, Nepal, Bhutan and Bangladesh, respectively.

Figure 4: Retail price of rice (USD per kg)

Source: GIEWS Food Price Data and Analysis Tool

Meanwhile, retail price of wheat also spiked in mid-2008 and then cooled off a bit before rising

again. As of July 2011, Sri Lanka has the highest retail price of wheat, followed by Afghanistan,

Nepal, Bhutan, Pakistan, Bangladesh and India. Sri Lanka and Nepal are seeing a rapid rise in

retail price of wheat. As of July 2011, retail price of a kilo of wheat was USD 0.78, USD 0.52,

USD 0.51, USD 0.43, USD 0.38, USD 0.38, USD 0.34 and USD 0.34 in Sri Lanka, Afghanistan,


11/46


Nepal, Bhutan, Pakistan, Bangladesh and India, respectively. In July 2008 the figures were USD

0.69, USD 0.68, USD 0.43, USD 0.35, USD 0.41, USD 0.55, and USD 0.30 in Sri Lanka,

Afghanistan, Nepal, Bhutan, Pakistan, Bangladesh and India respectively, respectively.

Figure 5: Retail price of wheat (USD per kg)

Source: GIEWS Food Price Data and Analysis Tool

Overall, food prices of almost all items have increased in all South Asian countries.

3.2.High food prices and poverty

Higher food prices and volatility without a corresponding increase in purchasing power reduce

savings and increase vulnerability. For poor households that are barely able to meet householdfood demand, higher food prices mean a shortfall in income required to bridge income poverty

gapthus automatically falling below the poverty line. This scenario of falling below the

poverty line due to high food prices is likely for households that spend a substantial portion of

their income on satisfying household food demand. And, South Asia is particularly vulnerable

because estimates show that an average person in Bangladesh, Nepal, Pakistan and Sri Lanka


12/46


spends, respectively, 56.05 percent, 57.88 percent, 46.99 percent and 63.55 percent of his/her

total expenditure on food.6

The recent rise in food prices has in fact already showed up in poverty estimates. A recent ADB

study estimates that a 10 percent increase in food prices will increase the number of poor people(in millions) living below US$1.25-a-day by 3.8, 0.01, 22.8, 6.7, 0.6, 3.5, and 0.2 in Bangladesh,

Bhutan, rural India, urban India, Nepal, Pakistan, and Sri Lanka, respectively (ADB, 2011).

Increase in food prices have the most impact on poverty in rural India, followed by Pakistan and

Bangladesh.

Figure 6: Change in percentage of poor (in percentage points) with an increase in food prices by

10%, 20% and 30%

Source: (ADB, 2011)

6Estimates by Economic Research Service, using the 1996 ICP data, United States Department of Agriculture

(USDA).

0

1

2

3

4

5

6

7

8

9Change in percentage of poor (in percentage points) with an increase in food

prices by

10%

20%

30%


13/46


Figure 7: Change in number of poor (in millions) with an increase in food prices by 10%, 20%and 30%

Source: (ADB, 2011)

3.3.High food prices and inflation

Since food items are major component of the basket of goods used for calculating consumerprice index (CPI), rise in food prices gets visibly reflected on CPI. Higher food prices have been

dragging up inflation in all South Asian countries. As depicted in Figure 8, countries having

higher growth in food prices have higher inflation rate. For instance, Sri Lanka had the highest

FPI growth in 2007 and this was reflected in high CPI growth. In 2009, FPI growth moderated,

which is also reflected in lower CPI growth. In 2010, Pakistan had the highest inflation rate in

South Asia. It also had the second highest FPI growth in the same year.

10%

20%

30%0

10

20

30

40

50

60

70

Change in number of poor (in millions) with an increase in food prices by


14/46


Figure 8: Inflation and food prices in South Asia

Source: Data sourced from ADBs Key Indicators for Asia and the Pacific 2010

Due to concern over higher food prices dragging up general prices, South Asian governments

have been forced to cut back on planned expenditure. For instance, Indian Finance Minister

Pranab Mukherjee recently said that higher inflation will have an impact on economic growth as

planned investment is withheld for fear of overheating the economy.7 Meantime, the Indian

central bank raised interest rate for eleven times since 2010.8

Except India, all South Asian countries have deficit food production. It means they need to fulfil

domestic shortfall in food production by imports. For fiscally challenged low-income countries,

this might be a problem because either they have to seek external funding or risk widening fiscal

7'Pranab Mukherjee: Rising inflation is impacting growth'

http://www.ndtv.com/video/player/news/pranab-mukherjee-rising-inflation-is-impacting-growth/1871328'Indias RBI May Hold Rates on Factory Output Data, Centrum Says'

http://mobile.bloomberg.com/news/2011-09-12/india-s-rbi-may-hold-rates-on-factory-output-data-centrum-says


15/46


deficit, which will lead to complications in managing budget for other development activities.

Generally, the practice has been to seek external assistance, especially during emergencies. For

instance, due to long precipitation deficit and localized floods, Afghanistan is going to face acute

food shortage and financing difficulties, which require donors to step in to provide emergency

supplies. Some donors have already stepped up food aid and subsidies in Afghanistan (see

Appendix B, Figure B.1). Similarly, in Nepal the World Food Programme (WFP) financed

100,000 tonnes of rice import to supply to the most acute food deficit districts.

3.4.High food prices and hunger and undernourishment

Food insecurity and price instability affect hunger and malnutrition. Though the state of hunger

in South Asia has improved when compared to the level in 1990, it is still high. According to the

Global Hunger Index 20109, hunger in Bangladesh and India has improved from extremely

alarming to alarming, and in Pakistan and Sri Lanka from alarming to serious. The state

of hunger in Nepal, however, has remained the same: alarming. Overall, hunger in South Asia

is alarming and worse than in Sub-Saharan Africa (see Table 1).

Table 1: State of hunger in South Asia

Country 1990 2010

Bangladesh Extremely alarming Alarming

India Extremely alarming Alarming

Nepal Alarming Alarming

Pakistan Alarming Serious

Sri Lanka Alarming Serious

Source: (Von Grebmer, et al., 2010)

The above hunger scenario is derived from estimates and indexing of indicators such as

proportion of undernourished, prevalence of underweight in child under five years, and mortality

9International Food Policy Research Institute. 2010. Global Hunger Index 2010. www.ifpri.org/publication/2010-

global-hunger-index-background-facts- and-key-findings


16/46


rate of those below five years of age. While these estimates give a sense of the gravity of hunger,

a direct survey of the people in each country sheds further light on what people feel about the

depth of hunger and food insecurity. A useful source for this is the 2010 Gallup World Poll,

which shows that a large proportion of the population in South Asia feel that they are facing

hunger and food insecurity (see Figure 9). In South Asia, Sri Lankans feel that they face higher

food insecurity (39 percent of population), followed by Pakistanis and Afghans (both 38 percent

of population). Furthermore, more Afghans (33 percent of population), followed by Pakistanis

(22 percent), feel that they are facing hunger than citizens of other South Asian countries.

Interestingly, the proportion of Nepalis reporting food insecurity (18 percent) and hunger (10

percent) is the lowest in South Asia. According to the latest government data, 38 out of 75

districts are facing food deficit production.

Figure 9: Self-reported food insecurity & hunger in South Asia

Source: Gallup poll (face-to-face interview) data compiled from (Headey, 2011, pp. 52-62)10

10Headey doubts the severity of food crisis as outlined in multiple reports and literature and argues that the

negative impacts of higher food prices in 2007-08 was more than compensated by high economic growth (and

insufficient coverage of China and India on such studies). Headey estimates that global self-reported food

insecurity fell during 2005 and 2008, with 60 million to 250 million fewer food-insecure people. The main reasons

are rapid economic growth and very limited food price inflation in the worlds most populous countries,

particularly China and India.


17/46


Higher food prices also affect nourishment intake by households. When low income households

face difficulties in meeting food demand, they usually resort to consuming goods that fill up their

stomach, which means the priority is on keeping stomach full and averting hunger rather than

consuming the minimum required calories and nutrients to be reasonably healthy. This is

particularly true of children and has lasting impact on their physical and cognitive growth.

Table 2: Undernourished in South Asia (% of population)

Proportion of undernourished

in total population (%)

Country 1990-92 2004-06

Bangladesh 36 26

India 24 22

Nepal 21 16

Pakistan 22 23

Sri Lanka 27 21

Source: (Von Grebmer, et al., 2010)

With an estimated 504 million people below the poverty line of US$ 1.25 a day in South Asia11

in 2010 (Wan & Sebastian, 2011), undernourishment12

is a major concern when food prices

spiral up. Almost 26 percent of the population in Bangladesh is undernourished. The figures

(percent of the population that is undernourished) for India, Nepal, Pakistan and Sri Lanka are

22, 16, 23, and 21, respectively (see Table 2). Similarly, a large proportion of children under

five years are underweight. It is as high as 43.5 percent in India and as low as 21.1 percent in Sri

Lanka. Ensuring reliable, adequate and nutritious food is essential to address malnutrition in the

region. Hunger and undernourishment have long-term economic implications as they reduce

peoples capacity to work efficiently and fight against diseases by undermining the immune

system.

11Excluding Afghanistan

12The FAO estimated that the 2007/08 spike in global food prices increased the number of undernourished people

from 850 million in 2007 to 1.23 billion in 2009. Though there is no dispute that high food prices have increased

malnourishment, the FAOs numbers are disputed on the grounds that the analysis did not account for the low

transmission of higher global prices in the most protected markets of developing countries and the gains arising

from high prices of non-cereals, which are a crucial part of the livelihood of many people in developing countries

(HLPE, 2011, p. 11).


18/46



19/46


4. Food production and price outlook for South Asia

4.1.Short term outlook

Afghanistan is expected to experience the most food insecurity due to unfavourable weather

(long precipitation deficit and localized floods). The 2011 wheat harvest in Afghanistan isestimated at 4 million tonnes, about half a million tonnes lower than the previous years output.13

Grains and rice production are expected to change. The FAO predicts that food insecurity this

year in general remains high in the drought-affected areas in the north, northeast and west.

Overall, food prices are expected to remain high.

Figure 10: Cereal production in Afghanistan (million tonnes)

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates for 2010; Forecast

for 2011

In Bangladesh, which is the third largest food producer in South Asia, paddy harvest is expected

to hit record level. This years harvest of Boro paddy is estimated at a record level of about 19

million tonnes, approximately 1.6 percent higher than last years bumper output, thanks to

adequate irrigation supplies coupled with distribution of subsidized fertilizer, quality seeds, and

13The government estimate for wheat output in 2011 is 3.26 million tonnes, about 28 percent lower than the

previous year. See FAOs Afghanistan brief of August 2011 at

http://www.fao.org/giews/countrybrief/country.jsp?code=AFG

0

1

2

3

4

5

6

2009 2010 2011

Cereal production in Afghanistan (million tonnes)

Wheat Coarse grains Rice (paddy)
http://www.fao.org/giews/countrybrief/country.jsp?code=AFGhttp://www.fao.org/giews/countrybrief/country.jsp?code=AFGhttp://www.fao.org/giews/countrybrief/country.jsp?code=AFG


20/46


electricity power and diesel for irrigation.14 The cereal production in 2010 was recorded at 52.2

million tonne, which is expected to increase by one million tonnes this year. Wheat and grains

production are expected to increase marginally in 2011. Prices are expected to decline

moderately.

Figure 11: Cereal production in Bangladesh (million tonnes)


for 2011

In Bhutan, the total cereal production estimated at 185 000 tonnes (including paddy) for 2011,

following the drought in 2009, is expected to increase domestic supply and lower food imports.15

Prices are expected to be stable.

In India, this years wheat harvest is estimated to be 84.3 million tonnes, about four percent

above the last years record production. The current wheat stocks are estimated to be19 million

tonnes, far greater than the official target of 8.2 million tonnes. 16 Wheat prices have come down

and rice prices are stabilizing in India. Grains output is expected to reach a record 41.4 million

tonnes in 2011. Similarly, rice production is expected to increase by almost 9 million tonnes,

reaching 150 million tonnes. Total cereals production is expected to increase by 5.2 percent

between 2010 and 2011.

14See FAO Bangladesh country update for August 2011.

http://www.fao.org/giews/countrybrief/country.jsp?code=BGD; Note that total rice production this year is

estimated to be 50.3 million tonnes in Bangladesh.15

See FAO Bhutan country update for August 2011.http://www.fao.org/giews/countrybrief/country.jsp?code=BTN16

See FAO India country update for August 2011.http://www.fao.org/giews/countrybrief/country.jsp?code=IND
http://www.fao.org/giews/countrybrief/country.jsp?code=BGDhttp://www.fao.org/giews/countrybrief/country.jsp?code=BGDhttp://www.fao.org/giews/countrybrief/country.jsp?code=BTNhttp://www.fao.org/giews/countrybrief/country.jsp?code=BTNhttp://www.fao.org/giews/countrybrief/country.jsp?code=BTNhttp://www.fao.org/giews/countrybrief/country.jsp?code=INDhttp://www.fao.org/giews/countrybrief/country.jsp?code=INDhttp://www.fao.org/giews/countrybrief/country.jsp?code=INDhttp://www.fao.org/giews/countrybrief/country.jsp?code=INDhttp://www.fao.org/giews/countrybrief/country.jsp?code=BTNhttp://www.fao.org/giews/countrybrief/country.jsp?code=BGD


21/46


Figure 12: Cereal production in India (million tonnes)


for 2011

Currently, India produces the lions share of total South Asian food production. In 2009, its

production was three times higher than the total production by other South Asian countries

combined (see Figure 13). India is the worlds second biggest producer of wheat, sugar and rice

and has a sizable surplus, which is beyond the limit set by the government, in domestic stock.

Figure 13: Total food production in South Asia (million MT)


22/46


Source: Authors computation using FAOSTAT database (Total food production is equal to the

sum of total production of cereals, citrus fruit, coarse grain, fibre crops primary, fruit excl

melons, jute & jute-like fibers, oilcake equivalent, oil crops primary, pulses, roots and tubers,

treenuts, and vegetables & melons); Note: In the chart above, India is represented on right y-axis

and others on left y-axis.

In Maldives, most of the food demand is met by imports. Current imports of wheat and rice are

steady at about 45,000 tonnes per annum.17 Changes in global food prices are readily reflected in

domestic food prices in Maldives. It is also particularly vulnerable to the vagaries of climate

change and rising sea level.

In Nepal, wheat harvest this year is estimated to be 1.6 million tonnes. Grains and rice

production in 2011 are expected to be 2.4 million tonnes and 4.5 million tonnes, the same level

recorded in 2010. Total cereal production is expected to increase by 1.2 percent between 2010

and 2011. Food price inflation is expected to be higher than non-food price inflation.18

Figure 14: Cereal production in Nepal (million tonnes)


for 2011

17See FAO Maldives country update for August.

2011.http://www.fao.org/giews/countrybrief/country.jsp?code=MDV18

See FAO Nepal country update for August 2011.http://www.fao.org/giews/countrybrief/country.jsp?code=NPL

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2009 2010 2011

Cereal production in Nepal (million tonnes)

Wheat Coarse grains Rice (paddy)
http://www.fao.org/giews/countrybrief/country.jsp?code=MDVhttp://www.fao.org/giews/countrybrief/country.jsp?code=MDVhttp://www.fao.org/giews/countrybrief/country.jsp?code=MDVhttp://www.fao.org/giews/countrybrief/country.jsp?code=NPLhttp://www.fao.org/giews/countrybrief/country.jsp?code=NPLhttp://www.fao.org/giews/countrybrief/country.jsp?code=NPLhttp://www.fao.org/giews/countrybrief/country.jsp?code=NPLhttp://www.fao.org/giews/countrybrief/country.jsp?code=MDV


23/46


In Pakistan, despite problems following the devastating floods in 2010 and in September this

year, the 2011 winter wheat harvest has been estimated at a near record level of 24 million

tonnes (an increase of 0.7 million tonnes over output in 2010 but the same as in 2009). This

years grains and rice output are expected to remain unchanged at 2.4 million tonnes and 4.5

million tonnes, respectively. Domestic wheat prices have come down and rice prices are

stabilizing in recent months.19

Pakistan is the second largest wheat producer in South Asia.

Figure 15: Cereal production in Pakistan (million tonnes)


for 2011

In Sri Lanka, the aggregate annual 2011 output of paddy is expected to be lower than in 2010

due to the impact of floods.20 Though food prices are expected to decline a bit, they still will

remain at high level.

India and Pakistan are major wheat producers while India and Bangladesh are major rice

producers in South Asia. Overall, favourable weather, enhanced supply of inputs, and high

domestic/international prices are expected to boost production this year in India, Pakistan, Nepal

and Bangladesh (FAO, June 2011b). Afghanistan is going to see a decline in total cereal output

by 8.5 percent between 2010 and 2011.

Figure 16: Total cereal production in South Asia (million tonnes)

19http://www.fao.org/giews/countrybrief/country.jsp?code=PAK

20http://www.fao.org/giews/countrybrief/country.jsp?code=LKA
http://www.fao.org/giews/countrybrief/country.jsp?code=PAKhttp://www.fao.org/giews/countrybrief/country.jsp?code=PAKhttp://www.fao.org/giews/countrybrief/country.jsp?code=PAKhttp://www.fao.org/giews/countrybrief/country.jsp?code=LKAhttp://www.fao.org/giews/countrybrief/country.jsp?code=LKAhttp://www.fao.org/giews/countrybrief/country.jsp?code=LKAhttp://www.fao.org/giews/countrybrief/country.jsp?code=LKAhttp://www.fao.org/giews/countrybrief/country.jsp?code=PAK


24/46



for 2011 (Total cereal production is the sum of total wheat, coarse grains and rice production)

4.2.Long term outlook

By 2020, in India, domestic user prices of paddy rice, wheat and maize are expected to increase

by 48.7 percent, 26.7 percent and 43.7 percent, respectively. The corresponding figures for

South Asia sans India are 32 percent, 24.5 percent, and 36.6 percent (Willenbockel, June 2011).

With an increase in total factor productivity growth by 50 percent (due to increased R&D,

accelerated international technology and knowledge transfer and measures to raise yields in

small holder agriculture), by 2020 domestic user prices of paddy rice, wheat and maize in India

are expected to increase by 36.2 percent, 17.9 percent, and 33.7 percent respectively. The

corresponding figures for the rest of South Asia are 23.2 percent, 16 percent and 27.7 percent

respectively. Overall, food prices are expected to remain high globally in the near future

(Helbling & Roache, 2011).

0

50

100

150

200

250

300

Afghanistan Bangladesh India Nepal Pakistan

Total cereal production in South Asia (million tonnes)

2009 2010 2011


25/46


5. Major causes of high food prices

The level of food prices in South Asia are not mutually exclusive of the changes in food prices at

the global level. The prices reflect both global and domestic trends in output, supply-side

constraints, and trade and exchange rate policies. Clearly, the rapid rise in food prices in SouthAsia is following the global rise in food prises, which have been surging upward globally despite

an increase in total production. Some of the factors that have been pushing food prices to spiral

upward are discussed below:

Weather related supply shocks in major food producing countries. In South Asia, the

flooding in Pakistan in 2010 submerged a large swath of land (almost one-fifth of total

area) and destroyed crops.21

This year as well Pakistan is seeing heavy flooding and has

about 4.2 million acres of land submerged in water since late August (Reuters, 2011).

Similarly, Bangladesh was battered by cyclone and heavy rains, which affected food

production. Afghanistan is facing long precipitation deficit and localized floods. These

events have triggered negative supply shocks in South Asia. Globally, weather related

events have affected output in Russia, Canada, the US, Australia, China, Argentina and

Kazakhstan, among other major food producers. All of these have amplified supply

shocks and pushed up prices.

Demand shocks in almost all the countries. Though total production has increased in most

cases, productivity growth has not kept pace with rising population growth, leading to

increased demand of food items. The world population is expected to reach 9 billion in

2050. The total South Asian population is projected to reach 1.9 billion in 2025 and 2.3

billion in 2050.22 It will further increase demand and prices if production and productivity

growth do not match population growth. Meanwhile, the added demand for food from the

emerging middle class in the developing countries will put more pressure on food prices

as they consume more meat and fish products, which require even more basic food items

to produce (Foresight, 2011). The World Bank estimates that the demand for food will

21The devastating flood in 2010 made 11 million homeless and damaged irrigation systems, bridges, houses and

roads. The estimated total cost of the damage is around US$11 billion (Reuters, 2011).22

Computed from the US Census Bureaus mid-year population projection.

http://www.census.gov/ipc/www/idb/region.php


26/46


rise by 50 percent by 2030, thanks to rising population, rising affluence, and a shift in

dietary consumption by the middle class.

Distorting farm subsidies, especially in the US, in favour of biofuel. Biofuel demand was

widely seen as one of the factors behind the soaring food prices in 200708 and it

continues to be seen as a major factor behind the current high food price spree. In 2010,

the production of corn-based ethanol absorbed about 15 percent of global corn production

(Helbling & Roache, 2011). The increase in biofuel demand in the US and the EU created

a demand shock and pushed up food prices, which were also reflected in food prices in

South Asia.

Trade distortions such as export restrictions have also heightened anxiety among net food

importing countries, leading to a situation where everyone is pre-emptively purchasing

food from the international market and stocking them up. This led to a sudden increase in

demand, created hysteria, and pushed up food prices. Moreover, depletion of inventory

added fuel to fire and sent food prices up in the interim period, i.e. until the inventories

were replenished. Protectionist trade policies were observed recently when food prices

skyrocketed. The World Bank economists have estimated that restrictions on rice exports

explained almost 40 percent of the increase in global rice price in 200708 (Martin &

Anderson, 1-2 October 2010).

Though speculation of food commodities itself is not a direct cause of skyrocketing of

food prices, excessive speculation may have magnified the impact of real food demand

and price shocks. Since speculators follow market trends, they might have aggravated the

volatility of food prices, but not directly caused food prices to spiral upwards in the first

place. It might have had a second round effect after the first round of production and

price shocks. There is still no clear evidence on if speculation in the futures market

triggered higher food prices (HLPE, 2011, p. 10). Meanwhile, a latest study by World

Development Movement (WDM) squarely blames the financial markets23 for excessive

23 The WDM report argues that financial speculators now account for more than 60 percent of some

agricultural futures and options markets. It was 12 percent a decade-and-a-half years ago. Farmers and those

having direct commercial interests hold just 40 percent of the market, leading to a situation where agricultural

markets are not responding to the underlying fundamentals of demand for and supply of food commodities. The

incentives for real producers of food are waning. The report also notes that total assets of financial speculators

have increased to US$126 billion this year from US$ 65 billion in 2006.


27/46


speculation, and distorting and undermining the effective functioning of agricultural

markets (Worthy, 2011). One thing that is definite is that there was dramatic increase in

the volume of non-commercial transactions on derivates market and it contributed to

pushing up prices or forced countries to adopt restrictive policies to ensure supplies for

their own population.

Increase in fuel costs due to conflict in the Middle East and North Africa (MENA)

increased transportation costs of food grains, leading to higher prices in the product

market.


28/46


6. Addressing the impact of high food prices

The population of South Asia is projected hit 2.3 billion by 2050. The world population is

expected to be around 9 billion by 2050. It means an increase in demand for food items both at

the regional as well as global levels. Given the structural change in demand for food items (suchas dietary shift to more meat based products and crop-based biofuel) in several emerging and

developed countries, the existing high prices might remain sticky at higher level unless the

increase in demand is matched by structural increase in supply. Unfortunately, it seems unlikely

at least in the short run (Helbling & Roache, 2011).

Hence, South Asian countries need to look for multiple optionsfrom emergency measures to

reforming the agriculture sector to increasing agriculture production and productivityto

address the impact of high food prices. Productivity growth (crop produced per hectare) has to

outstrip demand growth in the long run and supply growth has to respond to higher pricesboth

of which will help ease pressure on food market. Since the worlds population growth is growing

at just over one percent a year, staple yields will have to rise by at least 1.5 percent a year (to

also allow for an increase in demand for animal feeds) (The Economist, 2011).

Also, not only production and productivity will have to increase, the accessibility of food items

in remote and food deficit places will also have to be improved. At times, even when there is

surplus at national level, some districts or provinces within the country might face short supply

of food, leading to higher prices. For instance, even though Nepal is expected to have food

surplus in fiscal year 2011/12, the WFP argues that there still are 1.3 million people facing food

deficit due to lack of accessibility. Without accessibility, particularly good distribution system,

people wont be able to purchase food even if they are monetarily able to, leading to widespread

hunger in remote areas. Amartya Sen, in his famous bookPoverty and Famines: An Essay on

Entitlement and Deprivation, argues that lack of adequate food distribution system is one of the

reasons why we see famine even when total food production is higher during famine years whencompared to non-famine years (Sen, Poverty and Famines: An Essay on Entitlement and

Deprivation, 1983).

To address the impact of higher food prices various country-specific short run and long run

measures could be undertaken both at the national as well as regional level. The exact nature of


29/46


intervention measures should depend on the severity of food crisis, food accessibility and food

availability. During crises, recovery (price, production, and supply stabilization) should be the

first priority. It should be followed by reform of the whole agriculture sector and distribution

systems keeping in mind the changing global, national and local food and market dynamics.24

Safety nets are one of the most important and effective measures to fend off the disastrous

impact of higher food prices and food insecurity at the household level.

6.1. National level

At the national level, the first priority should always be recovery, which can be attained by

implementing a range of interventions such as emergency food aid, well-targeted safety nets,

subsidized food, and effective market supervision to reduce speculation and artificial rise in

prices. When countries face a sudden rise in food prices, they should release supplies from

national stock to satisfy either surge in demand or shortfall in supply. If this is not adequate, then

countries should import food from abroad or seek immediate food assistance in case of

emergency. The emergency release of supplies from small and strategically located food reserves

helps to cool down local rise in food prices. Furthermore, reducing tariff on food imports could

also help bring down domestic food prices, especially in a country whose food imports constitute

a major component of import basket. Duty-free import policy for rice, wheat, pulses, edible oils,

and raw sugar has already been implemented by a number of South Asia countries. Meanwhile,

stocking up reserves when the market is seeing high food prices is not a smart move as it will

further fuel an increase in prices.

The countries should also monitor price fluctuation in local markets because in some cases rise

in food prices have little to do with production and market fundamentals and more to do with

market imperfections arising from the disconnect between farms and markets. For instance, one

of the reasons for high and volatile local food prices in Nepal is the market manipulation by

middlemen or agents, who purchase goods at a lower price from farmers and then sell it toretailers at higher price. In effect, the agents are distorting price in the market and are acting as

both monopsony and monopoly in factor and product markets, respectively (Sapkota, Food

24This follows the Keynesian prescription similar to the one when a country faces severe slump in economic

activities. The usual prescription is recovery first and then followed by reform, not the other way round, given that

there is comfortable fiscal space to implement both type of interventions (Davidson, 2009).


30/46


Security in Nepal, 2011a). In a recent incident, farmers from Saphai village in Janakpur district

of Nepal went on a strike demanding markets for their produce and punish those middlemen

creating artificial shortage of chemical fertilizers, seeds and pesticides.25

A well-targeted safety nets programme26

should also be launched to reduce the stress poorhouseholds face during food crises. Both conditional and unconditional safety net programmes

are launched by several countries during the global economic and food crises. But, rather than

simply transferring money to people, conditional transfers are preferred by most governments

and donors. Conditional transfers are usually in the form of food assistance in return for local

level work that can include work to increase agriculture production or to build local

infrastructure. For instance, an evaluation of Ethiopias Productive Safety Nets Programme

(PSNP) by Devereux and Sabates-Wheeler shows that food transfers or cash plus food

packages are more effective than cash transfers alone as it leads to higher income growth,

livestock accumulation and food security (Sabates-Wheeler & Devereux, 2010). PNSP combines

both transfers and public works components of social protection intervention.

Following the high food prices in 2008, 23 countries implemented cash transfer programmes, 19

countries introduced food assistance programmes, and 16 countries took measures to boost

disposable income of households (FAO, 2009). These kinds of social protection interventions are

being implemented at national level in South Asia countries as well. For instance, in India the

provision of highly subsidised rice or wheat distribution programme especially for the below-

poverty line families under the National Food Security Act has been scaled up. The entitlement

under this programme is 25 kg of rice or wheat per month per family at INR 3 per kg.

Bangladesh extended its work-for-food programme in response to damages caused by natural

disasters and rise in food prices (David, Grosh, & Hoddinott, 2003). Similarly, to address child

malnutrition during times of high food prices, Bangladesh and India launched school feeding

programmes. Through NREGA, the Indian government is addressing unemployment and food

insecurity in rural areas by providing 100 days of guaranteed work to each adult member of a

household at the prevailing unskilled wage rate (see Box 2 for more on safety net programmes,

25See Farmers of Prezs native village take to the streets. Republica, September 12, 2011;

http://myrepublica.com/portal/index.php?action=news_details&news_id=3589326

On the request of the FAOs Committee on Food Security, HLPE will be bringing out a report on social protection

in October 2012.


31/46


including NREGA). Recently, the National Planning Commission of Nepal floated a proposal to

implement guaranteed rural works program that will be similar to NREGA.27

In the long term, agriculture reform aimed at increasing production and productivity and also to

address volatile food prices should be the priority. This will help address the structural issuesplaguing agriculture sector. While building up national food buffer stocks is counterproductive

when food prices are high in the short term, it can nevertheless be a smart move in the long term.

Enough stock at designated and strategic locations will help tame down food price speculation in

the long term. Additionally, agriculture sector should get adequate attention and investment both

public and private investment. While private investment in agriculture sector is understandably

very low due to high degree of uncertainty, it is surprising that public expenditure is decreasing.

The government should investment more in building infrastructures such as road and irrigation to

link farms with markets and to supply farms with adequate water, respectively. A potentially

sustainable approach to promote investment and increase production is public private

partnership, which is virtually unheard of in many countries in South Asia.

Reforms also have to be enacted so that repeated bouts of food price surges are better fended off

at the national and local levels. To meet rising food demand and to reduce pressure on food

prices, the South Asian countries need to shift to more intensive agriculture, particularly in

regions where productivity is low today. However, it needs to be done by considering long-term

environmental and economic sustainability.28 Importantly, the South Asian countries need Green

Revolution 2.0replicating the Green Revolution of 1970s in India and Pakistanbut with

more focus on environment and economic sustainability.

6.2. Regional level

At the regional level, the first priority should also be recovery and then reform. An important

step towards recovery from high food prices in the region is to have easily accessible regional

food reserves. Realizing the urgency to address high food price and food insecurity through

regional cooperation after the food crisis of 20072008, South Asian leaders, during the 15th

27For the range of social protection and socioeconomic security measures taken by the Nepalese government, see

(Koehler, 2001)28

'World Food Supply: Whats To Be Done?'

http://green.blogs.nytimes.com/2011/06/10/world-food-supply-whats-to-be-

done/?scp=2&sq=mozambique&st=cse


32/46


Summit of the South Asian Association of Regional Cooperation (SAARC) held in Colombo,

agreed to expedite the operationlization of the SAARC Food Bank, which is expected to serve as

a regional food reserve for SAARC member countries during food shortages and emergencies.

The Food Banks reserve of food grains has been raised from 241,580 metric tons (MT) to

486,000 MT. But the SAARC Food Bank is yet to become fully functional. If properly designed

and implemented, it could help relieve pressure on some countries facing urgent food shortages.

The region should have enough food in stock to avert speculative price spikes. Having a

minimum level of regional and world stocks is a sufficient condition to avert price spikes (HLPE,

2011).

Regarding trade policy, none of the countries should neither impose embargo on food exports

nor slap high exports tariff to trade within South Asia. Encouragingly, despite imposing ban on

rice and wheat exports, India made an exception on exports to Nepal and Bangladesh during the

latest crisis. Meanwhile, SAARC members should also trim their respective sensitive lists so

that at least the major agriculture goods that are consumed in high proportion in the region are

traded freely at a very low cost. Average applied tariff on agriculture goods is still higher than in

trade of other goods in the region (Sapkota, 2011b).

Reducing high food prices and volatility and minimizing its impact also calls forth long term

reform measures in the region. One of such measures is increasing trade policy coordination so

that food price volatility is reduced during crisis. Another measure could be efforts to address

structural issues so that the region is better prepared to fend off increased global food price

volatility. It means, among other measures, building required infrastructure that would help

increase agriculture production and productivity, and also reduce cost of doing business both

within and across borders. Collaboration on agriculture R&D will also be immensely helpful.

Agriculturally successful nationssuch as India and Pakistanshould share their experiences

with other countries in the region. If best practices in these countries can be customized in the

context of other countries, then it will do a lot to achieve national food security to some extent.

6.3. Global level

At the global level, emergency food aid has to be always readied for supply to low-income food-

deficit countries, especially those that cannot finance food imports when prices skyrocket. The


33/46


industrialized countries should also increase agriculture aid and help to finance targeted safety

nets. Protectionist policies should be avoided at least in the trade of crucial agricultural goods.

The advanced countries with vibrant financial markets should better regulate commodity

derivatives, which have been partially blamed for amplifying high food prices. Meanwhile,

distorting policies such as those related to crop-based ethanol production and processing should

be avoided. Moreover, the developed countries need to avoid agriculture subsidies and

protection, or at least scale it down, so that farmers in low-income countries are incentivized to

produce agriculture goods.


34/46


7. Conclusion

The global rise in food prices has affected impacted domestic food prices in South Asia. The

low-income net food importing countries have been particularly hit hard, leading to fiscal strain

and some macroeconomic imbalance. High food prices have affected inflation, hunger andmalnutrition, and poverty and might have reversed the gains made in achieving some of the

MDGs. Food prices are expected to stabilize, though at high level, in major food producing

countries such as India and Pakistan in the short term. Other countries are expected to see high

and volatile food prices in the short term despite increase in total production. In the long term,

food prices are expected to remain at high level. To fend off the negative consequences of rising

food prices, South Asian countries have launched a number of measures ranging from stabilizing

agriculture market prices to smoothening supply to implementing social safety nets. In the long

term, they challenge is to increase investment in agriculture with a view to increase production

and productivity keeping in mind environment sustainability. For this to happen South Asian

countries need to launch initiatives at the domestic level as well as seek greater cooperation in

the region.


35/46


BOX 2: High food prices and safety nets

Safety net programmes are a part of social protection agenda. They aim to address risks,

vulnerability and social exclusion faced by certain section of the population. Safety nets assist

households in building a short term shield against external shocks that affect their ability tofinance household needs and sustain livelihood options. It also helps to ease liquidity constraints

faced by poor households, boost demand for local agriculture goods, encourage entrepreneurial

activities and create multiplier effects in the local economy (Devreaux, Sabates, & Guethner,

2008). Amidst rising food prices, well designed social protection programmes prevent an

increase in poverty and inequality, and help households maintain access to food and essential

healthcare and education.

Safety nets come in a range of forms and purposes: conditional or unconditional transfers, food

vouchers, food-for-work programmes, employment guarantee, and school feeding programmes,

among others. Conditional cash transfersuch as the hugely popular and successful

Opportunidades of Mexicocomes with conditions such as ensuring regular enrolment of

children in schools and checkups in local healthcare centres or clinics. Unconditional transfers

include social pensions, child support grants and family allowances. Food vouchers are given to

specific households so that they can use it to get subsidized food grains from specific markets or

government run shops.

Indias National Rural Employment Guarantee Act (NREGA) is a safety net intervention that

guarantees 100 days of employment per year at the prevailing unskilled wage rate29

to an adult

member of each rural household. Due to special focus on gender, female employment in NREGA

is about 48 percent of total employment, which is above the 40 percent mandated by the

programme. In 2010/11, NREGA provided employment to approximately 55 million households.

Approximately 30.6 percent and 20.8 percent of the total employed were from scheduled castes

(SCs) and scheduled tribes (STs). Despite the massive scale and reach of the program, it costsapproximately 0.7 percent of GDP.30

29This year it has been adjusted to inflation and revised up to Rs 120 a day. Earlier, it was Rs 100 a day.

30Authors estimate based on data on programme cost data from NREGA website and GDP figure from union

budget.


36/46


The above-mentioned examples are social protection measures related to transfers and public

works. Generally, countries choose one or the other to implement such programmes in a specific

area or to target certain section of population. A strict public works program that does not

contain direct unconditional transfer might bypass those people (such as disabled and elderly)

who need protection but are unable to engage in public works. In such situation, a combination

of public works and direct transfers might be hugely relevant. South Asian countries need to

explore this option as well, especially in those areas where a majority of youth have migrated

abroad for employment.31

The Ethiopian Productive Safety Net Programme (PSNP) is a good example of this approach.

Targeting chronically food insecure households in famine-prone areas, Ethiopia launched PSNP

in 2005 and included both transfers and public works components in the same program. It has

been successful in meeting its food security and other social objectives (Lieuw-Kie-Song,

2011).32

PSNP covers labour-constrained households by the safety net (transfer) program, which

public works program that uses labour from each household cannot cover. Furthermore, it also

employs non labour-constrained households in public works that focus on natural resource

rehabilitation and maintaining rural infrastructure, which transfer programs cannot do. Labour-

constrained households (due to sickness, maternity, household size, disability, old-age, or death)

can switch partially or fully to the direct unconditional transfer component of the program. This

switch can be either permanent or temporary depending on the nature of the constraint faced by

households.

Safety nets are crucial dampening the impact of high food prices on poverty and hunger.

Evidence shows that vulnerable household and children receiving social transfers tend to be

relatively better nourished (Samson, Van Niekerk, & Mac Quene, 2006). Additionally, if a safety

net programme compensates, by providing cash in return for public work, farmers the loss of

entitlements due to natural calamities such as droughts and floods, then it does a lot to boost the

affected households command on food, significantly lowering probability of occurrence of

31This is even more important when remittance inflows start declining, which happened during the global

economic crisis in 2009. Remittance inflows to South Asian countries have stabilized lately.32

PSNP has approximately 8 million beneficiaries from around 1.5 million households. So far, the cost of the

program is 1.2 percent of Ethiopias GDP. It provides transfers (15 kilos of cereal per household member per month

for six months a year) to food insecure households. For households that are required to work, which is guaranteed,

to get this transfer must work for five days to receive the transfer for one person.


37/46


hunger and famines (Sen, Food and Freedom, 1987, p. 13). In fact, Amartya Sen attributes

Indias success in eliminating famines post-independence to such programmes that compensate

for the loss of entitlements. For people to avoid hunger, it is necessary that they have physical,

economic and social access to food.

----------


38/46


8. Appendix A

Some of the measures taken by South Asian countries to tame high food prices and its impact on

economy and households are listed below.

Afghanistan

70,000 tonnes of grain reserve released from buffer food grain stock and 200,000 tonnes

of grain were imported

Input subsides were given (financed by donors)

Safety net programme: Food support targeted at vulnerable population (financed by

donors)

Bangladesh

In July 2010 it imported 400,000 tonnes of wheat to stabilize market prices.

In February 2011 food grains were sold by Bangladeshi government to subsidize prices to

300,000 most vulnerable civil servants.

VAT reduction in edible oil

120,000 tonnes of rice imported during the first quarter of 2011

Rice and sugar export banned

Subsidies on input and credit

Safety net programmes: Food-for-work programme launched; rationing of up to one

million tonnes of rice (procured through imports)

India

During May-July 2010 more than 3 million tonnes of food grain was distributed by

government to targeted poor families, with an additional 457,000 tonnes of food grain,

182,000 tonnes of rice and 274,000 tonnes of wheat distributed to above-poverty-line

families.

In March 2011 additional storage capacity of food grain was created in rural areas by

implementing measures such as subsidies, storehouses, and financial support to private

sector investment.


39/46


In April 2011 the government intervened in the market and procured wheat by increasing

price by 4.5 percent (purchase price of IRs 11.7 per tonne) to support farmers incomes

following a bumper harvest in 2010. Meanwhile, wheat was released from buffer stock.

As of February 2011, wheat and rice reserves stood at 19.4 million tonnes and 27.8

million tonnes respectively.

Export ban on rice imposed since 2008 and wheat since 2007; quota on sugar export and

export ban on onion lifted but imposed a minimum export price.

Subsidized inputs

Safety net programmes: School feeding programme

Nepal

100,000 tonnes of rice import planned with financial support from WFP

Release of 30,000 tonnes of rice planned for food-deficit mid- and far-western regions

Subsidized food items at fair price shops

Pakistan

In August 2010 planned exports of two million tonnes of wheat was suspended following

summer floods. Increase in food reserves due to good harvest.

In December 2010 private sector was granted export licenses for one million tonnes of

wheat.

In February 2011 wheat procurement target for the year was set at 6.5 million tonnes,

with a minimum support price of USD 11 per 40 kg in expectation of a bumper crop.

Duty-free import of sugar and continuity to tax exemption on sugar

Ban on onion export to India (wheat export ban removed in December 2010)

Subsidized food sold through state-owned stores and wheat price was controlled.

Sri Lanka

Reduced import duties for milk powder

Imported chicken, eggs, onions and coconut to add to the reserve during the last three

months of 2011

Non-targeted subsidies through Cooperative Seasonal Price Control for Festivities


40/46


[Source: Compiled from (FAO, June 2011b) and (ADB, 2011)]


41/46


9. Appendix B: South Asian food import and aid

Figure B.2: Actual cereal imports (in thousand tonnes) in 2009/10 or 2011

Figure B.2: Estimated cereals imports (in thousand tonnes) in 2010/11 or 2011

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates based on

information as of mid-May 2011

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Actual cereals imports ('000 tonnes) in 2009/10 or 2011

Commerical purchases Food aid Total commercial and aid

0

1000

2000

3000

4000

5000Estimated cereals import ('000 tonnes) in 2010/11 or 2011

Total import requirements (excl. re-exports) Total commercial and aid

Food aid allocated, committed or shipped Commercial purchases


42/46


10.Appendix C: Intra regional trade in South Asia

Table C.1: Intra regional trade

Intra regional (SAARC) exports and imports

Year SA

exports/World

exports

SA

imports/World

imports

SA agri

exports/World

agri exports

SA agri

imports/World

agri imports

2003 6.52 4.63 15.44 14.13

2004 6.04 3.35 13.26 10.33

2005 6.34 3.03 13.94 12.02

2006 5.70 2.99 14.59 15.02

2007 5.87 3.18 13.49 13.35

2008 6.68 2.23 14.38 11.29

2009 5.62 2.46 12.78 8.53

Source: Authors computation using UN COMTRADE database (HS 2000 classification);

Agriculture products include chapters 1-23.

Table C.2: Intra regional exports of agriculture commodities

Intra regional (SAARC) exports (percent of region's

export to world)

Year Animal &

animal

products

Vegetable

products

Food stuff

2003 2.76 19.01 21.80

2004 3.15 16.04 16.38

2005 3.78 17.52 14.95

2006 4.25 14.87 26.41

2007 3.98 16.04 17.33

2008 4.32 15.95 16.46

2009 4.73 13.92 17.20


43/46



Animal & animal products (Chapters 1-5), vegetable products (Chapters 6-15), food stuff

(Chapters 16-23)

Table C.3: Intra regional imports of agriculture commodities

Intra regional (SAARC) imports (percent of region's

export to world)

Year Animal &

animal

products

Vegetable

products

Food stuff

2003 15.41 12.00 32.54

2004 12.05 9.59 14.28

2005 20.83 11.67 11.30

2006 19.68 10.98 33.64

2007 16.77 10.82 35.73

2008 21.22 7.86 37.29

2009 22.18 6.67 15.61


Animal & animal products (Chapters 1-5), vegetable products (Chapters 6-15), food stuff(Chapters 16-23)


44/46


11.Appendix D: Food budget

Table D.1: Food budget shares in South Asia

Food budget shares

Country Beverages,

tobacco

Breads,

cereals

Meat Fish Dairy Fats,

oils

Fruits,

vegetables

Other

foods

Total Food

Expenditure

Percent of total food expenditures % of total

expenditures

Bangladesh 4.12 50.17 4.38 9.21 3.21 3.88 9.58 15.46 56.05

Nepal 9.79 57.61 3.29 0.63 5.36 4.33 14.58 4.41 57.88

Pakistan 4.38 21.20 7.68 0.71 26.84 10.06 17.32 11.80 46.99

Sri Lanka 14.93 21.81 1.78 12.45 6.67 1.44 26.42 14.51 63.55

Source: USDA, Economic Research Service, using the 1996 ICP data. From the ERS report

Cross-Price Elasticities of Demand Across 114 Countries (TB-1925).


45/46


Bibliography

ADB. (2011). Global Food Price Inflation and Developing Asia. Mandaluyong City, Philippines: Asian

Development Bank.

David, C., Grosh, M. E., & Hoddinott, J. (2003). Targeting of Transfers in Developing Countries: Review of

Lessons and Experience. Washington, D.C.: World Bank.

Davidson, P. (2009). The Keynes Solution: The Path to Global Economic Prosperity. New York: Palgrave

Macmillan.

Devreaux, S., Sabates, R., & Guethner, B. (2008). Linking Social Protection and Support to Small Farmer

Development. Rome: Food and Agriculture Organization.

FAO. (2009). Country responses to the Food Security Crisis: Nature and Preliminary Implications of the

Policies Pursued. Rome: Food and Agriculture Organization.

FAO. (June 2011a). Crop Prospects and Food Situation. Rome: Food and Agriculture Organization.

FAO. (June 2011b). Food Outlook Global Market Analysis. Rome: Food and Agriculture Organization.

Foresight. (2011). Executive Summary: The Future of Food and Farming . London: The Government Office

for Science.

Headey, D. (2011). Was the Global Food Crisis Really a Crisis? Simulations versus Self-reporting. IFPRI

Discussion Paper 01087, 1-67.

Helbling, T., & Roache, S. (2011, March). Rising Price on the Menu: Higher Food Prices May be Here to

Stay. Finance & Development, pp. 24-27.

HLPE. (2011). Price Volatility and Food Security: A Report by the High Level Panel of Experts on Food

Security and Nutrition of the Committee on World Food Security. Rome: Food and Agriculture

Organization.

IFAD. (2011). Soaring Food Prices and the Rural Poor: Feedback From the Field. Retrieved August 29,

2011, from International Fund for Agricultural Development :

http://www.ifad.org/operations/food/food.htm

Ivanic, M., Martin, W., & Zaman, H. (2011). Estimating the Short-run Poverty Impacts of the 2010-2011

Surge in Food Prices. World Bank Policy Research Working Paper 5633 .

Koehler, G. (2001, August). Social Protection and Socioeconoimc Security in Nepal. IDS Working Paper

No. 370 (CPS Workign Paper no. 001) , 1-20.

Lagi, M., Bertrand, K. Z., & Bar-Yam, Y. (2011, August 11). The Food Crises and Political Instability in

North Africa and the Middle East. Retrieved August 26, 2011, from Cornell University Library

(arXiv:1108.2455v1 [physics.soc-ph]): http://arxiv.org/pdf/1108.2455v1


46/46


Lieuw-Kie-Song, M. (2011). Integrating Public Works and Cash Transfers in Ethiopia: Implications for

Social Protection, Employment and Decent Work. IPC-IG Working Paper No.84 , Brazil.

Martin, W., & Anderson, K. (1-2 October 2010). Trade Distortions and Food Price Surges. World Bank-UC

Berkeley Conference on Agriculture and Development-Revisited. Washington, DC: World Bank.

Reuters. (2011, September 10). Pakistan floods test cash-strapped government. Retrieved September

13, 2011, from DAWN: http://www.dawn.com/2011/09/12/pakistan-floods-test-cash-strapped-

government.html

Sabates-Wheeler, R., & Devereux, S. (2010). Cash Transfers and High Food Prices: Explaining Outcomes

on Ethiopia's Productive Safety Net Programme. Future Agricultrue Workign Paper 004 , 1-19.

Samson, M., Van Niekerk, I., & Mac Quene, K. (2006). Designing and Implementing Social Transfer

Programmes. Cape Town: Economic Policy Research Institute.

Sapkota, C. (2011b, Vol.1, No.7). Food Insecurity: Can Trade Address It? Trade Insight, pp. 20-24.

Sapkota, C. (2011a, February 22). Food Security in Nepal. Republica , p. 7.

Sen, A. K. (1987). Food and Freedom. Sir John Crawford Memorial Lecture (pp. 1-25). Washington, D.C.:

The World Bank.

Sen, A. K. (1983). Poverty and Famines: An Essay on Entitlement and Deprivation. New York: Oxford

University Press.

The Economist. (2011).A Speical Report on Feeding the World. London: The Economist.

Von Grebmer, K., Ruel, M. T., Menon, P., Nestorova, B., Olofinbiyi, T., Fritschel, H., et al. (2010). GlobalHunger Index 2010: The Challenge of Hunger. Washington, D.C.: International Food Policy Research

Institute (IFPRI).

Wan, G., & Sebastian, I. (2011). Poverty in Asia and the Pacific: An Update.ADB Economics Working

Paper No. 267, 1-40.

Willenbockel, D. (June 2011). Exploring Food Price Scenarios Towards 2030 With A Global Multi-region

Model. London: Institute for Development Studies and Oxfam.

Worthy, M. (2011). Broken Markets: How Financial Market Regulation Can Help Prevent Another Global

Food Crisis. London: World Development Movement.

Documents

High Food Prices in South Asia_2011-09-27