A recent Asian Development Bank report entitled “Food Prices and Inflation in Developing Asia: Is Poverty Reduction Coming to an End? Manila, April, 2008” offers a rich and insightful perspective on the emerging food crisis. As the analysis is based on 10 countries — including India — the findings have considerable merit and relevance for mitigating the potential hardships to low income households in both rural and urban areas in India and elsewhere.

Rising food prices have played an important role in the acceleration of inflation across Asia and the Pacific region during 2007, and especially during the early months of 2008. Not only is the food price inflation the most regressive of all taxes, it could also lead to lower growth and accentuation of income inequality.

Global cereal prices have spiked in recent months. Rice prices rose steadily until late 2007, with a marked acceleration in the fourth quarter of 2007 and the first quarter of 2008. Wheat prices also surged but not as much as rice prices. As rice is the basic staple of over 2 billion Asians and wheat of an additional billion, their transmission to domestic prices could cause the reversal of policy reforms, social unrest and deepening of poverty. A related issue is the sharp geographical divide in the production and consumption of wheat and rice in Asia — north and west for wheat and south and east for rice. While wheat production is global, rice is overwhelmingly (over 90 per cent) produced and consumed in monsoon Asia. As a consequence, rice exports are confined to a few countries, and the global market is “thin”. This underlies greater volatility of rice prices to trade restrictions and changes in supply.

... contd.