Friday, 18 April 2008!
HandWritten on; 16:18
Action to meet Asian rice crisis
Chinese prime minister Wen Jiabao said food inflation was the country's most "prominent" economic problem and urged efforts to boost grain output.
Food prices in China have risen more than 20% so far this year.
Manila, meanwhile, has banned all future conversion of farmland for uses other than agricultural production.
Social unrest
There have been warnings of dire economic consequences for developing countries across Asia and increased social unrest in wealthier nations should food prices continue to rise at their current rate.
The wholesale price of rice, a staple product for more than 2.5 billion people across the continent, has more than doubled in the past three months, while global supplies have fallen to a thirty-year low.
Against this backdrop, the UN's World Food Programme has said it will cost an extra $160m (£81m) a year to feed Asia's poorest people.
Reacting to the spiral in food prices, the Chinese Premier acknowledged that food costs were "high" and said controlling prices should be a priority for the government.
However, he announced no specific measures to increase farm output, instead reminding administrative regions of the need to follow government directives on the economy.
The Philippine government, on the other hand, is acting to protect farmland by indefinitely ring-fencing it for agricultural use.
Agriculture Secretary Nasser Pangandaman said the move would stop the "unabated" transformation of farmland into residential property developments.
The Philippines is struggling to grow enough rice to provide for its 90 million strong population and is heavily reliant on exports from Thailand and Vietnam.
Ministers recently pledged to spend $1bn to become self-sufficient in rice by 2010.
Source:
http://news.bbc.co.uk/2/hi/business/7352038.stmAnalysis:
We have observed a sharp rise in prices of staple food in Asian region. This is a result of both a fall in quantity supply in this region as well as a rapid rising demand for it.
First, the demand factor can be attributed to the recent rise of oil price. The oil price has hit up above US$100. The rising cost of using oil as fuel drives people to find alternative energy resources. It is proven that ethanol can be a cheaper substitute when made from wheat at current price. Thus, large amount of wheat was exported and used for ethanol production instead of entering food supply market.
Second, the recent natural hazard in Thailand has led to sharp decrease in rice supply. The shortage in supply also drives price of rice in neighboring countries up.
As there is no data showing the impact on equilibrium quantity consumed, we cannot determine whether demand factor or supply factor affects the price shift to a great extent.
However, the trend of rising demand comes before natural hazards happened in food-producing countries. The prices of staple food started to rise before those hazards came as seen in high inflation rate in Asian region last year. Thus, we can partially conclude this is a demand-driven inflation. The supply shortage only worsens the situation.
Facing the same food crisis, Chinese government decided to implement price control policies whereas Philippine government decided to increase productions.
Normally, a price control policy such as a price ceiling will cause a loss in total social welfare, however, China has sufficient food reserve, and the unreasonable rise in food price can be viewed as an externality. Price control policies thus become one possible way of creasing the price bubble.
For Philippine’s case, as a rice-importing country, Philippine’s rice supply mainly comes from Thailand. The natural hazard in Thailand will cut its root of supply. Thus, increase domestic rice production has to be done to solve the problems in long term.
Li Jing
